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Comment by kuhhk | Hacker News Reader

From the Philly.com article:

> “Jack could have been a multibillionaire on a par with Gates and Buffett,” said William Bernstein, an Oregon investment manager and author of 12 books on finance and economic history. Instead, he turned his company into one owned by its mutual funds, and in turn their investors "that exists to provide its customers the lowest price. He basically chose to forgo an enormous fortune to do something right for millions of people. I don’t know any other story like it in American business history.”

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Is this really true? Both Buffett and Gates' money didn't come from salaries or fees. For Gates, it was his ownership of Microsoft. For Buffett, it was his stewardship of Berkshire Hathaway. However, Buffett's Berkshire Hathaway never sought to gain an edge over shareholders. Buffett didn't compensate himself with lavish options or salary.

Bogle could certainly have been a multi-billionaire. He could have founded Vanguard as a for-profit company and charged high fees. However, that wouldn't be like Buffett. Berkshire Hathaway doesn't operate on a percentage of the company's value going to Buffett every year.

In fact, Bogle took a similar path to Buffett: an investor-friendly path that meant little salary or fees going to them, but a great value for investors. It seems like the difference between them would be attributed to difference in starting point and differences in returns. Since 1964 (when Buffett took over Berkshire Hathaway) through 2017, Berkshire had an overall gain of 2,404,748%. By contrast, the S&P 500 only hit 15,508%. If Buffett and Bogle both started out with $1,000,000, Buffett would have ended up with $24B while Bogle ended up with $155M.

I don't think Bogle could have been a multibillionaire like Buffett unless he either 1) charged a lot of fees for Vanguard; or 2) actively managed his money to do significantly better than the S&P 500.

Don't get me wrong: Bogle has done amazing things for society by pioneering low-cost index funds and offering investors the investor-owned Vanguard. I just think it's fair to point out that Buffett's billions don't come off the back of fees or salary. The thing that made Buffett richer was the fact that Berkshire Hathaway has hugely outperformed the S&P 500. If Berkshire had gotten the returns of Bogle's S&P 500 index fund, Buffett would be rich (as Bogle was), but not a multibillionaire.

Vanguard is owned by its funds. This is sometimes referred to as "mutualized". It's a unique ownership structure.

As you point out, Gates and Buffett became wealthy due to their ownership in their respective companies. I don't know how much Bogle "owned" of Vanguard - but I suspect the structure he set up made his ownership no larger than his actual investment in Vanguard mutual funds and ETFs.

Probably not good to compare Bogle to Gates or Buffet. Better to compare him to Larry Fink of Blackrock or Charles Schwab. Blackrock manages slightly more assets - around $6.5tr vs $5 for Vanguard. Blackrock is a $65bn market cap company. Point is, as a founder of a comparably large asset manager, he didnt leave this earth as a billionaire. All the better, you can't take it with you.

> Better to compare him to Larry Fink of Blackrock

I thought this was a great point, and makes the comparisons to Gates and Buffett look really lazy. (The connection is...they are famous wealthy dudes.) For others wondering, Larry Fink has a net worth of about ~$1B versus Bogle's ~$80M. Vanguard is a bit older than Blackrock (1974 vs 1988), but I also think Vanguard would have been less successful, counterfactually, if it had charged higher fees that would have enriched Bogle. The low fees were part of what made it possible. So it's almost certainly true that Bogle left money on the table in order to make the world a better, but he probably left a factor of ~5x rather than 50x or something.

The point is he could have retained ownership of Vanguard itself.

What you describe is exactly the problem I have with index funds. I manage a decent amount of money through Vanguard. The index funds in my portfolio fell less and recovered sooner, but at the cost of raw gains. The managed funds I have basically fell apart because apparently the fund managers are idiots who didn't even try to keep up with market trends. I do expect those to recover quickly and have some decent gains again, but we'll see. More risk, more reward. 2019 better be good for the premium I'm paying.

I noticed awhile back that a lot of my funds were very Apple heavy, and so not as well diversified as I would have hoped (index funds included). They disclose this, mind you, but you have to read what you are buying. Anyways, I moved more money towards international and mid-caps to try and offset risk. Index funds have a way of being frustratingly constrained. It's not a silver bullet is all I'm saying.

Don't get me started on bond funds. Total, total crap the last few years. REITs same way.

The only really decently reliable returns I have gotten were from my own portfolio of stocks (not a fund) and some high-dividend yield funds. But even dividend paying stocks nosedived last quarter (Q4 2018), which I attribute directly to the FEDERAL RESERVE and its fuckery with the funds rate.

Everything is manipulated one way or another, never forget that. It's hard to be a small investor with others moving billions around all the time.

If you're still reading, I ditched a lot of bond funds in 2018 and went towards shorter term individually purchased bonds and even brokered CDs until interest rates settle back down.

Vanguard's bond funds are just kind of trash and don't do what they are purported to do for your portfolio which is try to solve the ever-elusive correlation problem. Many times, I've watched bond funds move in lockstep with equities because the Fed is king. Not a safe haven during a big drop, just smaller losses?

The people on Bogleheads will hate me for saying this stuff. If you're new to investing or naive or don't care, just do a 2-fund portfolio with total stock and total bond and call it a day. There.

RIP John.

Then you're not the customer for index funds. They are meant to be highly risk averse, and give decent gains to people who want safety of modest to low gains over high gains high risk.

The fact that they are indeed for the risk averse is why I found it quaint Bogle’s Funds have been called “Marxist” according to a quote from Barron’s last year. People would choose to suffer collecting paychecks and squirreling away their money instead of using their collected six figures in savings and taking a chance at starting a business, creating necessarily healthy market forces which leads to new demand in labor and services.

This is how capitalism is supposed to work from the ground floor. Toiling away 25 years in a cubicle eschewing social responsibilities like the FIRE subreddit ought to be morally reprehensible - that’s how strongly I feel about it (I’m active in two businesses I’ve co-founded and have enjoyed seeing economic theory from the ground up).

Not everyone is equipped to start and run a company. It's not a universal skill or anywhere near it. If more people invested their retirement savings in businesses, you'd mainly have more ill-conceived restaurants and T-shirt companies going bust.

I agree, but certainly those who are banking 30%+ of their gross six figure income have, in general, both the luxury to pick a market and the temperance to stick it out for several years before their momentum breeds its own growth and a long-tail retirement plan in itself. It’s only easier said than done by those who have never made the commitment to suffer to try.

You should look up the net worth of the Johnson family members who founded Fidelity. The President, Abigail, who is the daughter of the founder is worth 12 Billion.

If you are ever confused about what firm should manage your money, remember this posting.

The current Chairman and CEO, Tim Buckley would be close to being a Billionaire right now if he was running any other firm, he does very well, but he makes a fraction of what SVP’s make at other firms.

> If you are ever confused about what firm should manage your money, remember this posting.

I'm sorry but your comment didn't clarify this question for me. Do you mean I should invest in Vanguard because the money isn't all going to rich folks at the top, or I should invest in Fidelity because the wealth at the top is indicative is correlated to success for customers?

From the same article:

>For more than 20 years, he donated half his annual income to philanthropic causes, particularly those institutions that helped develop his mind and form his character.

This almost made me teary eyed.

Everything I've read about the guy says he was a stand up guy that put a real dent in the world.

I hope his legacy lives on and his mission continues to be carried out.

Bogle's greatest legacy might be... socialism.

Index funds are slowly consuming more and more capital. To achieve democratic socialism smoothly, all we have to do is set up state-owned index funds, and let them keep growing until they've accumulated all of the capital.

Voila, full democratic ownership of the means of production!

If the private market gives index-funds at no cost to the state, why state owned index funds :S.

I'm not sure what you mean.

Can't get around paywall to read TFA right now, but Vanguard funds are famously cheap in terms of fees.

What is the interest in having the state manage something at a cost when it is already free for its citizens.

It wouldn't provide index fund services, it would literally own the funds and thus the assets.

An index fund without customers is not really an index fund. It's just a private investment trust.

Basically you are saying the state should just slowly buy stock in every company until it owns every company.

It would have a customer: the public.

> Basically you are saying the state should just slowly buy stock in every company until it owns every company.

That's right. The goal is full public ownership of the means of production.

The state is not the public.

In a democratic society, it is.

No, in a democratic soceity the state is a servant of the public.

Not sure you have really thought this through.

It is unclear how index funds would function without someone doing price discovery (i.e., active investors).

I'm not convinced by the index-funds-socialism thing, but I did once have a fun realisation about index funds owning the market.

Because of short-selling, index funds could own all the market or more and active funds could still exist. For example we could imagine that index funds grow until they're 105% of the market, and active funds own 5% of the market long and 10% of it short. That adds up: 105% + 5% - 10% = 100%. And the active funds would still be doing all the price discovery. Of course the index funds wouldn't have all the assets-under-management, those would be split in the ratio 105:15 (with 10 of that 15 being collateral for the shorts).

In other words: it doesn't matter if index funds own all the shares, active funds can just make side bets with each other.

Hmm. I wonder if the same thing could happen in the cryptocurrency markets, where literally 100% of Bitcoin holders lose their private keys and yet we still have active, liquid price discovery consisting of speculators making side bets on BitMex.

Gamblers gonna gamble.

Isn’t a mere 51% effective ownership?

Not for SNAP, Facebook, Google and others with gerrymandered share classes.

Simple: there will always be active investors.

With the progress AI is making, I predict a future where humans-run firms will mostly go out of business. What will emerge are companies that are great at training models that then act as active investors. These models bet against each other and some emerge as winners.

Ultimately, the models that make the most bank (sorry couldn't resist) will be the ones smart enough to make its decisions based on public data from companies, social media etc.

> I predict a future where humans-run firms will mostly go out of business. What will emerge are companies that are great at training models that then act as active investors. These models bet against each other and some emerge as winners.

This is already happening, HFT, Two Sigma Investments, many hedge funds. And they don't just use public data, they work really hard to get as much proprietary information as they can. Just one example: https://www.cnbc.com/id/38722872

For anyone interested in learning more, here’s a compendium on deep trading:

https://github.com/cbailes/awesome-deep-trading

Don't say this too loud. US policy has been to[1] undermine[2] socialism[3] abroad[4], what's to say it won't do the same with my retirement savings :D

1. https://en.wikipedia.org/wiki/Salvador_Allende#Presidency

2. https://www.investopedia.com/terms/l/lia.asp

3. https://en.wikipedia.org/wiki/Iraq_Petroleum_Company

4. https://en.wikipedia.org/wiki/PDVSA

Aren't those called Sovereign Wealth Funds?

They are. Think of Vanguard as a US sovereign wealth fund that hasn’t reached full participation yet (and without the natural resource extraction bootstrapping).

If that’s a strange thought, consider that the Bank Of Japan is a significant owner of equities on the Nikkei.

Disclaimer: Vanguard customer

Wow. I never thought of it that way, but this is so true.

I'm interested in this question: would the US economy be where it is today without index funds? Or is it the index funds like Vanguard that allowed millions of Americans a cheap, safe way to predictably grow their wealth?

The reason I ask is that throughout American history, its the banking sector that was responsible for financial crises and a loss of wealth for most Americans. Have index funds plugged this hole and allowed the US to grow?

Yeah yeah I know about 2008 etc. but that _was_ caused mostly by active investors.

> would the US economy be where it is today without index funds? Or is it the index funds like Vanguard that allowed millions of Americans a cheap, safe way to predictably grow their wealth?

Yes.

An investor’s ownership of Vanguard is proportional to his investment. So no, not at all.

I'm not sure I see a connection between Bogle's work and putting public funds into index funds.

You could out public funds into any investment and end up with all the capital.

The way index mutual funds work is to distribute returns to everyone according to how much capital they have contributed.

The socialist version would be a find that everyone is required to contribute all their capital too. And then each citizen receives an equal share of the returns.

Matt Bruenig has a joke that the reason he named his company Vanguard is that it’s the vanguard of socialism.

I don’t get it.

van·guard /ˈvanˌɡärd/ noun noun: vanguard; plural noun: vanguards

a group of people leading the way in new developments or ideas.

https://en.wikipedia.org/wiki/Vanguardism

(The company is actually named after Lord Nelson's flagship at the Nile, but who's counting?)

Why would a country want to buy up only shares of companies in that country? You could have a large sovereign wealth fund, but most countries are very small and it would not make sense to only buy domestic stocks.

Can't mention this without posting an article by Matt Levine on this topic [1].

[1] https://www.bloomberg.com/opinion/articles/2016-08-24/are-in...

This makes no sense whatsoever. The state does not have sufficient resources to provide the services it has already committed to. The annual deficit is more than a trillion dollars. Suppose we were willing to double this to purchase securities, and further suppose that this had no knock on effects for security prices. It would still take half a decade to buy just the assets held by Vanguard. Although this is large, this is still far smaller than the assets in the public markets overall. At best you'd have achieved ownership of a small fraction of the means of production. But in exchange your sovereign debt would be staggering. It probably just wouldn't be possible, because nobody would be willing to lend enough money for such a project.

No need to borrow, just nationalize.

Of course you could do that, but you can do that with or without index funds. The two are orthogonal.

Something tells me you don't understand financial markets.

Something tells me your comment is motivated by class politics, rather than the mechanics of financial markets.

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