10 Questions for John Bogle

[Bylo Selhi]

10 Questions for John Bogle [TIME, 04Sep05]

He is a hero to investors and a royal pain to money managers. Thirty years ago, John Bogle founded the Vanguard Group and invented the index fund--a low-cost option that revolutionized investing. At 76, he's still an iconoclast, most recently in The Battle for the Soul of Capitalism, which is coming out this fall...

e.g.
Q. YOU'RE A DIE-HARD INDEXER, BUT YOUR SON RUNS AN ACTIVELY MANAGED FUND. WHAT'S THANKSGIVING LIKE?
A. It's not a problem. Over a 50-year period, about 4% of all managers will beat the market. If you think I'm going to tell you it's impossible for my son to be in that 4%, you don't know me very well.

[treetops]

Neat guy. You're fortunate to have met him, Bylo.

IF YOU COULD GIVE ALL THE NATION'S INVESTORS ONE BOOK TO READ, WHAT WOULD IT BE?

I did my best to provide that book in Bogle on Mutual Funds. I'd say, if you're really a basic investor, Bill Schultheis's The Coffeehouse Investor. And if you're more sophisticated, I'd certainly do Burton Malkiel's A Random Walk Down Wall Street.

ps have the Diehards reunions continued in the last few years?

P

[Brix]

I rather liked this response, in its way as trenchant as Keynes', "In the long run, gentlemen, we're all dead":

IF THIS IS A CYCLE [and we happen to be in a period of increased corruption and oligarchy], WON'T THE SYSTEM CORRECT ITSELF?

I got a group of fund managers together to talk about these issues, and one of the guys said, "Wait a minute, Jack. I understand what you're saying, but these things come and go. Why don't we just let Adam Smith's invisible hand take care of it?" I looked at him and said, "For God's sake, don't you know that we are Adam Smith's invisible hand?"

[Bylo Selhi]

Neat guy. You're fortunate to have met him, Bylo.

Twice. He's even more down-to-earth and engaging in person than in the media. A truly decent gentleman. It's a pity that he's the pariah of his industry rather than its conscience. Imagine what an industry it might be with Bogle at the moral helm. Those of us who invest in low-cost index funds/ETFs, especially from Vanguard, owe him a great debt.

have the Diehards reunions continued in the last few years?

ISTR they had one last year although now I can't recall where. The one before that was in Chicago (where he predicted that some of the scandaleers would go to jail long before anyone else thought that a possibility) and Vanguard HQ the year before that (where he personally conducted the corporate tour, greeting each of us personally at the door and insisting that we call him Jack.) With the publication of his new book I'll have to go to the next meeting in order to get my copy autographed

[George$]

With the publication of his new book I'll have to go to the next meeting in order to get my copy autographed

And thanks to Bylo, my copy of "John Bogle on Investing" is inscribed by Bogle ...

To George XXXX

With special thanks for your confidence in me ... and in Vanguard.

John C Bogle

December 4, 2000

My thanks to Bylo in that due to a family emergency I was Bylo's stand-in for his invitation by Bogle to a conference here in Toronto on that day. I treasure this meeting and our brief chat - as well as an earlier personal letter he sent me dated October 18, 1995. A real fine humam being.

[George$]

Bylo's post mentions Bogle's new book
The Battle For the Soul of Capitalism


Here are some short quotes from it courtesy of Taylor Larimor at Vanguard Diehards
Bogle quotes

"Our traditional gatekeepers--corporate directors, auditors, the financial community, and regulators and legislators--failed to protect the owners against overreaching managers."

"The change from traditional owners' capitalism to the new managers' capitalism is at the heart of what went wrong in corporate America."

"During 1997-2002 alone, the total revenues paid by investors to investment banking and brokerage firms exceeded $1 trillion."

"The scandals that were initially publicized in the press were but a small tip of the giant iceberg that represents the enormous price paid by investors as the industry moved away from stewardship -- to salesmanship."

"Through the miracle of compounding, those who owned stocks in 1982, and still hold them today, had multiplied their capital more than 16 times."

"The past is history, the future's a mystery."

"Since the crash, some 1,570 publicly owned firms have restated their earlier (inaccurate) financial statements."


etc etc

[Brix]

Through the miracle of compounding, those who owned stocks in 1982, and still hold them today, had multiplied their capital more than 16 times.

The miracle of compounding has worked wondrously differently for those who owned Japanese stocks in 1982 and still hold them today. (PDF chart)

[George$]

The miracle of compounding has worked wondrously differently for those who owned Japanese stocks in 1982 and still hold them today. (PDF chart)

Brix:

Interesting chart and a valid message - but one should note that the two scales (for the Nikkei225 and S&P500) have different ratios of min to max - it's a bit "massaged" methinks.

[Small Investor Activist]

John,

Do you think volatility and the general over-valuation of capital markets has been caused by the increased number of index funds chasing the same securities?

Thanks

[Bylo Selhi]

one should note that the two scales (for the Nikkei225 and S&P500) have different ratios of min to max - it's a bit "massaged" methinks.

Also, the Japanese chart stops at 2002 when the Nikkei was ~7,000. It's now almost double that. That's still not even close to being as impressive as the S&P but it is ~3% CAR (at least to those with the fortitude to hang in for almost a quarter of a century )

Of course we can't tell for sure yet, but it seems that both the S&P's and the Nikkei's trough was in 2002, so using that end-date is also a negative bias.

[Brix]

it's a bit "massaged" methinks

I confess to grabbing the first, flawed, cheap-shot reminder that the curve of one's life may not fit certain other curves. Even very big, dynamic economies can run into big problems that are solved over big stretches of time.

Bogle's remark was likely quoted somewhat out of context. I don't think he's among those who are confident that the next 20-25 years will match or surpass the period 1982 to the present.

[Shakespeare]

I don't think he's among those who are confident that the next 20-25 years will match or surpass the period 1982 to the present.

He's made several forecasts that it can't.

[George$]

Bogle's remark was likely quoted somewhat out of context. I don't think he's among those who are confident that the next 20-25 years will match or surpass the period 1982 to the present.

Agreed on this. [I simply took a copy/swipe at some of Latimore's quotes.]

I think we all have the tendency to go for simplistic one-liners (like this one?)

[CalgaryGuy]

The miracle of compounding has worked wondrously differently for those who owned Japanese stocks in 1982 and still hold them today.(PDF chart)

I have recently started wondering about this example. It is presented often. For those Canadians who owned japanese stocks your long term results seem to look very different:

from http://makeashorterlink.com/?G3602250C
Nikkei 225 Price Index
Annualised Returns at June 30, 2000 ($CDN)

1 year 14.8%
2 years 20.5%
3 years -0.7%
4 years -3.5%
5 years 0.6%
10 years -0.1%
15 years 8.6%
20 years 10.0%
25 years 11.6%


And thats not bad at all. I understand Japan had deflation but I don't know much about their experience. I also understand that exchange rates track inflation over the long term. Could this explain the difference? If so, on a purchasing power basis Japanese investors did ok and perhaps the real lesson is very long bonds sometimes pay off....Or it might be shoddy data collection on my part.

[Bylo Selhi]

More questions for John Bogle. Acerbic moral compass [Philly Inquirer, 23Oct05]

I'd like to be remembered as an idealist who did his best to give the average investor a fair shake, and not only at Vanguard. I want to make things so clear that the industry will respond. Many years ago, maybe 20 years ago, 25 years ago, someone criticized me by saying the only thing I had going for me was an uncanny ability to recognize the obvious. I have always loved that.

[WishingWealth]

NYT review of: 'The Battle for the Soul of Capitalism,' by John C. Bogle

If anyone still harbors the fantasy that the business scandals of the past few years were the handiwork of just a few bad apples, they should read John C. Bogle's "Battle for the Soul of Capitalism."

Bogle has been a Wall Street insider for 50 years, the founder and long the chief executive of Vanguard in Philadelphia, one of the three or four largest mutual fund management groups in the nation. At Vanguard, he refused to charge the high annual fees that his competitors did. He was also among the first to offer investors index funds, at a time when most mutual fund managers were still claiming they could easily beat the market averages. (Index funds essentially duplicate the market averages, and have typically outperformed most of the pros over time.)

In this book, Bogle abhors what he sees as rampant cheating among his peers - not only mutual fund managers but brokers, bankers, lawyers and accountants. It's not just a few bad apples, he says: "I believe that the barrel itself - the very structure that holds all those apples - is bad."

Consider Jack Grubman. He may have been the best paid of the analysts who made fortunes partly if not largely based on conflicts of interest. But he was not alone.

......

Unfortunately, Bogle is less good at telling us how to fix the problems than he is at telling us what went wrong. He wants to believe that if we put the owners - that is, the shareholders - back in charge, most of the fraud, deceit and greed would dissipate like the morning mist.

Genuine shareholder democracy, he argues, would require chief executives to worry about the long-term health of the company, not the short-term fluctuations of stock prices. They would be far less tempted to manipulate earnings. In particular, if shareholders had appropriate voting power, the abuses associated with executive stock options could be reduced. Because shareholders do not have adequate voting rights, Bogle says, reform continues to be stymied.

But are shareholders inherently more ethical than corporate managers? Did they complain about "short-termism" when stock prices were at their heights in the late 1990's, or only after their stunning fall? Wouldn't they tolerate a little manipulation for a higher stock price?

....

http://www.nytimes.com/2006/01/29/books ... nted=print


Also a few more similar articles in this Sunday's paper.

Ben Stein on the UAL saga:

http://www.nytimes.com/2006/01/29/busin ... nted=print

WW

[Bylo Selhi]

Influences: What shapes the minds that make the news

[Bylo Selhi]

It had to happen. Saint Jack now has his own blog.

Also, his keynote speech from the Vanguard Diehards V reunion in (of all places) Las Vegas: What’s Ahead for Stocks and Bonds—And How to Earn Your Fair Share [PDF]

[If] the road to investment success is hazardous, filled with dangerous turns and giant potholes, never forget that simple arithmetic can enable you to moderate those turns and avoid those potholes. So do your best to minimize your investment expenses and your own emotions, rely on your own common sense, be very careful, and then stay the course.

[George$]

Also, his keynote speech from the Vanguard Diehards V reunion in (of all places) Las Vegas: What’s Ahead for Stocks and Bonds—And How to Earn Your Fair Share [PDF]

And -- the 27 slides that go with What's Ahead for Stocks and Bonds

My way of bumping this thread to the top.

[Bylo Selhi]

Seems Bogle was at Rotman yesterday morning at a "Redesigning the Investment Function" workshop sponsored by International Centre for Pension Management (ICPM). Anyone hear his speech and get a chance to meet him?

(Damn! If only I'd known )

[Small Investor Activist]

My question for John would be, indexing has become so big, many investors are chasing the same stocks in any one index that it can cause distortions in the market as was seen when Google was added to the S&P. Are investment bankers catching on to this trend, could insiders take advantage of that by selling out?

I'd follow up by saying that indexing might be even more effective if the whole world wasn't doing it, perhaps that's why manufacturers are constantly mixing and matching to create new indices.

[yielder]

if the whole world wasn't doing it,

The whole world isn't.





And don't forget Canadian dividend funds, balanced funds, and the bank monthly income funds.

[Bylo Selhi]

The whole world isn't.

Guess you guys didn't see slide 13 of Bogle's presentation that I linked to



Presumably those are US numbers, but in any case, there's hardly any need to panic.

[yielder]

Guess you guys didn't see slide 13 of Bogle's presentation that I linked to

Yep. But I was referring to the Canadian market.

[George$]

Seems Bogle was at Rotman yesterday morning at a "Redesigning the Investment Function" workshop sponsored by International Centre for Pension Management (ICPM). Anyone hear his speech and get a chance to meet him?

(Damn! If only I'd known )

DAMN! DAMN! This is the first I heard of it and Rotman is one block away from where I type.
$@*&%**??@##^^&