Last week, the investing world lost a man of conviction, and, for sure, contradictions – a true luminary, a pioneer, an advocate for “Mom-and-Pop” investors, a generous man, and a legend in his own time.
John Clifton Bogle, who preferred to be called Jack, died at the age of 89, leaving behind a lot.
That’s because Jack, who started The Vanguard Group, the $5.3 trillion asset management company that specializes in indexed products for passive investors, left behind an estate worth $80 million.
That’s after giving away half of his Vanguard salary for most of his working career.
But, the legend himself began criticizing the passive investing boom he’s credited with pioneering.
Whether his accumulated apprehensions and market fears will lay the myth of passive investing to rest, he won’t get to see – but we better be watching if the myth turns into a monster.
And, later, I have a special message for you about another hot topic in investing.
A Good Man with a Good Plan
Jack Bogle started Vanguard after being fired by fund company Wellington Management in 1974.
Launched in 1975, Vanguard’s first mutual fund, an S&P 500 tracking fund called First Index Investment Trust, gathered only $11 million in assets after advertising and marketing efforts.
The fund was laughed at and nicknamed “Bogle’s folly” by Jack’s competitors.
Over time, Vanguard’s structure, where the mutual funds weren’t just mutual collections of stocks, but fund shareholders became mutual shareholders in the actual ownership of the funds, made the costs of running Vanguard considerably less than competitors’ funds, which Vanguard passed on to its fund buyers in the form of lower and lower expenses.
Vanguard’s shrinking expense ratios made its mutual funds returns better than its competitors did.
Today, Vanguard is the second largest asset manager in the world.
The biggest asset manager is BlackRock Inc. (NYSE:BLK). BlackRock, founded in 1988, has more than $6 trillion under management. According to Bloomberg, BlackRock’s founder, Larry Fink, is worth more than $1 billion as of April 2018.
PIMCO, one of the ten biggest asset managers in the world, co-founded in 1971 and run by Bill Gross, who left in 2014 to run the Global Unconstrained Bond and Total Return strategies at Janus Henderson Investors, has more than $1.5 trillion under management. Gross made more than $2.5 billion at PIMCO.
Fidelity Investments, founded in 1946 by Edward C. Johnson II and launched into the upper echelon of asset managers by the founder’s son, Edward “Ned” Johnson III, is the sixth largest asset manager in the world – with more than $2.5 trillion under management. Today, the Johnson Clan is worth more than $26 billion, according to Forbes.
Those asset management founders make Jack Bogle look downright poor by comparison.
But, that’s how Jack was. While he made plenty of money for himself, he wanted investors in his funds to make money in the markets.
Jack’s Ultimate Contradiction
As far as contradictions, Bogle was full of them.
He was an advocate for full disclosure in the mutual fund business, but wouldn’t disclose his alleged eight-figure salary at Vanguard.
He was an advocate of index funds that tracked the whole market or big indexes like the S&P 500, but allowed Vanguard to slice and dice almost every index into sub-group index funds.
He wasn’t an advocate of ETFs, but he oversaw Vanguard creating families of their own ETFs.
He was the ultimate advocate of buying and passively holding index funds until he came out last year in a Barron’s article, warning, “trees don’t grow to the sky, and I see clouds on the horizon. I don’t know if and when they’ll arrive. A little extra caution should be the watchword.”
Those clouds, he said, include large amounts of sovereign and corporate debt, the “great upheaval” in global trade, and “the mystery of Brexit, which will be very disruptive to the world trade system. Those things add up.”
As far as passive investing, Bogle said, “It’s time to really be thinking how much risk you want to have.”
He advocated cutting back exposure to stocks.
So much for buy-and-hold-forever passive investing.
Jack Bogle, besides being a good man and pioneering investment guru, was full of contradictions, with the ultimate contradiction being skeptical of the growth and size of passive investing trends.
Maybe he was trying to warn us without tarnishing his legend.
If he was, he can rest in peace.
But I can’t. I’ve got to warn the investing world about the pitfalls of passive investing
And I have been – in my January issue titled “If Passive Investors Turn Active Expect A Crash“, in another titled “When Passive Investing Turns Active, Make Sure You’re Ready“, and in one more titled “The Market’s Favorite Investing Trend Could Be Its Next ‘Black Swan’“.
(There are tons more examples, but it’d take hours to list them all out.)
And I’ll continue to, that you can rest assured of.
A Special Message
The term “artificial intelligence” or A.I. might sound like something out of a sci-fi film, but as I’ve said here for years, it’s going to completely change how people trade, shop, and exist.
And, in some cases, not always for the better.
Now, we’re not heading for a Matrix-type reality by any means, but I’ll say that there’s already A.I. movement in investing and trading – and it’s been insane. You might’ve already heard of it, Alpha-9. It’s championed by my good friend, Tom Gentile, and it helps him generate five “Double-Your-Money” trades a week – and it could even make you a millionaire in a year’s time.
But the reason I’m telling you about this now is because space is filling up, quick. Tom’s shutting the doors to Alpha-9 in just a few days, and if you don’t act now, your chance at millionaire status by January 2020 could be gone – for good.