John C. (Jack) Bogle, world-famous founder of the first low-cost index fund, had a favorite film: the Christmas classic, “It’s a Wonderful Life,” starring James Stewart as tempest-tossed George Bailey.
Q2 2020 hedge fund letters, conferences and more
How To Have A Wonderful Life
Everyone knows the movie and its theme: that life is best lived helping others.
And if you do right by others they will, for the most part, do right by you.
And you’ll have "a wonderful life."
It’s what Peter Kaufman calls “mirrored reciprocation,” and it is far older than humanity.
Peter Kaufman boils it down to physics: Newton’s Third Law of Motion.
Every action has an equal and opposite reaction.
Simple enough, but you can’t have a life or a story without conflict.
Nature doesn’t just reciprocate kindness!
Nature red in tooth and claw.
There are always non-reciprocators and scoundrels who want more than their share.
We all have to balance between the twin poles of self-interest and common interest.
How does one do right by others and still do well enough for oneself?
The Two Extremes Of Common Interest And Self-Interest
"It's A Wonderful Life" personifies the two extremes of common interest and self-interest:
George’s kind and generous father, Peter Bailey, who helps the townsfolk of Bedford Falls secure loans to buy homes.
And the Baileys’ nemesis, the Darth Vader of Bedford Falls, Lionel Barrymore’s robber-baron, Henry Potter.
“Henry of Potter,” who would keep Bedford Falls’ “working class” miserable in his slums and bled dry by exorbitant rents.
A traditional psychoanalyst would surely say that George Bailey has two spiritual fathers, Peter Bailey and Henry Potter, just as Dorothy Gale has her Good and Wicked Witches of Oz.
And George Bailey has a central life-task: to figure out which father to emulate.
Both real-life Jack Bogle and mythical George Bailey grew up in hard times and learned early the importance of money in making one’s way through life.
We all know George’s story but every investor should learn Jack’s.
The Great Depression And The Stock Market Crash
Jack Bogle was born in 1929, the year that saw the stock market crash and the Great Depression begin.
Jack’s family had to sell their home.
His father descended into alcoholism and his parents divorced.
Gifted in mathematics Jack was accepted to Princeton.
There he studied the mutual fund industry and wrote his thesis, “The Economic Role of the Investment Company,” graduating magna cum laude.
That thesis won him a job and he began a highly successful career, rising rapidly in the mutual fund industry.
An industry that, to this day, extracts fees, commissions and “sales loads,” leaving their investors, innocent of the effects of compounding upon such fractional clipping, much the poorer at retirement.
Then Jack was fired.
In his own words, he was “broken, my career in shambles.”
And like heart-broken George Bailey, Jack Bogle found his Clarence, his guardian angel.
Not a clockmaker, like Clarence, but a mathematician like Jack, who could understand the inner workings of the stock market, just as Clarence understood the inner workings of a clock and Newton understood the inner workings of reality:
Professor Paul Samuelson of MIT, first recipient of the Nobel Prize in Economics.
Paul Samuelson had proven—mathematically--that active portfolio management rarely beats market averages over the long haul.
Building Wealth With A Mutual Fund
And that a mutual fund that was “truly mutual” and adhered to the market indices with low fees and costs, would be the best vehicle for the average person to build wealth over a lifetime.
But no such fund existed.
Until Jack Bogle built it.
At Valley Forge, where George Washington built the Continental Army that fought the Revolutionary War.
And Jack Bogle named it Vanguard Funds because he knew he was in for a fight, with an industry he knew all too well.
So Wall Street greeted his Vanguard Funds with curses and ill wishes befitting anything that threatens one’s livelihood.
Vanguard was called “Bogle’s Folly” and Jack himself, a fool, a Marxist and a Communist, all this said of an old-school Republican!
How did Jack’s life and Vanguard Funds play out?
No less joyously than “It’s a Wonderful Life!”
Today Vanguard Funds manage over five trillion dollars for millions of grateful investors.
Warren Buffett On Jack Bogle
In his 2016 annual Berkshire Hathaway letter, Warren Buffett wrote this of Jack Bogle, then still a living legend:
“If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing—or, as in our bet, less than nothing—of added value.”
And Jack Bogle and real-life James Stewart had two things in common: both had sterling reputations and their favorite movie was “It’s a Wonderful Life.”
