INTRODUCTION

VISION AND CHARACTER

LET ME INTRODUCE the great ideas in finance presented in this book by focusing on the author of them.

Virtue is a word that tends to embarrass us today. Perhaps we have lost a bit of the easy confidence that permitted earlier ages to believe in a fixed universe of good and evil. We are now very sensitive to the fact that in a diverse society we may not agree on the characteristics that constitute virtue, and today we may be on guard lest we be thought to impose our own contestable views of goodness on others who don't share them.

Yet in introducing the collected speeches of John Clifton Bogle I can start with no word other than virtuous to describe the author of these pieces, even if that word seems quaint to our ear. For John Bogle's life reflects such a deep commitment to the concepts of duty, honor, candor, diligence, and service to others that the most complete summarization of the man is to say that he is a man of high virtue. In an age that sometimes seems to have tried to raise gratification of the self to the status of a virtue, his life reminds us that the value of a life is measured by how one affects the lives of others, not by either celebrity or by balance sheet.

The power to affect the welfare of others positively is the aspect of business that gives it nobility. Bill Gates—arguably our most successful businessman—is, I suggest, not a great man because he is worth an astronomical sum. On that, I trust, we would all agree. If he is great, it is because, along with a team of others, he has done a great deal to bring the benefits of computers to millions of American homes. And in doing so has empowered others to achieve their various goals. His efforts have improved human welfare. The world is a noticeably better place because of his efforts.

Jack Bogle is a great businessman because he has changed the world in a way that confers huge benefits upon countless citizens, allowing them to better achieve their goals. He envisioned a firm that would be different from all those that had gone before and indeed is different still in a fundamental way. He worked with his team—his crew—to build that business into a great enterprise. He is a great man because of the content of his vision and the impact it has had on others.

Vanguard is not simply a successful company. It is an idea of service which, while not selfless, is deeply committed to fairness and the delivery of value. It is a cliché for business to be committed to delivery of value to customers in order to deliver value to shareholders. But in the mutual fund business at any rate, the best evidence suggested to Jack Bogle that an unconscionable share of value was being sidetracked from investors by excess costs. Of course neither Jack Bogle nor those who worked with him wear sackcloth. In creating a successful enterprise, Jack and his team created value that compensated them for their efforts. But his vision was from the beginning radically inconsistent with maximizing returns for the managers of the fund. The public was the principal beneficiary of his vision.

During decades in which average mutual funds charged fees of 150 basis points or considerably more, Vanguard's structure allowed it to offer comparable—actually superior—service for far less than a quarter as much. Today Vanguard manages about $500 billion in retirement and other savings. Thus, this year it will return some $4 billion more to its investors than they would have had if Jack Bogle had not had the vision to build this enterprise. But this estimated number underestimates Vanguard's annual impact upon the savings and retirement portfolio of Americans. There is every reason to suppose that, had Vanguard never been founded, the average costs of management of mutual funds would remain as high as they were in 1970. Considering that the existence of the Vanguard philosophy has forced other funds to reduce their fees and costs materially, it would be difficult indeed to estimate how many billions of dollars of savings go into the retirement savings of working men and women across this country today as a result of Mr. Bogle's vision.

An interesting fact about this unique enterprise is that it reflects an academic theory. When Jack Bogle encountered the efficient market hypothesis, he understood it and its implications quickly and intuitively.

His years of pupilage with Walter Morgan in Philadelphia had trained him to understand that in the long term it would be exceedingly difficult for any investment adviser to produce substantial excess returns over the returns of the market itself. Thus his famously successful business plan was simply to reduce costs and diversify risks. He applied theory to practice, inventing the index mutual fund as a commercial alternative to savings. The idea of course is simple, not fancy; in that it reflects the character of the man. For Vanguard's founder is, like his company, world class in performance and straightforward and unaffected in manner.

Perhaps these characteristics were inculcated in the young man at the Blair Academy or at Princeton University. Perhaps he learned them at the side of his older brother and his twin brother, who is now gone. Certainly the idea of fair sharing and of duty to another are concepts that brothers share. Almost certainly the boys learned at home the characteristics that shine in the man today. Strength of character, belief in candor rather than artifice, in substance rather than in form, and in performance not promises.

Jack Bogle's life has not been without its moments of drama and tension and not without its keen and painful losses. The story of Vanguard's founding is an arresting business drama in which, at the beginning at least, the outcome did not seem foreordained. But Vanguard's rise to eminence in the world of finance attests to the soundness of its principles. The speeches that are collected in this volume capture in vivid outline the core concepts of Jack's vision and inevitably disclose as well the outstanding character of the man. That these two elements—vision and character—are inextricably linked is possibly the most fundamental and basic lesson that Jack Bogle's career teaches those of us interested in finance and investing.