Enough E-Book

John C. Bogle

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch
• Veröffentlichungsjahr: 2008

Seitenzahl: 280

Beschreibung

John Bogle puts our obsession with financial success in perspective Throughout his legendary career, John C. Bogle-founder of the Vanguard Mutual Fund Group and creator of the first index mutual fund-has helped investors build wealth the right way and led a tireless campaign to restore common sense to the investment world. Along the way, he's seen how destructive an obsession with financial success can be. Now, with Enough., he puts this dilemma in perspective. Inspired in large measure by the hundreds of lectures Bogle has delivered to professional groups and college students in recent years, Enough. seeks, paraphrasing Kurt Vonnegut, "to poison our minds with a little humanity." Page by page, Bogle thoughtfully considers what "enough" actually means as it relates to money, business, and life. * Reveals Bogle's unparalleled insights on money and what we should consider as the true treasures in our lives * Details the values we should emulate in our business and professional callings * Contains thought-provoking life lessons regarding our individual roles in society Written in a straightforward and accessible style, this unique book examines what it truly means to have "enough" in world increasingly focused on status and score-keeping.

Leseprobe

Table of Contents

Praise

Title Page

Copyright Page

The Great Seduction

Introduction

Growing Up

No Idle Hands

Blair Academy: “Come, Study, Learn”

Acres of Diamonds

Coming to Philadelphia

At Princeton, a Discovery

A Door Slams; a Window Opens

Complications

A Complete Firm Emerges

A Stunning Endorsement from the Court of Last Resort

A Change of Heart

Treasures False and True

Socrates’ Challenge

MONEY

Chapter 1 - Too Much Cost, Not Enough Value

A Prophetic Forecast

Wresting a Living from Finance

Fortunes from Failure

Heads I Win; Tails You Lose

Brain Drain

The Drain of Costs and Taxes

The Wrong Kind of Wizardry

Costs Rear Their Ugly Head

Investors Get Precisely What They Don’t Pay For

A Question So Important

Chapter 2 - Too Much Speculation, Not Enough Investment

A Giant Distraction

A Loser’s Game

Speculation Is in the Driver’s Seat

Black Swans and Market Returns

Black Swans and Investment Returns

Tortoises Win

Hares Win (But How Can That Be?)

The Perils of Market Timing

Striking a Balance

Chapter 3 - Too Much Complexity, Not Enough Simplicity

Derivatives: Dancing to the Music

Marketers Win, Investors Lose

“Don’t Just Stand There. Do Something!”

Mutual Funds: Lowering the Bar

Sometimes for Better, but Mostly for Worse

The Innovation Blunderbuss

Back to Basics

An All-Too-Predictable Outcome

BUSINESS

Chapter 4 - Too Much Counting, Not Enough Trust

Government: Making the Numbers Fit

Finance: Attributing Certitude to History

The Experts Are Wrong . . . Again

Business: The Bias toward Optimism

The Real-World Consequences of Counting

Finance Calls the Tune for Business

“Rock, Scissors, Paper”

Giving Judgment a Chance

The Spirit of Trust

Measure First, Judge Later?

An Empty Exercise

Chapter 5 - Too Much Business Conduct, Not Enough Professional Conduct

Times Have Changed

Hammers and Nails

Capitalism Changes Its Values

Owners, Not Agents

CEO Compensation: How Much Is Enough?

A Lack of Accountability

Intrinsic Value, Not Stock Price

Performance, Not Peer Groups

Principals and Principles

“Only Capitalists Can Kill Capitalism”

Chapter 6 - Too Much Salesmanship, Not Enough Stewardship

Investors Change Their Spots; So Do Managers

Good for Managers, Bad for Shareholders

Toward a Better World

Let’s Dream Together

Of, By, and For the Shareholder

Chapter 7 - Too Much Management, Not Enough Leadership

Building a Great Organization

The Superior Company

Values and Profits

The Gale of Creative Destruction

LIFE

Chapter 8 - Too Much Focus on Things, Not Enough Focus on Commitment

Boldness, Commitment, and Providence

Commitment to Family and Community

The Commitment to Citizenship

Chapter 9 - Too Many Twenty-First-Century Values, Not Enough Eighteenth-Century Values

The Age of Reason

The Prototypical Eighteenth-Century Man

Entrepreneurs and Capitalists

The Impartial Spectator

“The Moral History of U.S. Business”

A Merchant and a Man

Returning Stewardship to Capitalism

On Virtue

Chapter 10 - Too Much “Success,” Not Enough Character

Flawed Measures of Wealth . . .

. . . and of Fame and Power

The Means, Not the End

A Special Burden

Competition for What?

“Without Character and Courage, Nothing Else Lasts”

Wondering about the Rabbit We Chase

WRAPPING UP: WHAT’S ENOUGH?

What’s Enough For Me? For You? For America?

Enough for Me?

Enough for You?

Enough for America?

My Own Exciting Odyssey

Afterword

Acknowledgements

Notes

Index

Praise for Enough.

“Jack Bogle’s passionate cry of Enough. contains a thought-provoking litany of life lessons regarding our individual roles in commerce and society. Employing a seamless mix of personal anecdotes, hard evidence, and all-too-often-underrated subjective admonitions, Bogle challenges each of us to aspire to become better members of our families, our professions, and our communities. Rarely do so few pages provoke so much thought. Read this book.”

—David F. Swensen Chief Investment Officer Yale University

“Enough. gives new meaning to the words ‘commitment, ’ ‘accountability,’ and ‘stewardship.’ Bogle writes with clarity and passion, and his standards make him a role model for all of us. Enough. is must reading for millions of U.S. investors disenchanted by today’s culture of greed, accounting distortions, corporate malfeasance, and oversight failure.”

—Arthur Levitt Former Chairman U.S. Securities and Exchange Commission

“Jack Bogle’s wonderful, thoughtful, helpful, and fun-filled little book inspired me to create my own title: Never Enough of Jack Bogle!”

—Peter L. Bernstein Author of Capital Ideas Evolving and Against the Gods

“Jack Bogle, the ‘conscience of Wall Street,’ single-handedly founded the Vanguard Group—still the nation’s only mutual mutual fund organization—and then grew it into the gentle giant that funds the retirements, educations, and philanthropic goals of millions of Americans. Now, in Enough., he distills his half-century of observations on the capital markets, and on life in general, into a few hundred entertaining pages—required reading for those concerned about their own future, their family’s future, and the nation’s future.”

—William J. Bernstein Author of A Splendid Exchange and The Four Pillars of Investing

“This is an impressive message from a distinguished businessman. It will challenge all decision makers to consider the sufficiency and direction of their lives and work.What do we mean by Enough? Enough of what? Enough for what purpose? Feast here and reflect.”

—Robert F. Bruner Dean and Charles C. Abbott Professor of Business Administration, Darden Graduate School of Business University of Virginia

“What went wrong? What can, and should, go right? The great Jack Bogle has the answers. Enough. will leave you hungry for more.”

—James Grant Editor of Grant’s Interest Rate Observer

“From one ‘battler’ to another: Thank you for putting in one little book the premise for an active, long life. A primer for those who will abjure complacency and just wanting more, who’d rather focus on the joy of trying to move some ball downfield.”

—Ira Millstein Senior Partner,Weil Gotshal & Manges LLP

“The balances one must create in investing, in running a business, and in life more generally are simply and clearly stated in Jack’s most recent book, Enough. Unfortunately there are not enough Jack Bogles around in today’s world of instant gratification. Enough. should be must reading for business students and corporate board members.”

—David L. Sokol Chairman, MidAmerican Energy Holdings Company

Copyright © 2009 by John C. Bogle. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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eISBN : 978-0-470-44195-4

1. Finance. 2. Investments. 3. Business. 4. Value. I. Title. HG173.B595 2009 650.1—dc22 2008036137.

The Great Seduction

The people who created this country built a moral structure around money.The Puritan legacy inhibited luxury and self-indulgence. Benjamin Franklin spread a practical gospel that emphasized hard work, temperance, and frugality. Millions of parents, preachers, newspaper editors, and teachers expounded the message.The result was quite remarkable.

The United States has been an affluent nation since its founding. But the country was, by and large, not corrupted by wealth. For centuries, it remained industrious, ambitious, and frugal.

Over the past 30 years, much of that has been shredded. The social norms and institutions that encouraged frugality and spending what you earn have been undermined. The institutions that encourage debt and living for the moment have been strengthened.The country’s moral guardians are forever looking for decadence out of Hollywood and reality TV. But the most rampant decadence today is financial decadence, the trampling of decent norms about how to use and harness money.

DAVID BROOKS THE NEW YORK TIMESJune 10, 2008

Introduction

At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds,“Yes, but I have something he will never have . . . enough.”

Enough. I was stunned by the simple eloquence of that word—stunned for two reasons: first, because I have been given so much in my own life and, second, because Joseph Heller couldn’t have been more accurate. For a critical element of our society, including many of the wealthiest and most powerful among us, there seems to be no limit today on what enough entails.

We live in wonderful and sad times—wonderful in that the blessings of democratic capitalism have never been more broadly distributed around the globe, sad in that the excesses of that same democratic capitalism have rarely been more on display. We see the excesses most starkly in the continuing crisis (that is not an extreme description1) in our overleveraged, overly speculative banking and investment banking industries, and even in our two enormous government-sponsored (but publicly owned) mortgage lenders, Fannie Mae and Freddie Mac, to say nothing of the billion-dollar-plus annual paychecks that top hedge fund managers draw and in the obscene (there is no other word for it) compensation paid to the chief executive officers of our nation’s publicly held corporations—including failed CEOs, often even as they are being pushed out the door.

But the rampant greed that threatens to overwhelm our financial system and corporate world runs deeper than money. Not knowing what enough is subverts our professional values. It makes salespersons of those who should be fiduciaries of the investments entrusted to them. It turns a system that should be built on trust into one with counting as its foundation. Worse, this confusion about enough leads us astray in our larger lives. We chase the false rabbits of success; we too often bow down at the altar of the transitory and finally meaningless and fail to cherish what is beyond calculation, indeed eternal.

That message, I think, is what Joseph Heller captured in that powerful single word enough—not only our worship of wealth and the growing corruption of our professional ethics but ultimately the subversion of our character and values. And so that’s where I want to start, with what I know best: how my own life has shaped my character and values, and how my character and values have shaped my life. As you will see, I’ve been given enough in countless ways.

Growing Up

Perhaps the best place to begin is with my heritage: heavily Scottish, which may be enough to explain my apparently legendary thriftiness. The Armstrongs—ancestors of my grandmother on my mother’s side—came to America from Scotland in the early 1700s to farm here (a wonderful reminder that nearly all of us are descendants of immigrants). I’ve always thought of my great-grandfather—Philander Banister Armstrong—as my spiritual progenitor. He was an industry leader, but did his best to reform first the fire insurance industry (in an 1868 speech in St. Louis, he implored, “Gentlemen, cut your costs”), and then the life insurance industry. His spirited 1917 diatribe—258 pages long—was entitled A License to Steal: How the Life Insurance Industry Robs Our Own People of Billions.The final sentence: “The patient [the insurance industry] has a cancer. The virus is in the blood. He is not only sick unto death, but he is dangerous to the community. Call in the undertaker.”

The Hipkins family—my mother’s family—were Virginians who also came to America early in the eighteenth century; some of their progeny would serve in the Confederate States Army. My Hipkins grandparents, John Clifton Hipkins (“The Skipper”) and Effie Armstrong Hipkins (“Chick”), were colorful characters who expected their three children and six grandchildren to be good citizens and to make the most of themselves.

William Brooks Bogle and his wife Elizabeth also arrived here from Scotland, but much later, during the early 1870s. Although Ellis Island was not yet the port of entry, their names are on a plaque there. Their son (and my grandfather) William Yates Bogle was a successful merchant in Montclair, New Jersey, highly respected in the community, and the founder of a company that became part of the American Can Company (which in turn became Primerica Corporation in 1987), large enough to be among the 30 stocks in the Dow Jones Industrial Average for 75 years.

His son, William Yates Bogle Jr., was my father. At the start of World War I—before the United States declared war—he volunteered to serve in the Royal Flying Corps and flew a Sopwith Camel. This dashing pilot, handsome to a fault, was said to resemble the then Prince of Wales, who became king of England in 1936 (before abdicating to marry “the woman I love”). My father was injured when his plane crashed, and he returned home, marrying my mother, Josephine Hipkins Bogle, in 1920.

Life was easy for the well-to-do young couple, but sadly, their first two children (twins, Josephine and Lorraine) died at birth. Their first son was my brother William Yates Bogle III, born in 1927, shortly followed by another set of twins on May 8, 1929, David Caldwell Bogle and me, John Clifton Bogle.

No Idle Hands

We were born some years after my Bogle grandfather had provided a handsome new home for the growing family in Verona, New Jersey (abutting Montclair). But the Great Crash came, and soon both my home and my father’s inheritance were gone. We moved into my mother’s parents’ house, the first of the frequent moves that were to send the struggling family up and down the Jersey coast.

So while my family began with enough—in fact, much more than enough—we soon were in difficult financial straits. (My father, having grown up surrounded by the good things of the era, lacked the determination of his father, and struggled to hold a job.) From an early age, all three boys had to earn what they got. How well I remember the constant refrain, “Idle hands are the tools of the devil” (pronounced, in the Scots way, divil ).

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 (and even to help fund the family exchequer), the initiative to get jobs, and the discipline of working for others. While we had wonderful friends—still friends today—who had more than enough and who played while we worked, we learned early on the joy of accepting responsibility, of using our wits, and of engagement with the people (rich and far from rich alike) whom we served in our various jobs, winter, summer, spring, and fall.

Blair Academy: “Come, Study, Learn”

In seventh and eighth grades, we twins attended a small grammar school in Spring Lake, New Jersey; we then moved on to nearby Manasquan High School. But my mother, ambitious for her sons and deeply concerned that we weren’t getting the best of schooling, sought something much better. Through her persistence and determination, all three Bogle boys became boarding students at Blair Academy in northwestern New Jersey—an incredible opportunity to begin a fine education. It was my mother’s drive for her boys’ education that overcame our lack of money, and Blair provided us with scholarships and jobs. In my first year, I waited on tables and, as a senior, rose to the demanding job of captain of the waiters.

Blair’s motto (translated from the Latin) is “Come, Study, Learn,” and so I did. Pushed by demanding old-school masters who seemed to sense that I could, with great effort, excel—although the classwork was far more demanding than any I’d ever before encountered—I gradually managed to overcome my early lag in studies. At graduation, I was class salutatorian, and was voted “Best Student” and “Most Likely to Succeed,” accolades that may hint at both the determination that I still can’t seem to shake and, perhaps, the entrepreneurial spirit that would later shape my career. I’ll never forget the inspiration that I received when in my junior year I read this sentence in Thomas Macaulay’s essay on Samuel Johnson:“The force of his mind overcame his every impediment.”

So my attitude to what’s enough in this life, I think, has been largely shaped by my heritage and the experiences of my youth, not least among them being blessed by a strong family: proud grandparents, loving parents, and a marvelous brotherhood of three who fought with each other but were united when others wanted to take us on.

That combination might well have led nowhere; after all, the Bogle boys were hardly worse off than countless numbers of other American youths. But as I reached toward maturity and ever after, I have been blessed with infinite good fortune in my life, often of miraculous dimension. Surely my first major break was when Blair Academy accepted the responsibility for my education. Without these breaks, who knows where I’d be (indeed, as you’ll soon learn, even if I’d be) today? I have come to refer to each turn of good fortune as akin to discovering a diamond. Over the course of my life, as it has turned out, I would discover “acres of diamonds.”

Acres of Diamonds

In ancient Persia, a wealthy farmer leaves his home to seek even greater wealth, and spends his life in a fruitless search for a perhaps mythical diamond mine. Finally, as age and years of frustration take their toll, he throws himself into the sea and dies, an unhappy pauper far from home. Meanwhile, back at his estate, the new owner, surveying his vast acreage, sees something in a stream, something bright, glistening in the sunlight. It is a large diamond, and turns out to rest atop the fabulous Golconda mine.

This story was a special favorite of Dr. Russell Conwell, who founded Philadelphia’s Temple University in 1884. The story inspired his classic lecture, “Acres of Diamonds,” which he delivered more than 6,000 times, all the world over. The moral of the story: “Your diamonds are not in far distant mountains or in yonder seas; they are in your own backyard, if you but dig for them.”

The very first student at what would become Temple was so inspired by the speech that he came to Dr. Conwell, eager for an education but unable to pay for one. Accepted on the spot for tutelage, the man went on to rise to a position of eminence and public service. I have no trouble believing that story because when, as a young man, I first read Dr. Conwell’s lecture, its message also inspired me, even as it continues to inspire me today. And all of those fortunate discoveries of one diamond after another took place right in my own backyard, in a city in which I’d never before set my foot.

Coming to Philadelphia

It was just before Thanksgiving of 1945, shortly after the end of World War II, when this young resident of New Jersey first arrived in Philadelphia. My late twin brother, David, bless his soul, was with me; we were two 16-year-old boys getting off a bus from Blair Academy, coming to the City of Brotherly Love for the first time to celebrate the holiday with our mother and father. Our parents (my older brother, William, then 18, was serving in the U.S. Marine Corps) had recently moved into two rooms on the third floor of a modest home in suburban Ardmore, but the tiny space was enough for all of us—at least for the holidays. We ate our dinners at the small Horn & Hardart’s restaurant around the corner. Later, when I was on vacation, I worked the graveyard shift at the Ardmore Post Office.

I found my first diamond, if not quite in Philadelphia, nearby. Through the extraordinary preparation for college that Blair Academy had given me, I gained admission to Princeton University. To make it financially possible for me to attend, the university offered me both a full scholarship and a job waiting on tables in Commons. (A waiter yet again—I must have been good at it!) In later years, I worked at the Athletic Association ticket office, managing one of its departments during my junior and senior years.

With a series of summer jobs (one as a runner in a local brokerage firm; another as a reporter on the police beat for the Philadelphia Evening Bulletin), I was able to earn the remaining money I needed. I worked very hard, and the hours were long. But I loved hard work then—I still do—and I grew up with the priceless advantage of having to work for what I got. 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!).

At Princeton, a Discovery

While I was studying at Princeton, my parents’ marriage fell apart. My father moved to New York, and my beloved mother, terminally ill, remained in Philadelphia. I wanted to return there to be with her after my graduation in 1951, and fate intervened to make it possible. (Sadly, her life ended in 1952.)

At Princeton, this callow, idealistic young kid with a crew cut had determined to write his economics department senior thesis on a subject on which no earlier thesis had been written. Not John Maynard Keynes, not Adam Smith, not Karl Marx, but a subject fresh and new. What but fate can account for the fact that in December 1949, searching for my topic, I opened Fortune magazine to page 116 and read an article (“Big Money in Boston”) about a financial instrument that I had never heard of before: the mutual fund. When the article described the industry as “tiny but contentious,” I knew that I had found my topic and, though I couldn’t know it at the time, another diamond as well.

After a year of intense study of the mutual fund industry, I completed my thesis and sent it to several industry leaders. One was Walter L. Morgan, mutual fund pioneer, the founder of the Philadelphia-based Wellington Fund and member of Princeton’s class of 1920. He read my thesis and liked it sufficiently that he would soon write: “A pretty good piece of work for a fellow in college without any practical experience in business life. Largely as a result of this thesis, we have added Mr. Bogle to our Wellington organization.” I started right after my 1951 graduation (magna cum laude, thanks largely to my thesis) and never looked back. I have worked there—one way or another, as you will soon see—ever since.

I have no way of knowing whether it is true, as some of his closest associates told me after his death, that Walter Morgan thought of me as the son he never had. But he was like a father to me. He became my loyal and trusted mentor, the man who gave me the first break of my long career. More, Mr. Morgan was my rock, the man who had confidence in me when I had little confidence in myself, the man who gave me the strength to carry on through each triumph and tragedy that would follow.

When I joined Wellington Management Company in 1951, it was an important company in a tiny industry, and managed a single mutual fund (Wellington Fund) with but $150 million in assets. But we were growing rapidly. By the early 1960s, I was deeply involved in all aspects of the business and soon became Walter Morgan’s heir apparent. Early in 1965, when I was just 35 years old, he told me I would be his successor as the leader of the firm. Yet another diamond! Although many other diamonds still lay hidden in the earth beneath me, undiscovered, the company was in troubled straits, and Mr. Morgan told me to “do whatever it takes” to solve our investment management problems.

A Door Slams; a Window Opens

Headstrong, impulsive, and naive, I found a merger partner—in Boston, of all places—that I hoped would help me do exactly that. The merger agreement was signed on June 6, 1966. With an ebullient bull market in stocks on our side, the marriage worked beautifully through early 1973. But when the bear market came and the stock market tumbled (a decline that would ultimately slash stock prices by 50 percent), both the aggressive young investment managers who were my new partners and I let our fund shareholders down. (The asset value of one of our funds plummeted by 75 percent!)

By late 1974, as the bear market took its toll and large numbers of our shareholders took flight, the assets under our management had plunged from $3 billion to $1.3 billion. Not surprisingly, my partners and I had a falling out. But my adversaries had more votes on the company board than I did, and it was they who fired me from what I had considered my company. What’s more, they intended to move all of Wellington to Boston. I wasn’t about to let that happen.

I loved Philadelphia, my adopted city that had been so good to me. I had established my roots there, finding even more unimaginable diamonds. In 1956, I had married my beloved wife, Eve, who was born and grew up in Philadelphia, and by 1971, we had been blessed with six wonderful children (followed eventually by 12 terrific grandchildren). We intended to stay where we were, and I had a plan to do just that. For when the door slammed on my career at Wellington, a window opened just wide enough to allow me to remain in Philadelphia.

Pulling off this trick was not easy, and in fact I might not have tried doing so if I hadn’t had the two characteristics that someone once attributed to me: “the stubbornness of an idealist and the soul of a street fighter.” After a long and bitter struggle, I was able to parlay a slight difference in the governance structure of the Wellington funds (owned by their own shareholders) and Wellington Management Company (owned by public shareholders but now largely controlled by the former partners who had just fired me) into a new career—and with it more diamonds than I ever could have imagined.

Complications

A majority of the directors of the board of the funds themselves were independent of Wellington Management Company, and I proposed that they adopt an unprecedented, unique structure, one in which the funds would govern themselves. The idea was simple. Why should our mutual funds retain an outside company to manage their affairs—the modus operandi of our industry then and now—when they could manage themselves and save a small fortune in fees? They could be truly mutual mutual funds. The battle was hard fought over a period of eight busy, hectic, and contentious months, with the fund board almost evenly divided. But this new structure finally carried the day.2

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.” However, my idea suffered a setback when the fund directors allowed Vanguard (now owned by the funds) to handle only the administration side of the firm’s activities, responsible for the funds’ operating, legal, and financial affairs. When we began in May 1975, we were barred from assuming responsibility for investment management and marketing, the other two—and far more critical—sides of the triangle of essential mutual fund services.To my chagrin, these key services would continue to be provided by my rivals at Wellington Management Company.

A Complete Firm Emerges

I knew that we would have to expand our narrow mandate and take responsibility for the full range of administrative, investment, and marketing services that all fund complexes require if Vanguard were to have even a fighting chance to succeed. So we had to seek yet more diamonds. We quickly found one to rival the fabled Kohinoor diamond in size. The fact that investment management was outside of Vanguard’s mandate led me within months to develop a great idea that I had toyed with for years, which had even been suggested by the research I had done for my senior thesis, and in which I had written, mutual funds “can make no claim to superiority over the market averages.” Before 1975 had ended, we had formed the world’s first index mutual fund.

The idea was the essence of simplicity: The portfolio would simply hold all of the stocks in the Standard & Poor’s (S&P) 500 Stock Index, based on their market weight, and would closely track its returns. Our index fund was derided for years, and was not copied until nearly a full decade had passed. The new fund, originally named First Index Investment Trust (now Vanguard 500 Index Fund), began with just $11 million of assets, and was dubbed “Bogle’s Folly.” But it proved its point. The first index fund gradually earned compound returns that were substantially higher than the returns earned by traditional equity funds, and would become the largest mutual fund in the world. Today Vanguard 500 is one of 82 index and virtual index mutual funds that constitute nearly $1 trillion of Vanguard’s now-$1.3 trillion asset base.3

Thus, in the words of Psalm 118, “the stone that the builders rejected . . . became the chief cornerstone” of our new firm. But its birth was a mighty fragile thing. The argument that we were not overstepping our narrow initial mandate just squeaked past approval by the board of directors. The trick of the index fund, I contended, was that it didn’t need to be “managed”; it would simply buy all of the stocks in the S&P 500 Index. But with this quasi-management step, we had edged into the second side—the investment side—of the triangle of essential fund services.

How to again expand our mandate to control the third and final side—the marketing function? Why, just find another diamond! And so we did. The idea was to eliminate the very need for distribution, abandoning the network of stockbrokers that had distributed Wellington shares for nearly a half-century, and instead relying not on sellers to sell fund shares, but on buyers to buy them. The risks of such a sea change were enormous, but so were the opportunities.