A couple weeks ago, the world lost John Bogle, the founder of Vanguard. For the unaware, Vanguard is the largest provider of mutual funds in the world and the second largest money manager when measured by assets under management.
But Bogle built Vanguard in an unusual way. To explain, let’s contemplate an unrelated industry for a moment.
In the energy industry, many investors focus their attention on the new shiny thing. They want to be involved in renewables, shale, battery technology and the like, all of which are exciting.
But from my perspective, the most exciting thing about the energy industry has been the massive efficiency gains. A 2019 Chevrolet Suburban has better fuel efficiency than a Ford Taurus from 1989. That’s an incredible leap in efficiency. If we get a similar gain in the next 30 years, and can keep fuel prices low, the transition to clean energy might be slower than anticipated.
Similarly, if you think about how to beat the market over the long term, you have 2 options:
You can outsmart other investors by timing the market and/or coming up with new and esoteric ideas.
Or you can aim for efficiency gains by spending less and saving more. (one of Bogle’s famous lines: “In investing, you get what you don’t pay for.”)
Bogle did the latter. He cut out brokers (and their massive fees) and sold funds directly to investors. And he sold these at cost so investors could keep more of their returns. And as a result of those lower fees, Vanguard funds outperformed the majority of asset managers.
And, of course, Bogle got extremely wealthy along the way, though not as wealthy as you might think. While the head of Fidelity is worth an estimated $7.4 billion, Bogle died with $80 million. And I think that’s because Bogle was more focused on his mission and less influenced by ego and greed.