John Bogle, the founder of The Vanguard Group who died earlier this month at age 89, got rich by giving his mutual fund customers a better deal.
The obituaries seem to have missed that point, dwelling instead on the theory that if only Bogle had chosen to rip off his customers, he could have been even richer. That claim is highly speculative, and based on a fundamental misperception: a view of capitalism as a racket rather than as a system in which the incentives of entrepreneurs and customers sometimes align with results that are spectacularly rewarding for both.
The tone was set with a New York Times obituary. "Vanguard managed its indexed mutual funds at cost, charging investors fees that were far lower than those of virtually all of its rivals," the Times wrote. "Vanguard's consistent growth produced riches for Mr. Bogle, but not to the extent that another ownership structure might have done. For example, Edward C. Johnson III, the chairman of Fidelity Investments, has a net worth of $7.4 billion, according to Forbes. Mr. Bogle's net worth was generally estimated at $80 million last year."
"Instead of making billions, helping millions," was the Times inside headline. An accompanying Times article described Bogle as someone "who didn't care about his own bottom line."
That's nonsense. Had Bogle pursued the conventional, high-fee approach to mutual fund management, it's quite possible he would have ended up not as a billionaire but in obscurity, just another mediocre retired executive from some forgettable fund firm.
That would be like claimi that the world's richest man, Jeff Bezos, could be even richer if he only charged everyone $15 for shipping and handling instead of offering free shipping to Prime customers. It'd be like writing a story about Charles Schwab saying he could have been even richer if he only had charged full price retail commissions for stock trades rather than opening a discount online brokerage. It'd be like writing a story about McDonald's genius Ray Kroc saying he could have been even richer if he had sold Big Macs for $10 rather than at lower prices, writes Ira Stoll.
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