A couple of weeks ago I finally got around to watching the classic 1987 film Wall Street. Made by Oliver Stone to be a critique of the excesses of day trading that prevailed in the 80s, its legacy has become much more mixed. That’s because the film’s stock-trading villain, Gordon Gekko, has over the years become a sort of ironic hero to aspiring businessmen (and his fans are invariably men).
The most famous scene in Wall Street involves Gekko at a shareholders’ meeting where he seeks to complete a hostile takeover of the company. Accused by the CEO of seeking a quick buck at the expense of the shareholders and employees of the company, Gekko responds with a rousing speech defending not only himself but what he sees as the whole nature of American capitalism:
“The point is, ladies and gentleman, that greed—for lack of a better word—is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms—greed for life, for money, for love, knowledge—has marked the upward surge of mankind.”
More than once at Yale in the 2000s, I heard the lines of Gekko’s speech quoted admiringly by undergrads that are now on Wall Street or in the business world themselves. Wall Street was a film intended to demonize the Gordon Gekkos of the world, but instead it seems to have created whole new generations of them.
I thought immediately of Gekko last week when I heard that John Bogle, founder of Vanguard, has passed away at the age of 89. Because there has been no man in the finance world more the opposite of Gordon Gekko than Jack Bogle.
Bogle pioneered the idea of the index fund—that by investing for the long haul in the entire market of publicly traded companies, as opposed to picking and choosing stocks trying to beat the market, retail investors would see superior returns. The entire stock-trading and financial-advising industry was a sham: highly paid Wall Street executives were no better at predicting which stocks would rise than monkeys at a typewriter. And after the former’s hefty fees were accounted for, on average they might actually be even worse.
That was the core idea inspiring John Bogle’s leadership of Vanguard, the quiet, unassuming, index fund-focused investment company in Malvern, PA that now holds over $5 trillion in assets under management, dwarfing the likes of Morgan Stanley ($480 billion), Goldman Sachs ($1.5 trillion), and JP Morgan Chase ($2.8 trillion).
Vanguard now owns more than 8% on average of every single publicly traded company in America. Its strategy of thumbing noses at high-fee advisors and “Master of the Universe” Wall Street types with fancy degrees has driven costs down for ordinary middle-class people with IRAs and 401ks. Its passive indexing strategy has helped save millions of investors from their own mistakes, and those of the worse than useless advisors they might otherwise entrust their assets to.
In a lesson for any aspiring business leader, John Bogle had the guts to learn from an industry but retain the independence to call bullshit on the whole thing when he needed to, particularly when it became clear that its incentives weren’t aligned with its customers’ interests. We now know that he was right. The expert money managers know nothing. We can do better without them.
Like any real revolution, the indexing revolution Bogle kicked off will continue to have affects that are hard to predict and may not be clear for decades to come.
On the one hand, the core idea of index investing seems to confirm in the most dramatic way possible the truth of the pricing mechanism at the heart of our capitalist economy. It’s extraordinarily difficult, and maybe even impossible, to consistently find information that allows one to discern a true discrepancy between the market price of a security and its underlying worth as an enterprise.
Even the traders in the movie Wall Street only succeed in picking stocks well when they have illegally accessed insider information before that information gets to the market. It seems very hard to avoid subscribing to some version of the efficient market hypothesis if this is true.
On the other hand you can find those on the left who believe that index fund investing—where large swaths of public companies end up in the hands of investors entirely indifferent to the success of any particular company—are the best proof yet of the promise of socialism and collective ownership.
If Bogle’s Vanguard can own 8% of every public company without creating a disincentive to competition that causes economic harm, why couldn’t the state own large portions of public companies (as is the case in a few other countries) and distribute the gains from those stocks equitably to everyone, redistributing wealth from the more to the less fortunate without any threat to the underlying economic engine of growth?
It’s this inability to pin down Vanguard’s strategy into one clear ideological camp that has always intrigued me about John Bogle.
But do you know what’s never intrigued me about John Bogle? His philanthropy.
Chances are you’ve never heard of John Bogle’s giving. His Armstrong Foundation has less than $10 million in assets and has no paid staff. He founded no splashy new charity of his own. He received no glowing profiles in the trade magazines of the self-congratulatory philanthropic world. He didn’t spout pseudo-intellectual bromides about “strategic philanthropy” or “getting at root causes” or anything like that.
The list of recipients of his charity is charmingly simple: he gave back to the schools that had given him scholarships early in his life, the hospitals that had fixed his heart, his church, and the United Way.
Religion, alma mater, healthcare, and generic good causes in his community. You couldn’t get any more average for an American giver at any level of wealth.
But it’s precisely the uninspiring element of his philanthropy that we should find, well, inspiring. Jack Bogle, founder of one of the most successful companies in the entire 20th century, was such an everyman that he could never delude himself into thinking his money could cause cancer to be cured, or homelessness to be eliminated from the earth, or turn around the fate of the entire African continent.
Asked about his giving, Bogle usually said very little. As for a philosophy of philanthropy, he told a 2016 interviewer that “When you live somewhere, you have an obligation to that community.”
In another interview in 2012, he espoused a view that could have been a direct response to Gordon Gekko: “The best rule for philanthropy is to give until it hurts, as much as you can, because none of us can get through life all by ourselves.”
So many philanthropists could learn from his humility and his localism.
Perhaps another reason for his lack of philanthropic ambition was that he didn’t have nearly the money acquired by our headline-grabbing tech titans and business moguls. We needn’t feel bad for the man who made tens of millions through Vanguard, but the truth is that had he wanted to he could have been a billionaire. Had he turned Vanguard itself into a public company, he would have reaped an incredible financial reward.
But he wouldn’t do it. Though he would always publicly say that the decision was merely a tactical one at the time, I think he could also sense that as a publicly-traded company Vanguard would face pressure to raise fees, to push actively managed products over index funds, and would no longer be driven purely by the interests of its retail investors. He would be harming the people who made him successful for his own gain.
So instead he turned his company ownership over to its own mutual funds, essentially giving the company to its investors. If you open an account at Vanguard today, you essentially own a small slice of the company, returned to you in the form of the lowest fees possible.
For all intents and purposes Vanguard is a nonprofit—in fact the largest nonprofit in America—without the 501c3 designation.
Investment manager William Bernstein, quoted in the Philadelphia Inquirer’s obituary, said that “Jack could have been a multibillionaire on a par with Gates and Buffett… He basically chose to forgo an enormous fortune to do something right for millions of people. I don’t know any other story like it in American business history.”
Perhaps that’s where Bogle’s true philanthropic legacy lies. Faced with the opportunity to enrich himself in an extraordinary way, he turned most of it down, so that Vanguard’s millions of ordinary customers could own the company. “The biggest undercover philanthropist of all time,” wrote investor Morgan Housel.
Because of John Bogle’s selfless business decisions, America had one less billionaire philanthropist, and millions more middle-class givers spread throughout the country and the world, giving to their schools, their churches, and their local charities as they see fit.