Jack Bogle is one of my investing heroes. He is the founder of The Vanguard Group, one of the world’s largest and most successful mutual fund complexes and the creator of the first retail index fund. While he started his career as an active stock picker, he finished by being considered the father of the index fund. In fact, when Vanguard launched the S&P 500 Index fund in 1976, it was widely criticized. However, it eventually became the largest fund in the world and helped to launch the index fund revolution that has benefited so many investors. He was a prolific author, penning 14 books and numerous articles. He was a “thought leader” before the phrase entered into our lexicon.
I was recently cleaning out a box of old articles that I had saved (trying to get organized during our work from home orders) and came across an article that he wrote in the CFA Magazine in 2006 titled “Timeless Wisdom”. While I could paraphrase my favorite section and put it into my own words, I decided to let Jack say it himself:
But for all the inevitable density in the fog of investing, there remains much that we do know:
- We know the sources of returns in the stock and bond markets, and that’s the beginning of wisdom
- We know that costs matters, moderately in the short run and overpoweringly in the long run.
- We know that specific-security risk can be eliminated by diversification, so that only market risk remains. (And that risk seems quite large enough, thank you!)
- We know that neither beating the market nor successful market timing can be generalized without self-contradiction
- Finally, we know what we don’t know. We can never be certain how our world will look tomorrow, and we know even less about how it will look a decade hence. But we also know that not investing is doomed to failure.