On a sunny day in December 1949, junior John Bogle '51 was sitting in the reading room of Firestone Library, rummaging for a thesis topic.
Browsing through the latest edition of Fortune Magazine, he opened to an article that caught his attention.
"Big Money in Boston," on page 116, was about an industry he never knew existed: mutual funds. But when he read that the business was "tiny but contentious," Bogle—a self-described "contrarian" — was instantly hooked.
Jump ahead half a century, and Bogle is still hooked. But largely thanks to him, the industry is now anything but tiny. As founder and former chairman of The Vanguard Group, Inc., the second-largest mutual fund organization in the world, Bogle revolutionized mutual funds.
"If I hadn't opened that article in Fortune Magazine in 1949, I wouldn't be here today," Bogle said.
And investing would not be the same.
For more than 50 years, Bogle has stood at the forefront of the financial community. In 1999, Fortune Magazine dubbed him one of the investment industry's four "Giants of the 20th Century."
In 2004, Time Magazine named him one of the world's 100 most influential people. He has won nine honorary doctorates and the Woodrow Wilson Award, the University's highest honor for undergraduate alumni.
But his greatest achievement is his company. Vanguard, headquartered in Valley Forge, Pa., began operations on May 1, 1975 with 40 employees, 11 mutual funds and managed approximately $1.8 billion in assets.
The company now employs 11,000 people, serves some 18 million shareholder accounts and manages approximately $750 billion in U.S. mutual fund assets. The Vanguard 500 Index Fund — the first of its kind — is now the world's largest mutual fund. And the company introduced a radically different corporate structure, one that serves mutual fund owners by allowing them to essentially own Vanguard Group, which provides — at cost — all the administrative services.
Becoming a tiger
Bogle's "fairy tale" — as he likes to describe it — begins at Princeton.
"I always loved Princeton, but I never thought I would be good enough to get in," he said. "But my wonderful mother — very ambitious for her son — got me a scholarship to the [New Jersey boarding school] Blair Academy and Princeton became possible."
At Princeton, he spent up to 35 hours per week working, first as a waiter, then as a ticket seller at athletic events and eventually as manager of the undergraduate ticket office — all this as he struggled through difficult classes.
"I was a very, very hardworking kid," he said. "I made up in determination and enthusiasm what I lacked in ability."
"Most people think I'm a lot smarter than I am," he added. "I'm convinced I was below average in the Class of 1951 in terms of intelligence."
Although he said he wasn't much of a "joiner," he did join Elm eating club, and had a "wonderful, wonderful" time there. For fun on Saturday nights, he would go with a friend to a tap room and throw darts.
"Not like students today," he chuckled.
Starting a career
Bogle's big break, the work that "started absolutely everything," was his senior thesis.
Taking his cue from the Fortune Magazine article, Bogle delved into the world of mutual funds. And his conclusions guide him to this day.
In the thesis, he called for an "efficient, honest and economical" way of business. He asserted that "mutual funds can make no claim to superiority over the market averages." And he maintained that mutual funds should be opened for popular consumption.
"The investment company has grown up to now by concentrating its sales power on the prospering stratum of the economy," he wrote. "[P]erhaps its future growth can be maximized by concentration on a reduction of sales loads and management fees."
Bogle sent his thesis to Walter Morgan '20, founder of Wellington Management Company. Morgan was impressed enough to offer him a job. Bogle took it and he stayed with Wellington for the next 23 years, becoming president of the company while still in his 30's.
In January 1974, an unwise merger and management disputes led to Bogle losing his job as head of Wellington Management. But due to the structure of the company, he remained chairman of Wellington Funds. By the end of the year, he had succeeded in creating a new firm — Vanguard — out of some of Wellington's assets.
"I left my old job the same way I took my new job," he said. "Fired with enthusiasm."
Lessons from the past
At Vanguard, Bogle was able to put into practice what he learned from his thesis more than 20 years before. The first step was the creation of an index fund, the Vanguard 500 — a new kind of fund that would passively buy into all the stocks of an index, such as the S&P 500, to match overall market performance.
Such a fund also minimizes administrative expenses by reducing trading. In this way, it would "democratize the mutual fund industry," Bogle said.
"I keep on coming back to the equation, gross returns minus cost equals net returns for the investor," he said. "If you reduce cost, you increase net. It's that simple."
"Just about everything I figured out in life is so simple, everyone else ignores it," he added. "It's just common sense."
Economics professor Burton Malkiel GS '64, a friend of Bogle's and a member of Vanguard's board since 1977, gives Bogle more credit.
"Before, the way it worked was that smart people picked the right stocks," he said. "So why buy into a fund that does essentially nothing but buy and hold onto the market? It was anathema to professionals, and it wasn't easy to convince people."
"It's hard to appreciate what a revolution it was to begin an index fund," he added. "Jack Bogle took on the establishment and now the index fund is the largest mutual fund in the world."
Along the way, Malkiel said, the greatest beneficiaries of Bogle's work have been the individual investors.
"Bogle's great accomplishment is the idea that the poor consumer deserves a real shake," he said. "That's not an obvious idea."
"He proved that giving the consumer a good deal, the best deal possible, will also be a recipe for creating a very successful company. What he shows you is that nice guys don't finish last," Malkiel added.
Still a tiger
Throughout his career, Bogle has kept close ties with his alma mater.
He met his wife through a friend from Holder Hall. One of their daughters — Sandra Bogle '90 — attended Princeton and he "would love it" if one of his 12 grandchildren decides to follow the same path.
But "like any wise grandparent, I don't pursue it," he said.
He has endowed a financial aid scholarship fund; become friends with John McPhee '53, Ralph Nader '55 and other Princetonians; and was a director of the Princeton Investment Company, which manages the University's endowment.
He was also president of the Class of 1951 leading up to its 25th reunion, and was the first businessman to ever win the Wilson Award.
"It's hard for me to imagine anyone in whose life Princeton has played such a great role," he said. "I wish you one-hundredth the joy of Princeton that I've had."
Current pursuits
Since retiring as CEO of Vanguard in 1996, Bogle has kept busy as president of Bogle Financial Markets Research Center, where he researches and writes about financial markets and mutual funds.
Besides the speeches he gives all across the country, his current project is a book about the loss of traditional corporate ethics. The working title is "Owners vs. Managers: The Battle for the Soul of Capitalism."
Looking back at his successes, Bogle had some words of advice. "When a lucky break comes, be ready," he said. "I feel bad for someone who never got a break, but I feel worse for someone who got one and didn't take advantage of it."
"I can't imagine anyone in the history of the human race who had as many good breaks as I had," he added. "I just made the most of them."
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