Thursday, July 13, 2006

John Bogle Is Amazing

John Bogle, the founder of the Vanguard Group, is simply amazing.

John is 77 years young--take a listen to this podcast. I would never guess from listening to him that he had been born during the Great Depression! I can only hope that when I'm his age, I have a fraction of his charisma, wit, and charm.

The most amazing point he made was when he described when he realized that indexing was the way to go. He conducted a simple experiment: he calculated how much you would make over 40 years of compounding, first with an index fund, and then second, with the average actively-managed fund.

The index fund compounded $1,000 to $140,000.

The actively managed fund, with average annual return just 1.5% lower, compounded to $37,000.

In other words, as John put it, "The investor in an actively managed fund, who provides all of the capital and takes all of the risk, gets 26% ($37,000 of $140,000) of the total return. The financial industry, which provides no capital and takes no risk, gets 74% of the total return."

Wow.

I'll leave you with an example of John's good humor. After describing how he was fired as head of the Wellington Management Group, then started Vanguard, he joked: "I left my old job the exact same way I took my new job--fired with enthusiasm!"

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