Vanguard’s Jack Bogle helped create the American mutual fund industry. Now, in the climactic battle of his life, he’s railing against it — and trying to revolutionize it once and for all.Jack Bogle could be on a beach somewhere. The 80-year-old founder of mutual fund giant the Vanguard Group could be with his wife, Eve, soaking up the sun at a Caribbean resort and enjoying the fruits of a lifetime of hard work with a frothy drink in one hand and a bottle of sunscreen in the other. In fact, he could own that resort, probably a whole chain of them, and still have enough left over to exceed the annual gross domestic product of many small countries.
Jack Bogle could’ve been a billionaire — but that’s not who Jack Bogle is.
Who Bogle is is the fellow who still shows up to work every day in his modest offices in Malvern, Pa . He’s the guy who flies coach, books the cheapest hotel room available (even if it’s a “broom closet,” says one confidante), drives an 8-yearold Volvo with 140,000 miles on it and debates with his wife about whether to finally use the L.L. Bean coupons they’ve been saving up.
In short, in an age of eye-popping Wall Street bonuses and swashbuckling hedge fund managers who pay themselves in the billions, Jack Bogle is both a throwback and a curiosity. And he wouldn’t have it any other way.
“I never wanted to run a big company,” says Bogle, founder and former chairman of the firm that heads up $1.3 trillion in assets, recently surpassing Fidelity as the biggest player in the industry. “I’m not a businessman, I’m not an entrepreneur, I’m not a manager. I’m not sure what I am. Maybe a missionary.”
Bogle certainly does a lot of preaching — not least in his many books, like The Little Book of Common Sense Investing and Enough: True Measures of Money, Business, and Life. He’s an evangelist for average mom-and-pop American investors who quietly put money away in their 401(k)s or IRAs or kids’ college funds and pin their retirement hopes on the quaint belief that their money will be well managed and grow over time.
In a perfect world, maybe. But as the recent financial meltdown revealed — during which the Dow Jones industrial a verage sank like a stone from 14,000 to almost 6,500 before bouncing back again — we don’t live in a perfect world. Investor returns are hampered by everything from high mutual fund fees to corporate shenanigans (like Enron’s and WorldCom’s) to executive salaries that can reach into the tens of millions of dollars a year to a Byzantine financial system whose excesses almost led to a total economic collapse.
That’s why Bogle has become fed up with the industry he helped create. He regards its sins, like excessive fees and gaudy compensation, as if someone were stealing money from his own pocket. Or, even worse, from the pockets of shareholders. He’s had enough, and at 80, he’s not about to mince words. It’s not the kind of stuff that well-heeled executives want to hear.
“Investors right now are at the very bottom of the food chain,” Bogle says from his office couch, from which he’s leaning over a coffee table adorned with such financial classics as Graham & Dodd’s Security Analysis. “Money managers and CEOs all take their cut first, maximizing their share of the pie. What good does it do to make any money if it never goes to shareholders?”
This kind of talk makes industry types very, very nervous. After all, it’s not coming from a controversial firebrand like Michael Moore but from the highly regarded dean of the industry. It’s from someone who walks the walk: Because of the way Bogle structured Vanguard, as a firm owned collectively by its shareholders, profits don’t go to him personally but back to investors in the form of lower fees.
“He could’ve been a billionaire, like the Fidelity folks,” says Mel Lindauer, a self-professed ‘Boglehead’ in Daytona Beach Shores, Fla., and co-author of The Bogleheads’ Guide to Investing. “[Fidelity’s] Abigail Johnson and her family are worth billions. With Jack, those billions have gone to investors, and that’s why he’s considered by many as a true American hero.”
Others, though, consider him a pariah for his saber-rattling views. He sees the financial system as essentially broken, with corporate managers primarily interested in enriching themselves and with little regulatory or shareholder oversight to contain the rampant greed. And he just won’t shut up about it. “I don’t think anything I do shocks anyone anymore,” he says. “In this industry, I have people’s respect — but not their approval. A lot of them won’t even make eye contact with me.”
Not content with merely appearing on CNBC or writing newspaper op-eds, Bogle is taking the battle against his own industry to the Supreme Court. In the landmark case Jones v. Harris Associates, investors in three Oakmark mutual funds sued the adviser for skimming off what they viewed as excessive fees. While the case was initially dismissed , the number of dissenting judges in the appeal — including famed conservative justice Richard Posner — led the Supreme Court to snap up the case for review.
Filing a brief to the court on behalf of the aggrieved investors: none other than Jack Bogle. Bogle wrote that the case revolves around the simple question of whether “an investment adviser to captive mutual funds may simply take as much compensation as it can get, with no regard for the interests of fund shareholders.”