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John Clifton Bogle, R.I.P.

John Bogle was a long-retired American mutual fund manager, but his impact on the industry was deep and lasting

John Clifton Bogle, R.I.P.

There are some individuals who leave such a deep mark on an entire industry that they can be said to have shaped everything that follows--whether done by the businesses they founded or by their business rivals, or indeed, the public which used the products. Obvious examples are Henry Ford, Steve Jobs, Page and Brin, perhaps Jeff Bezos. Everyone knows who they are, what businesses they founded and what their contribution was and the fabulous riches they earned.

In the mutual fund industry too there was such a figure whose impact was deep and broad, except that hardly any Indian investor would have heard of him, at least till he died on January 16th at the age of 89. His name was John Bogle and your mutual fund investments almost certainly have generated higher returns than they would have had Bogle not done what he did.

That sounds like a strange claim. How could an old man who retired almost 20 years ago, could have affected the amount of money that you made on your investments. The answer is costs--the amount of money that mutual funds charge you. Bogle's impact on mutual funds were in two areas. One, that lower costs were central to the returns that investors make and two, the widespread realisation that most fund managers could not sustainably beat the market indexes. His ideas and the example set by Vanguard, the mutual fund company that he founded (now the world's largest), has ensured a relentless focus on lower fund costs globally and has enhanced the returns for almost every mutual fund investor.

As John Bogle famously said, "In investing, you get what you don't pay for." After a quarter century of working in a mutual fund, Bogle started Vanguard in 1976. It was the first mutual fund in the world to make available low-cost index investing to individuals. As the largest mutual fund company in the world it now manages 5 trillion dollars. That's about 355 lakh crore rupees. This is not a theoretical sum of money like market capitalisation of large companies. This is actual, redeemable investor wealth, grown out of money invested by those investors. To put it in perspective, this is almost 12 times the Indian government's annual budget and even somewhat larger than the US government budget!

There's one more remarkable side to John Bogle, he founded Vanguard as not a normal business owned by him and his family, but as a non-profit! In an unusual structure, the company is owned by the mutual funds it runs, which in turn are owned by the investors who have put money into them. There is no other owner. In Indian terminology, it's essentially a co-operative. All these years, the profits it would have made were it a normal Wall Street company have actually gone to investors as higher returns.

All those investors are richer but Bogle was not. At the time of his death, he was worth less than US$ 100 million, which is a tiny fraction of others who have founded far smaller (and far less impactful) businesses. As an interviewer quoted him, Bogle said that he was proud that he wasn't a billionaire. It's hard to believe that such a man could have been part of the round-the-clock 360-degree cutthroat attitude that the financial world has towards everything. And yet, the final judgement on him is the position that Vanguard as well as his ideas holds in the financial world today.

The flipside of investors making more money because of Bogle's impact is that the financial industry is making less money, both effects being equally welcome. His life, and his contribution to the bank accounts of millions of investors is a standing reprimand to the way money-related businesses generally conduct themselves, anywhere in the world.