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Taming the Beast: Wall Street's Imperfect Answers to Making Money by Larry Light

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Chapter 3

On Autopilot: Indexes

They call him Saint John, some facetiously, some with aching sincerity. Few living persons have statues erected in their honor, but John Bogle has one, on his company’s campus outside Philadelphia. Famously cantankerous, this saint is often found speechifying about the righteousness of the faith that he founded. He has a steadfast coterie of acolytes, called Bogleheads. He believes he is on a mission and his cause is just. The company he launched to be the instrument of his vision, the Vanguard Group, has striven for greatness, he says—and he leaves no doubt that he and Vanguard have attained it through virtuous conduct. On Vanguard’s investing style, he quotes Leo Tolstoy: “There is no greatness where there is not simplicity, goodness, and truth.”

John Bogle invented the index mutual fund, Vanguard’s premier product, which tracks the Standard & Poor’s (S&P) 500 and thus captures the moves of the broad market. In his eyes, indexes are the superior way to invest in the stock market, bar none. Indexes easily outdo mere humans who are picking stocks with the aid of a spreadsheet, a Bloomberg terminal, and a crafty (they believe) strategy. For Bogle, many non-index funds—run by managers who dodge in and out of stocks chasing glory—tend to be too risky, too costly, and too tax prone.

The octogenarian Bogle gave up running Vanguard in the late 1990s. Boundlessly energetic—he had a heart transplant in 1995—he still keeps a heavy schedule proselytizing ...

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