The House That Bogle Built: How John Bogle and Vanguard Reinvented the Mutual Fund Industry

The House That Bogle Built: How John Bogle and Vanguard Reinvented the Mutual Fund Industry

by Lewis Braham
     
 

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"One of the best financial books of 2011."

National Post

John Bogle’s journey from financial-industry pioneer to one of its toughest critics

Arguably the greatest shareholder advocate in the history of Wall Steet, John Bogle not only created the first index mutual fund but has become the primary voice for change in an industry plagued by excess

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Overview

"One of the best financial books of 2011."

National Post

John Bogle’s journey from financial-industry pioneer to one of its toughest critics

Arguably the greatest shareholder advocate in the history of Wall Steet, John Bogle not only created the first index mutual fund but has become the primary voice for change in an industry plagued by excess and complacency. Bogle stumbled upon mutual funds by accident in 1949 as a college student at Princeton. In his junior year, he read a Fortune article about the burgeoning fund industry that sparked his interest, and he wrote his now famous senior thesis about it.

What began as an intellectual pursuit would turn into Bogle’s life mission. The House That Bogle Built chronicles the years of Bogle’s development from college whiz kid into a titan of the mutual fund industry and shareholder advocate—highlighting his creation of the Vanguard Group and the Vanguard 500 Index Fund and his frequent battles to shake up the status quo. It takes you through the two decades he spent running Vanguard, until his forced retirement in 1999, and discloses what he thinks about the fund industry today.

Bogle has always stood out for his extraordinary talents in math, analysis, management, and investing. But his most noteworthy trait is his most basic: his humanism in an industry not exactly famous for placing people over profit. It’s Bogle’s dedication to clients’ interests above all else that has earned him the reputation as the “conscience” of the investing industry.

In his ninth decade of life, Bogle is remarkably candid about the role he plays at Vanguard today—and about his opinion of Jack Brennan, his successor. “How do you keep Vanguard a place where judgment has at least a fighting chance to triumph over process?” he asks. Skeptical but never defeatist, Bogle maintains a retired-but-active status at the company, keeping a close watch over those now at the helm of Vanguard.

The House That Bogle Built reveals one of the investing world’s most fascinating and complex figures. A dogged advocate of shareholder democracy, he was a self-confessed “dictator” at Vanguard. A brilliant mathematician, he is more interested in people than numbers. Fiercely competitive, he bemoans the cut-throat approach that drives his industry of choice. Always, though, Bogle places the good of the client before anything else—a practice that has become steadily rarer in his business.

The House That Bogle Built provides an insightful look at the past, present, and future of one of today’s largest industries, through the eyes of one of its most influential pioneer.

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Product Details

ISBN-13:
9780071749060
Publisher:
McGraw-Hill Professional Publishing
Publication date:
03/28/2011
Pages:
304
Sales rank:
993,836
Product dimensions:
6.00(w) x 9.10(h) x 1.10(d)

Read an Excerpt

The HOUSE that BOGLE BUILT

How John Bogle and Vanguard Reinvented the Mutual Fund Industry


By LEWIS BRAHAM

The McGraw-Hill Companies, Inc.

Copyright © 2011Lewis Braham
All rights reserved.
ISBN: 978-0-07-174906-0


Excerpt

CHAPTER 1

The Sopwith Camel


Tucked away on a bookshelf in Jack Bogle's office beside a copy of Kahlil Gibran's The Prophet and Michael Novak's Business as a Calling is a scale model of a Sopwith Camel. The World War I biplane seems out of place in a room full of nineteenth-century naval artifacts and Vanguard memorabilia. As it turns out, it was this specific make of plane that Bogle's father, William Yates Bogle, Jr., flew for the Royal Flying Corps and crashed in the Great War.

And yet this biographical fact does little to answer the mystery of the Camel's presence. Reading the published history of Bogle's childhood in books like Enough, one might think it has an almost storybook rags-to-riches quality, but there are parts of his youth that he often finds painful to discuss. Truth be told, the Bogle family and its paterfamilias were on hostile terms during the final years of William's life because of his persistent alcoholism. And perhaps it is easier for Jack to focus on this bit of heroism on his father's part than to dwell on more unpleasant aspects of his past. It would go against his philosophy of press on regardless to do otherwise.


* * *

William Yates Bogle, Jr., was born in Montclair, New Jersey, in 1896. In 1920 he married Josephine Lorraine Hipkins, born in Brooklyn, also in 1896. Both came from wealthy, respected Scottish American families, in Josephine's case dating all the way back to the eighteenth century, when her mother's family, the Armstrongs, immigrated to the United States to farm here.

Bogle often cites his great grandfather Philander Banister Armstrong as his "spiritual progenitor." Armstrong was in the insurance industry and was a bit of a firebrand. He made speeches urging the industry to lower its costs and also penned a 268-page screed called A License to Steal: How the Life Insurance Industry Robs Our Own People of Billions. In it, Armstrong asks readers to contribute $2.50 each to join the "Policyholders' Alliance," which would strive to force insurance companies to "disgorge three billion six hundred million dollars stolen from policyholders by dishonest laws and dishonest accountings, dishonest mortality, dishonest 'profits,' dishonest forfeitures and dishonest premiums."

Interestingly enough, Armstrong also once got in trouble with the law. A 1907 article in the New York Times titled "Says Insurance Co. Was Built on Wind" describes how the New York State attorney general put the Excelsior Fire Insurance Company, of which Armstrong was president, into receivership after alleging that $137,500 of $300,000 invested in the company was never deposited in the bank and that instead fictitious credits were created. Armstrong later wrote a letter to Governor Hughes asking for the removal of the state superintendent of insurance and accusing him of ruining Excelsior's reputation. But the damage to his credibility was enough that when his book came out in 1917, The Insurance Monitor, an industry publication, wrote a scathing review titled "A License to Bunk." No doubt this was partially an act of retribution on the Monitor's part. Like Bogle, Armstrong's critique of his industry made him few friends.

In the early years of their marriage, the Bogles lived a well-to-do existence in a spacious home in Verona, New Jersey, a bedroom community not far from New York City. Though their first two children, twins Josephine and Lorraine, died at birth, they had a son, William Yates Bogle, III, in 1927. Then, on May 8, 1929, Josephine again gave birth to twins—John Clifton and David Caldwell, named after their maternal grandfather and great-grandfather. Despite the stuffiness of their namesakes, the three Bogle boys were informally nicknamed Bud, Jack, and Dave or more affectionately known as Bud-Ro, Jack-Ro, and Dave-Ro among friends. "My mother called me Jack," Bogle says. "My grandmother thought we should've stuck with John, which basically is a better name, not slangy. But Jack it is."

The Bogles had a glamorous life their children never experienced. "They were Scott and Zelda [Fitzgerald] of the '20s," Jack says. "My father was a very handsome man. They used to call him the Prince of Wales who would later become king. And my mother was glamorous and charming, and everybody loved her." The fact that his father was a war hero only added to his romantic allure. "There was a lot of patriotism back then," Bogle says. "In 1916 my father would have been 19 years old. And there was a great feeling in America that 'I want to get into this fight.' As I understand this story, my father went to Canada, joined the Royal Canadian Air Force, got transferred to the Royal Flying Corps, now the RAF, and went over to England."

Jack's first model of a successful businessman, though, was his grandfather, William Yates Bogle, Sr., who had founded the American Brick Corporation and cofounded the Sanitary Can Company, which was eventually acquired by the American Can Company in 1908 after getting into financial trouble during the crash of 1907. William, Sr., was a heroic figure in the canning industry, having been one of the first industrialists to develop and promote the sanitary double-seamed can. Previously, soldered cans would often have black flakes inside of them, a residue of the soldering process that caused fruits and vegetables to carbonize. (Ironically, American Can would eventually be run in the 1980s by Gerald Tsai, a famous ex-manager of Vanguard's arch-nemesis Fidelity Funds, who would somehow turn what was once America's premier canning concern into Primerica, a financial services company that would later be acquired by Sandy Weill and the company that is now Citigroup—a sentence which perhaps encapsulates the sad history of American industry more than any other on earth.)

When Jack's father returned from the war, he worked in sales and marketing, first for American Brick, and then for American Can. In both these jobs he prospered, and the family enjoyed a genteel life. Then came the 1929 stock market crash, which had a nearly disastrous effect on the Bogles, wiping out the family's inheritance. "Their friends didn't desert them when it happened," Bogle says. "But it was a different kind of life. We never saw that first life. We saw photographs of it. They would say, 'This is how we lived before.'"

Because of their financial problems, the Bogle boys all had to go to work at a very young age to help support the family, and it was this specific period in their lives that instilled in them a powerful work ethic and belief in frugality. By age 10, Jack was delivering newspapers and magazines (The Ladies' Home Journal, Collier's, and The Saturday Evening Post) and working at an ice-cream parlor. Among his numerous other "pre-Vanguard" positions were waiter, pollster, brokerage securities runner, night reporter at the Philadelphia Bulletin, and pins setter in a bowling alley. The last position Bogle always said was the hardest job he ever had, resetting the pins after each crash being a dull, Sisyphean task.

Yet Bogle says he relished the learning experience and actually found an environment of growing up surrounded by wealthy, educated people yet still having to work hard to be ideal for building character. "I don't think there is anything healthier than learning that you have to earn what you want to spend," he says. "It's a great blessing. When you are working at a young age, particularly when you are dealing with the public, you learn about human relations. You learn about dealing with people; you learn about getting to work on time; you learn that sometimes bosses are really tough; you learn the customer is always right." And that goes a long way to explain why, at ages
(Continues...)


Excerpted from The HOUSE that BOGLE BUILT by LEWIS BRAHAM. Copyright © 2011 by Lewis Braham. Excerpted by permission of The McGraw-Hill Companies, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Meet the Author

Lewis Braham is a journalist whose work has appeared in a number of business publications, including BusinessWeek, SmartMoney, and Bloomberg Markets.

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