I'm Going To Miss Saint Jack

This month, one of my heroes passed away at the age of 89. John Bogle was much more than the founder of Vanguard and the pioneer of index funds; he was one of the hardest working and most effective crusaders for investors. His drive to educate investors and reduce investment costs has saved investors hundreds of millions of dollars. Bogle’s nickname, “Saint Jack,” couldn’t be more deserved.

When I started to learn about investing, the first books that I read were Jack’s. His case for using low-cost index funds convinced me to use Vanguard’s S&P 500 index fund as my very first investment. In those early years, I also tried my hand at picking stocks and actively managed mutual funds. Half of my investments were indexed, and the other half was “active” for many years until I realized that all of that effort, time, extra costs and higher taxes were not adding value to my “simple, but not easy” index-fund portfolio.

I consider myself a proud “Boglehead.” I’ve read four of Jack’s books, seen many of his interviews and listened to several of his speeches over the last 25+ years. The message Jack spread was consistent over his entire career (see the top ten list below): costs matter, index funds work. For me, Jack’s advice always made intuitive sense, but I also appreciated that he backed everything up with hard data. Jack created the Bogle Financial Market Research Center to help spread the word about the benefits of indexing.

One of my favorite pieces of Bogle’s writing is from a chapter of one of Jack’s books, “Clash of the Cultures: Investment vs. Speculation.” The section “Ten Simple Rules for Investment Success” has a classic Bogle intro:

The 10 elements of a simple strategy that follow should help you decide your optimal course of action for the years ahead. I wish I could assure you that the investment strategy outlined below is the best strategy ever devised. Alas, I can’t promise that. But I can assure you that the number of strategies that are worse is infinite.

Here are Jack’s Ten Simple Rules along with my brief descriptions:

Remember Reversion to the Mean – Above average returns for a market, asset class or stock are followed by below average returns. The opposite is often true for below average returns.
Time Is Your Friend, Impulse Is Your Enemy – Take advantage of the miracle of compound interest by giving yourself all the time you can. Ignore the “siren song” of the markets which calls investors to join stock markets after they have soared and run for the exits after the market has plunged.
Buy Right and Hold Tight – Get your balance right for stocks and bonds based on your risk capacity and risk tolerance. Change your allocation when your investment profile changes, not because of the market’s inevitable ups and downs.
Have Realistic Expectations – There are reasonable rules of thumb to help forecast future performance of the stock and bond markets. These are based on very simple metrics, not recent performance or a crystal ball. In November 2018 Jack’s rules were telling him that future stock and bond returns will be lower than average for the next ten years. More specifically, he predicted returns of around 4% for the US stock markets and 3.5% for US bonds.
Forget the Needle, Buy the Haystack – There are plenty of risks to be had in the stock market, so don’t add to that risk by trying to find the next great stock or mutual fund.
Minimize the Croupier’s Take – Investors as a group earn the markets return before costs – after all, they are the market. The best way to get the return of the stock market is to own the market itself and pay the smallest expenses possible.
There’s No Escaping Risk – There is no way to avoid all risk. The investments we choose determine which type of risk (inflation risk, currency risk, interest rate risk, stock market risk, etc.) we are taking.
Beware of Fighting the Last War – Many investors make their decisions based on recent results. Don’t assume the current trend will continue forever, and don’t assume the next bear market will be a clone of any previous one.
The Hedgehog Bests the Fox – An Ancient Greek parable tells us “the fox knows many things, but the hedgehog knows one great thing.” Bogle’s foxes claim to know many things about complex markets and sophisticated strategies, while his hedgehog knows (one great thing) that a successful investment strategy is based on its simplicity and low costs. Side with the hedgehog.
Stay the Course – There is no secret to investing. Investing is simple, but difficult because it requires discipline, patience, and common sense.

Saint Jack did not decide to enter the investment business just to make money, instead he became involved so he could make a difference. Ultimately, his financial wisdom and insight has had a great impact on my investment (and life) philosophy. I’ll continue to revisit his work for the rest of my career.

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