Created the world’s first stock index mutual fund

In 2004, chosen by Time magazine for inclusion in the Time 100 list of the world’s most important and influential people

Named by Fortune magazine as one of the investment industry’s four Giants of the 20th Century, 1999

It’s not often you hear someone blame themselves for something that went wrong at work. John C. Bogle does not hesitate to explain why he was once fired:

I guess I was just too opportunistic, too callow, too self-confident, and maybe even arrogant. All of which, every one of those characteristics which I have come to detest, I have tried to remove from my character to the maximum extent possible.

A shrinking violet he is not.

If you were a Broadway producer casting for the god of investing, the auditions would stop when you heard the voice of Jack Bogle. His time-tested bass booms with authority based on historical research and experience. Of course he’s not a god, but there is no question he is an investing legend, having started the Vanguard Group of index-based funds in the 1970s.

“I’m a very demanding, very opinionated, very strong-minded, and very experienced manager. And I’m very interested in history. I walk around thinking on issues before I make decisions, and there are very few cases where someone asks me, ‘Did you think of this?’ when I haven’t thought of it.”

The fact is that Jack Bogle changed the way Americans invest when he started the Vanguard Group and introduced the world’s first stock index mutual fund.

“Vanguard, meaning we were leaders of a new trend,” Bogle proudly recounts. “It was named after Lord Nelson’s battle of the Nile, later called by the New York Times ‘the naval battle of the millennium.’ He ended Napoleon’s dreams of an empire there in Egypt. He had a loss of zero British ships and he destroyed the entire French navy.”

What made index funds different was that they didn’t count on the unpredictable and expensive trading of money managers who tried to beat the stock market or its indexes. History showed that most of them didn’t beat the market.

The index funds were designed to mirror the indexes themselves, and to keep administrative costs low in order to closely match index returns. By the 1990s, index funds became the dominant style of investing for tens of millions of Americans. They were outperforming almost all managed funds, and still typically outperform 70 percent of them.

Jack Bogle created the first one, but it came about because of a mistake.

It started in the late 1960s, when he was president of the Wellington Fund, which offered conservatively managed investment services. He and the board of directors decided to merge with another investment counseling firm out of Boston: Thorndike, Doran, Paine and Lewis. Thorndike provided more aggressive money management services that would allow Wellington to expand its product line and become more involved in actively managing money.

The expansion of the company succeeded in bringing in millions more dollars, which were actively and aggressively managed by the money managers who reported to Jack Bogle as the president and CEO of the Wellington Management Company. This was the go-go 1960s, when the stock market was roaring in a post-World War II baby boomer bull market.

But the good times didn’t last. By the early 1970s, the stock market was mired in a decline that saw Wellington’s assets fall, according to Jack Bogle, by an estimated 70 percent.

Jack Bogle’s Best Mistake, in His Own Words

In January of 1974, these guys who had so let our shareholders down ganged up and fired me!

They had more votes than I did. They had put all their friends on the Wellington Management Company board. I didn’t think about politics in those days, I was pretty naive. I was unaware of the lessons of history that I had written about in my Princeton senior thesis on the history of this damned business.

I remained as president of Wellington Fund, but I was banned by the board to get into investment management and distribution. In their version of King Solomon, they gave me the administrative third and gave the other guys the investment, advisory, distribution, and marketing two-thirds.

They had given me the worst third of a loaf, the administrative loaf. Don’t get me wrong. Administration is important and done responsibly by very good and capable and dedicated people. But it isn’t exactly Miss Excitement.

So I had to get into investment management.

I said to the board, “Look, you’re representing the funds’ stockholders. We’ll control how the funds work.” I introduced a belly-up theory. “We’ll perform every function without which the fund would go belly-up.” You’d go belly-up if you had no financial controls. You’d go belly-up if you couldn’t get your price in the paper every day. You’d go belly-up if you couldn’t process redemptions and couldn’t issue new shares. That’s all we did. We were an administrative company.

The directors said, “Wait a minute—you can’t get into investment management! You know what the deal is.”

And I said, “Aha! This fund isn’t managed!” And so the logjam was broken. Disingenuous? Probably, but in a worthy cause.

They made a tactical mistake. They didn’t think I could win back at the craps table what I had lost at the poker table.

Vanguard started operating May 1, 1975. In September, I proposed that we start the world’s first index fund.

Why? One, it would get me back into investment management. And two, Vanguard was all about being a low-cost provider in this business. So the index fund is the first, most likely, and most obvious fit. It’s where the difference in cost shows up every day and you cannot lose over the long run.

We brought out the world’s first index fund in 1976. I think it was 1984 before someone else had one.

Vanguard’s market share has risen from 1 percent of industry assets back then to more than 10 percent today. That 10 percentage point increase accounts for very close to $880 billion in assets [$1.3 trillion in U.S. mutual funds as of December 31, 2009].

My best mistake was my biggest mistake. I got fired, but I lived and I learned. I got fired, and created Vanguard.

About John C. Bogle

John C. Bogle, 80, is founder of the Vanguard Group, Inc., and president of the Bogle Financial Markets Research Center. He created Vanguard in 1974 and served as chairman and chief executive officer until 1996 and senior chairman until 2000. He had been associated with a predecessor company since 1951, serving as its chief executive from 1967 to 1974.

The Vanguard Group is one of the two largest mutual fund organizations in the world. Headquartered in Malvern, Pennsylvania, Vanguard comprises more than 100 mutual funds with current assets totaling about $1 trillion. The Vanguard 500 Index Fund, the largest fund in the group, was founded by Jack Bogle in 1975. It was the first index mutual fund.

Education

Princeton University, magna cum laude in economics, 1951

Blair Academy, cum laude 1947

Honorary Degrees

Georgetown University

Princeton University

Immaculata University

Pennsylvania State University

University of Delaware

University of Rochester

New School University

Susquehanna University

Books by John Bogle

Bogle on Mutual Funds: New Perspectives for the Intelligent Investor (Irwin, 1993).

Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor (John Wiley & Sons, 1999; Fully Updated 10th Anniversary Edition, 2009).

John Bogle on Investing: The First 50 Years (McGraw-Hill, 2000). Character Counts: The Creation and Building of The Vanguard Group (McGraw-Hill, 2002).

Battle for the Soul of Capitalism (Yale University Press, 2005).

The Little Book of Indexing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (John Wiley & Sons, 2007).

Enough. True Measures of Money, Business, and Life (John Wiley & Sons, 2009).

Books About John Bogle

John Bogle and the Vanguard Experiment: One Man’s Quest to Transform the Mutual Fund Industry, by Robert Slater (Irwin, 1996).

Awards

National Council on Economic Education Visionary Award, 2007.

CFA Society of San Francisco Distinguished Speakers Award, 2007.

Center for Corporate Excellence, Exemplary Leader Award, 2006.

Berkeley Award for Distinguished Contributions to Financial Reporting, 2006.

Chester County Business Hall of Fame Award, 2006.

Outstanding Financial Executive Award from the Financial Management Association International, 2005.