Jack Bogle, who passed away this month at age 89, arguably did more for small investors than any man in history. If there were a Mount Rushmore of investing, Bogle would be on it. He had a major impact not just for investors in the Vanguard family of funds — who save tens of billions a year in fee costs — but for all investors everywhere.

Bogle forced Wall Street, kicking and cursing and dragging its feet, to give a better deal to the small investor. He made it possible for the average person to directly participate in the economic growth of America in a low-cost way. And he made it possible, for those with no spare time or energy, to still save for retirement responsibly. For these reasons and more, Bogle was a hero.

At TradeSmith our mission is “empowering individual investors.”

We believe it is possible, for those willing to do a little bit of work managing their emotions and portfolios, to beat the market by a substantial amount.

But we recognize that, thanks to Jack Bogle, we are standing on the shoulders of a small investor giant. It was, in no small part, Bogle’s original effort to empower the individual investor — his life’s work — that makes the work of TradeSmith possible today.

The great investors of the age do not hold back when it comes to Jack Bogle. Warren Buffett had this to say: “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.”

According to Bill Miller, another value investing legend we follow, “Jack created more wealth for more people than anyone in the history of investing and probably in its future as well.”

Cliff Asness, the founder of quant fund giant AQR Capital Management, feels much the same. “Nobody has ever done more for investors, and asked less for himself, than Jack Bogle.”

The way Bogle built Vanguard into a $5 trillion juggernaut — democratizing Wall Street for the small investor along the way — is an incredible story. But the man himself is even more incredible.

Jack Bogle was a fierce competitor and harder than a coffin nail, while yet remaining a warm and thoughtful person. He was born in New Jersey in 1929, just prior to the 1929 stock market crash and Great Depression that followed.

Bogle’s family struggled greatly in the Great Depression. His father succumbed to alcoholism, and his mother worked in a gift shop to keep the family fed, instilling a strong work ethic and a low-cost mentality that stayed with Bogle his entire life.

In his early 30s, Bogle had his first heart attack. There would be half a dozen more over the course of his life, due to a congenital heart defect.

Before he was 40, a doctor told him he should retire; Bogle decided to work twice as hard. He famously kept a defibrillator next to his desk and would take it to the gym. If you played squash with Bogle, he would give you instructions on how to use the defibrillator just in case. And then he would beat you.

In 1996, Bogle received a full heart transplant. He joked that having the heart of a young man, he could go even harder after that.

Bogle worked nonstop for another 23 years after the heart transplant, writing more than a dozen books. He sometimes gave interviews from hospital beds rather than reschedule them and was working on yet another book at 89 when he passed away.

Nothing stood in his way. Bogle was known as a “force of nature” because of his passion — and that passion was looking out for “the little guy,” the small investor, and speaking blunt truth to Wall Street.

When Bogle started the Vanguard family of funds, it was a true “investor revolution” in at least two ways. The first revolution had to do with fees.

Before Bogle, Wall Street was far more greedy and fee-hungry than it is now. (If you thought today was bad, it’s nothing compared to four or five decades ago.)

Back in the 1970s, for example, small investors had no way to reinvest their dividends efficiently, enabling what’s known as “total return.” Mutual funds of the day charged as much as 4% (highway robbery) just to put dividends back to work.

This was a case of Wall Street ripping off customers just because they could. Bogle was the first to change that. He fought for small investors, rather than treating them like cows to be milked.

The second revolution came about in the way Vanguard was structured. Because Vanguard is owned by its investors through the mutual fund structure, there is no third-party incentive to hike fees.

Bogle ensured that the benefits of Vanguard’s index business would flow directly back to Vanguard’s investors, rather than into someone else’s pocket. This was, once again, a huge change from how most funds operated. A relentless focus on costs helped Vanguard grow into the multitrillions decades later.

And yet, when the Vanguard funds were first introduced, they were considered a huge flop. The whole project was known as “Bogle’s folly.” The investment banks that raised money for the offering had hoped to bring in hundreds of millions; instead they brought in around $11 million.

For Wall Street, this was the equivalent of opening a Broadway play with three or four people in the seats — an embarrassing disaster. But Bogle was not deterred. He believed in his message and pressed on.

It took another decade or so before a competitor’s index fund vehicle was even introduced, which tells you what Wall Street thought of the whole exercise. Normally competitors come rushing to market when something new is dreamed up. With index funds, the concept was ignored for years.

Wall Street hated Bogle’s revolution from the start because, when you get down to the heart of things, Wall Street is all about generating fees, whereas Vanguard was all about reducing or eliminating fees.

Salesmen didn’t want to sell index funds because the commissions were too low (not enough fees) and investors weren’t supposed to trade them, just sit on them for decades. Where’s the fee payoff in that?

Instead of EMH — the Efficient Market Hypothesis — Jack Bogle loved to talk about what he called CMH, the “Cost Matters Hypothesis.”

Bogle’s big idea, the one he tirelessly banged a drum on for half a century, was that getting the lowest costs, along with exposure to the entire market, was the best thing a small investor could do. Many don’t realize that cost was a far bigger factor for Bogle than even the “active versus passive” debate. Bogle once stated that, if an active fund had lower costs than a passive one, he’d pick the active vehicle. It really was all about costs for him (and getting rid of them).

For investors who have no time or energy to manage their investments, Bogle’s long-time message still holds true. Participating in a well-designed index fund, with the lowest costs possible and deferred taxes through a retirement vehicle, is one the best ways to get positive exposure to the long-run economic growth of America and the world.

There are no guarantees in life. But this is the most stable and consistent way for investors — if they have no time to manage their own investments that is — to build a retirement nest egg while keeping ahead of inflation through diversified participation in economic innovation and capitalism.

Bogle was a lifelong champion of the small investor, but he was actually a friend to all investors regardless of their size. That is thanks to the spirit of competition Bogle introduced to Wall Street, and the way Wall Street was forced to change its stripes as a result.

Before Bogle’s low-cost indexing revolution came along, Wall Street was ravenously greedy in its willingness to charge high fees. That fee-gouging is still a problem today, but it is held far more in check by the fact that low-cost indexing is a multitrillion-dollar industry.

Even active managers and funds are being forced to lower their fees to better compete with index fund alternatives. And active fund managers like Fidelity now offer some funds with zero fees, just to stay competitive. Small investors are the main beneficiaries of all this.

This is how capitalism is supposed to work in an ideal world.

As Milton Friedman described it, when the free market process is working, competition is gradually driving profit margins towards zero, to the benefit of consumers who get increasingly improved goods and services at increasingly lower cost.

The man who kick-started this positive feedback loop of reduced fees on Wall Street, and then manned a bullhorn for 50 years pushing it forward, was Jack Bogle.

At TradeSmith, our mission and vision goes a step beyond Bogle’s. We believe it is possible to beat the market, and to achieve substantially better-than-average returns, through intelligent management of emotions and the use of well-designed software.

But this doesn’t mean we stand in opposition to Bogle. On the contrary, the world Jack Bogle enabled makes the TradeSmith world possible. There are countless low-cost vehicles (like ETFs), and other tools of great value to TradeSmith investors, that either had their genesis in Bogle’s low-cost revolution or indirectly benefited from his influence.

So, rest in peace, Mr. Bogle. We deeply applaud your spirit of being a champion for the small investor, while democratizing Wall Street and showing investors a better way to go than paying exorbitant sums for high-fee products.

And to any small investor reading this who isn’t yet a part of the TradeSmith family: If you’re ready to be empowered at the next level of taking your retirement into your own hands, we hope you’ll join us.

Richard Smith
Richard Smith, Ph.D.
CEO and Founder of TradeSmith