A Hearty Henderson Salute to John Bogle
By David Henderson
As is probably well-known by now, John Bogle, the man who started Vanguard Financial, died on Wednesday. He helped save millions of people like me thousands of dollars in fees. His basic insight was that it’s hard to beat the market and so the best idea is to have a broad portfolio of stocks that roughly matches the overall stock market. That means that you don’t have to hire high-priced stock pickers and you can pass the savings on to the investor. Much of my wife’s and my IRA savings are in the Vanguard Total Market Index and we are charged approximately 0.10 percent each year for Vanguard to manage our accounts. Some companies that hire stock pickers charge 1 percent or more. That difference over time doesn’t add up; it compounds up.
I wrote the Wall Street Journal article a few years ago on Eugene Fama of the University of Chicago sharing the Nobel Prize in economics, I somehow had the idea that Bogle got his idea from Fama. I wrote:
One high-profile beneficiary of Mr. Fama’s insight was John Bogle, who started the Vanguard 500 Index Fund in the 1970s. His idea was to have a fund indexed to the overall market and save the costs of hiring experts to predict stock prices. He shared Mr. Fama’s skepticism about golden stock-pickers. The result is that over the past four decades millions of investors who buy index funds from Vanguard and its competitors have saved hundreds of billions of dollars by not paying for dubious investment advice.
Wrong! A couple of days later, the Wall Street Journal published his letter in which he disabused me of my view:
David Henderson’s “A Nobel for the Random Walk of Stock Prices”(op-ed, Oct. 15) describes me as “one high-profile beneficiary of Mr. Fama’s insight,” allegedly inspiring my founding of the Vanguard 500 Index Fund in 1975.
This is untrue. Perhaps to my shame, I didn’t even learn of Eugene Fama’s “efficient market hypothesis” (EMH) until a decade after my creation of the 500 Index Fund. Rather, I was inspired by another Nobel laureate, economist Paul Samuelson, who in his 1974 essay in the Journal of Portfolio Management demanded “brute evidence” that active money managers could beat the market index. Such evidence has yet to be produced.
So I owned up. On the Wall Street Journal site, I wrote:
Thanks for your correction, Mr. Bogle. My apologies for misrepresenting the source of your thinking. Also, thanks for setting up the fund. In my retirement investments, I’ve been a big beneficiary.
And then I got a bonus. In an email later that month titled “Your mea culpa,” he wrote:
Belatedly–unlike your prompt response to WSJ!–I offer a hearty and sincere Bogle salute to a man who makes an error (but an understandable one), and then stands tall in acknowledging it, sans hedge clauses, excuses, or defenses. You did just what I hope I’d do under similar circumstances . . . but I’m not sure that I’d measure up to your high standard! Thanks for you candor–and for your character.
Interestingly, The Economist made precisely the same “Fama error,” and has agreed to publish my letter setting the record straight. Should be in this week’s newspaper (as they call it). These things are never sure, so I’ve got my fingers crossed.
Best wishes and good luck in all that you undertake.