To Paul Haaga, Jack Bogle displayed an aura of greatness long before he became a legend.
As a 24-year-old MBA/JD student at the University of Pennsylvania in the early 1970s, Haaga by pure happenstance got a part-time job as a law clerk at Wellington Management, a small mutual fund outfit in Philadelphia. Wellington’s president was John C. “Jack” Bogle, the investment legend and founder of the Vanguard Group of low-cost mutual funds, who passed away on Wednesday at age 89.
Since the firm had only a few dozen employees, Haaga spent almost all of his time either in Bogle’s presence, or within hearing distance of the voluble chief. “He had a ‘flat-cut’ when everybody was wearing Prince Valiant haircuts so you couldn’t see their ears,” recalls Haaga. “And he talked slowly in this deep, booming voice. If he whispered in church, you could have heard him on the street. Those traits reflected his personality. He didn’t mind being different or quirky.”
To Haaga, Bogle, then is his mid-40s, boasted both the presence and the people skills, of a natural leader. “He didn’t just fill a room, people would say he owns the room,” says Haaga. “His presence was big but it was ‘positive big.’ While some leaders kick down and kiss up, Jack did just the opposite. He expressed deep interest and concern about his people. He was always joking. He had a bunch of kids, and when he came downtown to work, we were his kids.”
Haaga went on to serve as an attorney at the Securities and Exchange Commission, rise to partner in a prominent Washington, D.C. law firm, and spend 28 years at Capital Research, the sponsor of the huge American Funds mutual fund family (assets under management: $1.9 trillion). He finished his career as Capital’s chairman in 2012. In retirement he serves, among other non-profit positions, on the board of National Public Radio.
Forging a Rebellious Path
In his varied roles, Haaga spent lots of time with his former employer after Bogle founded Vanguard Group in 1974, working with Bogle to promote the mutual fund industry when Haaga served as chairman of the industry association, the Investment Company Institute. Vanguard, of course, became famous for launching low-fee index funds that offered investors access to the wider stock market at a very low cost; it now has more than $5 trillion in assets under management.
For Haaga, Bogle’s contributions to the investment world extend far beyond his role in pioneering passive investing. “Index funds account for maybe 20% of U.S. investments,” says Haaga. “But Jack influenced the way people invest virtually 100% of their money, including their holdings in the actively-managed accounts that Jack criticized.” Bogle exercised that influence in three ways, says Haaga. First, Bogle was one of the first prominent money managers to focus on how much management fees and transaction costs were costing investors. “Commissions, trading costs, costs of every kind have gotten a lot more attention because of Jack,” says Haaga. “Sure, he was pushing his product. But the way he pushed it was by emphasizing its low costs and arguing that the industry needed lower costs on all investments. That approach had a good effect for everyone.”
Second, Bogle was an outspoken advocate of diversification before its advantages were widely understood. Haaga witnessed Bogle’s passion for spreading risk across a broad spectrum of stocks, or blends of equities and bonds, while at Wellington. “Wellington merged with a group from Boston that managed a fund that concentrated narrowly in the ‘nifty fifty,’ glamorous, high-flying growth companies, most of which don’t exist today,” recalls Haaga. But Bogle thought concentrating in hot growth stocks was dangerous for investors. Instead, he promoted “balanced” funds containing a wide mix of stocks and bonds, and income funds consisting of a broad portfolios of dividend stocks. “This was in Jack’s pre-index fund days,” says Haaga. “But you could see that he was already advocating the principles that became the foundation of passive investing.”
Third, Bogle championed investing for the long term. “This went beyond his advocacy for index funds,” says Haaga. “He advised against trying to time the markets. And over the years, that’s been a sound strategy for investors.”
Haaga concedes that Bogle often played the role of a super-brash salesman. “His speeches could be strident,” he says, “They could be called advertisements for his products. But his overall contributions shouldn’t be measured by his speeches. He had a huge impact on the investing public.” And that’s because his influence extended so far beyond the product innovation that made him a legend.