John Bogle Archives – The Rabbit Hole

Key Takeaways

I’ve often thought that we three brothers had the perfect growing-up environment: a family with community standing and never a concern about being inferior or dis-respected, yet with the need to take responsibility for our own spending money.
“Your diamonds are not in far distant mountains or in yonder seas; they are in your own backyard, if you but dig for them.”
But in my long career I don’t ever recall thinking of work as work, with one exception: a stint as a pinsetter in a bowling alley (now there’s a truly Sysiphean job!).
The merger agreement was signed on June 6, 1966.
someone once attributed to me: “the stubbornness of an idealist and the soul of a street fighter.”
I named our new company after HMS Vanguard, Lord Horatio Nelson’s flagship at the great British victory over Napoleon’s fleet at the Battle of the Nile in 1798. I wanted to send a message that our battle-hardened Vanguard Group would be victorious in the mutual fund wars, and that our Vanguard would be, as the dictionary says, “the leader in a new trend.”
Our index fund was derided for years, and was not copied until nearly a full decade had passed.
In life, we too often allow the illusory to triumph over the real. We focus too much on things and not enough on the intangibles that make things worthwhile; too much on success (a word I’ve never liked) and not enough on character , without which success is meaningless. Amidst the twenty-first-century pressures for immediate satisfaction and amassing information on demand, we’ve forgotten the enlightened values of the eighteenth century. We let false notions of personal satisfaction blind us to the real sense of calling that gives work meaning for ourselves, our communities, and our society.
Too Much Cost, Not Enough Value
“There are questions so important that it is, or should be, hard to think about anything else.”
Too Much Speculation, Not Enough Investment
Too Much Complexity, Not Enough Simplicity
My career has been a monument, not to brilliance or complexity, but to common sense and simplicity, “the uncanny ability,” as one observer has said of me, “to recognize the obvious.”
Amidst this wave of complexity, have we forgotten the fact that the most productive investing is the simplest investing, the most peaceable investing, the lowest-cost investing, the most tax-efficient investing—investing with the most consistent strategies and over the longest time horizon? Apparently so. And I’m afraid that the new jazzed-up iterations (largely exchange-traded funds) of the simple index fund that I spawned all those years ago are helping to lead the way. No wonder I wake up some mornings feeling like Dr. Frankenstein. What have I created!?
Too Much Counting, Not Enough Trust
No business can trust everything and count nothing. Nor can any business count everything and trust nothing. It’s all a question of balance, although my own instincts lead me toward far less reliance on counting and far more reliance on trusting. Statistics—in charts, graphs, and tables—can be used to prove almost anything in business, but unquantifiable values have a way of holding steady as a rock.
Today, in our society, in economics, and in finance, we place far too much trust in numbers. Numbers are not reality . At best, they are a pale reflection of reality. At worst, they’re a gross distortion of the truths we seek to measure. But the damage doesn’t stop there. Not only do we rely too heavily on historic economic and market data; our optimistic bias also leads us to misinterpret the data and give them credence that they rarely merit. By worshipping at the altar of numbers and by discounting the immeasurable, we have in effect created a numeric economy that can easily undermine the real one.
Growth must be organic, rather than forced.
We are . . . living at an age when life is completely overwhelmed by numbers and calculation, and we are all increasingly controlled by “targets.” . . .The frightening thing is that, just because computers can count and measure nearly everything, then we do. There was a time when we could trust our own judgment, common sense, and intuition to know if we were ill or not. Now we’re in danger of being unable to do anything without it being measured first.
While we drown in innovation, we starve for introspection, the one quality that might allow us to truly see where we have been, where we are going, and what we must do to earn the trust of the investors.
Too Much Management, Not Enough Leadership
course, action, opinion.The distinction is crucial. Bennis lays out a number of critical distinctions between the two: • The manager administers; the leader innovates. • The manager is a copy; the leader is an original. • The manager focuses on systems and structure; the leader focuses on people. • The manager relies on control; the leader inspires trust. • The manager has a short-range view; the leader has a long-range perspective. • The manager has his or her eye always on the bottom line; the leader has his or her eye on the horizon. • The manager imitates; the leader originates. • The manager accepts the status quo; the leader challenges it. Professor Bennis ends his litany with this clear summation: “The manager does things right; the leader does the right thing.”
Building a Great Organization
Rule 1: Make Caring the Soul of the Organization
Rule 2: Forget about Employees
Rule 3: Set High Standards and Values—and Stick to Them
In my time as head of Vanguard, none of these standards and values was ever written down in a manual. Rather, I proposed a single overarching but simple rule: “Do what’s right. If you’re not sure, ask your boss.”
Rule 4: Talk the Talk. Repeat the Values Endlessly.
Building a great organization demands finding the right words to communicate the best ideas and the highest ideals, words that convey purpose and passion and vision.
Rule 5: Walk the Walk. Actions Speak Louder than Words.
Rule 6: Don’t Overmanage
Rule 7: Recognize Individual Achievement
Rule 8: A Reminder—Loyalty Is a Two-Way Street
Through the Vanguard Partnership Plan, each and every member of our crew, from the moment of signing on, shares in the rewards we generate for our shareholders. I know of no other company in which every member of the workforce—without putting up one cent of capital—shares in its earnings. These earnings are derived from: (1) our low-cost advantage (that is, our fund expense ratios relative to those of our major competitors); (2) the extent to which our fund performance exceeds or falls short of the returns of our competitors; and (3) the size of our asset base. So as our cost advantage has increased, as the returns of our funds have exceeded those of their peers, and as our assets have grown, our earnings have grown—substantially! Each crew member holds a specific number of partnership units, which we increase with years of service and job grade level, and each June receives a check that, with some significant exceptions, typically comes to 30 percent of a crew member’s annual compensation. (The plan’s provisions are proprietary.)
Rule 9: Lead and Manage for the Long Term
“Once you decide whether you expect to be in business for a short time or a long time, most of the right decisions are easy.”
Think about it: The ephemeral perception of a business is based largely on images, superficial headlines in the press, the momentary challenges—all of those hiccups and diversions that take our eye off the proverbial ball.The eternal reality of a business, in contrast, is its ability to provide good products or services that meet client needs at a fair price. Yes, client perceptions may change as tough times and hard circumstances take their toll. But, over time, with businesses (even as with stock prices), any gap between perception and reality will be reconciled in favor of reality.
Some guidelines: Avoid layoffs in temporary downturns; beware of excessive stringency in compensation; don’t slash benefits to meet short-term budgetary constraints; and never demand that some arbitrary percentage of the workforce must unilaterally be rated unsatisfactory. Never!
Rule 10: Press On, Regardless
Too Much Focus on Things, Not Enough Focus on Commitment
is all true, and my own life has been the proof of it, better than any dream. Whenever I have committed myself with boldness, providence has followed,
If a job is to be done, best to do it right.
While I won’t dwell now on the Judeo-Christian values that I deeply cherish, I would note that virtually all religions preach the existence of a supreme being, the virtues of a Golden Rule, and standards of conduct that parallel the Ten Commandments. We thrive as human beings and as families not by what faith we happen to hold, but by having faith, faith in something far greater than ourselves.
S. Eliot had expressed the same ideas—much more poetically, of course—in The Rock (1934): Where is the Life we have lost in living? Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information? The cycles of Heaven in twenty centuries Bring us farther from God and nearer to the Dust. To paraphrase Neil Postman’s essential message, soon we shall know everything that doesn’t count, and nothing that does.
Schumpeter. In his Theory of Economic Development, written nearly a century ago, Schumpeter dismissed material and monetary gain as the prime mover of the entrepreneur, finding motivations like these to be far more powerful: (1) The joy of creating, of getting things done, of simply exercising one’s energy and ingenuity, and (2) The will to conquer: the impulse to fight, . . . to succeed for the sake, not of the fruits of success, but of success itself.
He began each day with “The Morning Question: What Good shall I do this day?” and ended with “The Evening Question: What Good have I done today?” It is hard to imagine a philosophy of self-improvement cast in a more ethical fashion.
Too Much “Success,” Not Enough Character
But it can be measured in our contributions to building a better world, in helping our fellow man, and in raising children who themselves become loving human beings and good citizens. Success, in short, can be measured not in what we attain for ourselves, but in what we contribute to our society.
All that’s to the good, but only so long as those of who have chosen business careers continue to ask ourselves whether we’re chasing the fake rabbit of success or the real rabbit of meaning, defined by the contributions to our society that stem from principle, virtue, and character.
In a New York Times essay in November 2004, David Brooks put it well: Highly educated young people are tutored, taught, and monitored in all aspects of their lives, except the most important, which is character-building. But without character and courage, nothing else lasts.
If character is not taught, how can it possibly be learned? The affluent world in which so many young citizens exist today doesn’t easily create the ability to build character. Often character requires failure; it requires adversity; it requires contemplation; it requires determination and steadfastness; it requires finding one’s own space as an individual. And it surely requires honor. Yet we rarely seem to emphasize character, even though in our society today there are priceless sources of inspiration right at hand. In fact, the challenge isn’t finding useful sources of inspiration, but sorting out the very good from the best.
what’s enough
Whoever cultivates the Golden Mean avoids both the poverty of a hovel and the envy of a palace.
What can be counted and weighed and spent is only a small part of enough. To understand what enough means in the larger picture of existence, we must all keep in mind the many other things that count in this life, even though (after that sign in Einstein’s office) they can’t be counted.

What I got out of it

Bogle’s life and business philosophy is the ‘simplicity on the other side of complexity.’ Amazing how far one can go if you take a simple idea and take it seriously.