Remarks by John C. Bogle, Senior Chairman and
Founder, The Vanguard Group
Upon Receipt of The Musser Award for Excellence
Temple University, Philadelphia, Pennsylvania
November 17, 1998
Good evening. Ladies and gentlemen, citizens of Philadelphia and of
this great Commonwealth, and distinguished members of the Vanguard crew, including
representatives of the 300 Temple graduates who, with me, serve our ten million
shareholders. I am as humbled by your attendance as I am by the award for
leadership that has been bestowed upon me by Temple University.
At this great university tonight, I can hardly begin my remarks with
any other theme than the one that I have chosen, not alone, but with the inspiration
of an ageless idea that was born right here in Philadelphia 114 years ago.
I suppose that "Acres of Diamonds"the classic lecture of your founder,
Russell Conwell, one that he is said to have delivered more than 6,000 times,
all the world overhas been used as the theme for many more thousands
of speeches that others have given over the years. But I simply can't imagine
another soul for whom it would be quite so appropriate.
Since many of you know the story that inspired Dr. Conwell, I shan't
recount it in detail here. Suffice it to say that in ancient Persia, a wealthy
farmer is said to have left home to seek even greater wealth, and spends his
life in a fruitless search for a perhaps mythical diamond mine. But after
he dies, an old and unhappy pauper far from home, the fabulous Golconda mine
is found back in Persia, on his very own estate. For Dr. Conwell the moral
of the story was: "Your diamonds are not in far distant mountains or in yonder
seas; they are in your own back yard, if you but dig for them." And when a
young man came to see Dr. Conwell in 1884, a young man who had found it impossible
to pay for an education, he was told to begin to learn under your founder's
tutelage, right then and there, in the City of Brotherly Love. I might easily
have been that young man.
It was just before Thanksgiving of 1945, shortly after the end of World
War II, when this young resident of New Jersey first arrived in this fair
city. That was a while ago. The Chinese Wall carried trains into Philadelphia,
and Broad Street Station was the main railroad stop. My twin brother, David,
bless his soul, was with me, two sixteen-year-old boys coming here for the
first time on a bus from Blair Academy to celebrate the holiday with our parents.
We were hardly wealthy. Our parents (my older brother, William, then 18, was
serving in the U.S. Marine Corps) lived in two rooms on the third floor of
a home in Ardmore, but the space was enough for all of usat least for
the holidays. We ate our dinners at Horn and Hardart's around the corner.
When I was on vacation, I worked at the Ardmore Post Office, the first diamond,
though I didn't realize it at the time, in the truly vast mine that I had
All three Bogle boys were boarding students at Blair Academy in northwestern
New Jerseya God-given opportunity to begin a fine education. We earned
scholarships and we waited on tables. A few years later, when our family resources
were such that two of us had to go to work full-time, I was the one who was
fortunate enough to go to college. I won admission to Princeton, and, to make
it financially possible for me to go there, the University gave me both a
full scholarship and a job. With a series of summer jobs (one as a reporter
on the police beat for The Evening Bulletin),
I was able to earn the remaining money I needed. I worked very hard, and the
hours were long. But I loved hard work thenI still doand was
determined, in some way that I'm still not at all clear about, to get ahead.
I was blessed by a loving and strong familyproud grandparents, loving
parents, a marvelous brotherhood of three that fought among each other, but
when others wanted to take us on, we were united. And I grew up with the priceless
advantage of having to work for what I got.
My father soon moved to New York, and my mother, terminally ill, remained
in Philadelphia. I wanted to return here to be with her after my graduation
in 1951, and fate intervened to make that goal a reality. At Princeton, this
callow, idealistic young kid with a crew cut had determined to write his Economics
Department senior thesis on a subject no one had ever written on before. Not
Lord Keynes, not Adam Smith, not Jean Baptiste Say, but a subject fresh and
new. What but fate can account for the fact that in December 1949, searching
for my topic, I opened Fortune magazine
to page 116 and read an article ("Big Money in Boston," of all things) on
a financial instrument of which I had never before heard: mutual funds. When
the article described the industry as "tiny but contentious," I knew that
I had found my topic.
After a year of intense study of the mutual fund industry, I wrote my
thesis and sent it to several industry leaders. One was another diamond, right
here in Philadelphia. Walter L. Morgan, mutual fund pioneer, the founder of
Wellington Fund, and member of Princeton's Class of 1920, read my thesis.
He liked it, and was later to write: "A pretty good piece of work for a fellow
in college without any practical experience in business life. Largely as a
result of this thesis, we have added Mr. Bogle to our Wellington organization." I started right after my 1951 graduation, never looked back, and have been
here ever since. Yes, my own acres of diamonds were in Philadelphia. And here
began a friendship, one that was to endure for almost 50 years, with a remarkable
I have no way of knowing if it is true, as some of his close associates
told me, that he thought of me as the son he never had. But he was like a
father to memore like a patriarch, reallyand became my loyal
and trusted friend, not only the man who gave me my first break, but also
my rock, the man who had confidence in me when I had little confidence in
myself, the man who gave me the strength to carry on through each triumph
and tragedy that would follow. When he died last September, shortly after
celebrating his 100th birthdaywith his sense of place and sense of
humor intact, and with his strong and probing mind still activeI had
lost the most marvelous and unforgettable character I had ever met. May God
bless you always, Walter Morgan!
During the depression years of the 1930s, few young men had entered
the investment field, and far fewer the tiny mutual fund industry. When I
joined Wellington in 1951 it was a tiny company, and in less than a decade
I had become Walter Morgan's heir apparent. By the early 1960s, I was deeply
involved in all aspects of the business, and in early 1965, when I was just
35 years old, he told me I would be his successor. While diamonds lay before
me, the Company was in troubled straits, and Mr. Morgan told me to "do whatever
it takes" to solve our investment-management problems.
Headstrong, impulsive, and naïve, I found a merger partnerin
Boston, of all placesthat I hoped would do exactly that. Alas, despite
the glitter, I found no diamonds there. The merger worked beautifully for
about five years, but the investment managers who were my new partners let
our fund shareholders down, the stock market dropped 50%, and the assets we
managed plunged from $3 billion in early 1973 to $1.3 billion in late 1974.
Not surprisingly, the new partners had a falling out. But my adversaries had
more votes at the Company than I did, and it was they
who fired me from what I had considered "my" company. What's more, they intended to move all of Wellington to Boston.
I wasn't about to let that happen.
I not only loved Philadelphia, my adopted city that had been so good
to me, but by 1974 I had established my roots here, finding unimaginable diamonds,
first, in my beloved wife, Eve, who was born and grew up here, and then in
six wonderful children. We intended to stay where we were, and I had a plan
to do just that. For when the door slammed, a window opened, and the acres
of diamonds I had begun to discover in 1951 were to remain in Philadelphia.
Pulling off this trick was not easy. But I was able to parlay a slight difference
in the governance structure of the Wellington funds,
owned by their own shareholders, and Wellington Management
Company, owned largely by my former partners, into a new careerand
with it more diamonds than I ever could have imagined.
My idea was simple. Why should our mutual funds retain an outside company to manage their affairsthat
was, and still is, the modus operandi of
our industrywhen they could manage themselves
and save a small fortune in fees? Truly mutual
mutual funds, as it were. The battle was hard, with the fund board almost
evenly divided, but this new structure finally carried the day.
I had named our new company after HMS Vanguard (Lord Nelson's flagship
at the great British victory over Napoleon at the Battle of the Nile in 1798),
for I hoped it too would be victorious in the mutual fund wars. However, my
idea suffered a setback when the fund directors allowed Vanguard (now owned
by the funds) only to handle the administration side,
responsible only for the fund's operating, legal, and financial affairs, when
we began in May 1975. The other twoand far more criticalsides
of the mutual fund triangle, investment management and marketing, were to remain with my rivals at Wellington
So we had to seek yet another diamond. And we quickly found what was
to prove to be the rival of the fabled Kohinoor diamond in size. The fact
that investment management was outside of Vanguard's mandate led me, within
months, to what may seem obvious, a great idea that I'd toyed with for years.
And before 1975 had ended, we started the world's first index mutual fund.
Our first index portfoliobased on the Standard & Poor's 500 Stock
Indexwas derided for years, and first copied only after a full decade
had passed. But very soon this fund, once called "Bogle's Folly," will be
the largest mutual fund in the world, one of 28 index mutual funds that today
constitute nearly one-third of our business. The trick of the index fund,
I argued to the Board, was that it didn't need to
be "managed"; it would simply buy all of the stocks in the Index. The argument
narrowly carried the day, and with this quasi-management step, we had edged
into the second sidethe investment sideof the triangle.
How to get the final and third sidethe marketing function? Why,
just find another diamond. Our idea was to eliminate the very need for
distribution, doing away with the Wellington network of brokers and relying,
not on sellers to sell fund shares, but
on buyers to buy them. So, in 1977, after
yet another divisive battle, we made an unprecedented conversion to a no-load,
sales-charge-free marketing system. Once again, we've never looked back. We've
never had to. With the extraordinarily low operating expenses that became
our hallmarka product of our mutual structure and our cost disciplineoffering
our shares without sales commissions proved a timely step. Our fundamental
marketing strategy: "If you build it, they will come." (A phrase, of course,
that inspired the creation of a baseball diamond in Iowa.) And, though it
took years to happen, come the investors did. By the millions.
The diamonds Vanguard had accumulated during those struggles, however,
were not yet quite ours. They were only on loan. The Securities and Exchange
Commission gave us only a temporary order
allowing us to take some of these crucial, but unprecedented steps. And finally,
believe it or not, the SEC concluded that we could not do so. Aghast, for I knew we were doing what was right for investors, we endured
a week-long regulatory hearing, mounted a vigorous appeal, andafter
a struggle that lasted four yearstriumphed
at last in 1981, when the SEC did an about-face and finally approved our plan.
The diamonds weren't going to Boston. They were at last permanently in our
handsor, far more accurately, in the hands of our shareholders, remaining
here where they belonged, in the Greater Philadelphia area, birthplace of
Wellington in 1928 and of Vanguard in 1974. That should have exhausted the
diamonds in my Golconda, but there proved to be one more diamond awaiting
my discovery here. I'll come to that later.
Before I do, I would like to talk a bit about leadership. While I have
a rather large ego, I'm reluctant to personalize the forces that brought Vanguard
to the very pinnacle of this industry, with a reputation (I'm immodest enough
to say) that may well exceed even our frighteningly large asset base. Starting
a new firm, with a new name and a clean slate to write upon, I had but one
ambition. It had nothing whatsoever to do with huge assets or dominant market
share or anything that can be counted.
I told this to the Directors at the outset; my goal was to
make Vanguard the proudest name in the mutual fund industry. And
I was absolutely determined to accomplish it.
We would build the firm on just two ideas. One was simplicity. Our funds
would have clearly stated investment objectives, explicit investment policies,
and precise performance-measurement standards. Their portfolios would be broadly
diversified, conservatively managed, and invested largely in high-quality
securities. We would hold costs to the minimum, for, apparently almost alone
at the outset, I had discovered the best-kept secret of the investment business:
gross investment return, minus the cost of management, equals the net return
earned by the investor.
With this remarkable insight, we could say (though we didn't dare to
say it for quite a few years) that the central task of investing is to realize
the highest possible portion of the returns earned in the financial markets
by the asset class in which you investstock, bond, money market alikerecognizing
and accepting that (and here is the key phrase) that
portion will be less than 100%. The recognition of this reality
finds its apotheosis in our low-cost index fund, which provides 99% of the
market return. For the record, the portion provided by the average mutual
fundstock, bond, and money markethas been about 85%. With the
fundamental Vanguard diamondsour mutual structure and our focus on
low-costswe have had the best possible opportunity to approach that
The second idea may surprise you. It was to make human
beings the focus of our firm. How often I have said over these
long years that those whom we serve must be treated as "honest-to-God, down-to-earth
human beings, each one with their own hopes and fears and financial goals." This credo says nothing about aggregate
billions of dollars of assets, nor millions of investors, nor Lord forbid,
market share, nor even about corporate strategy, nor the need for financial
controls, technology support, and focused marketing, although all of them
are, to one degree or another, necessary. But they are secondary to our primary
goal: to serve the human beings who are our clients to the best of our ability,
to serve them with candor, with integrity, and with fair dealing. To be the
stewards of the assets they have entrusted to us. To treat them as we would
like the stewards of our own assets to treat us. This mission is not very
complicated, but if you preach it, you'd
better live it, every single day.
It should go without saying that the same concept of "human beings"
should apply to those who serve on our Vanguard crew. (Under penalty of a
$1 fine, we don't use the word "employee," nor the word "product.") Those
of us who earn our livelihood at Vanguard should treat one another the same
way as we would like to be treated. The keys: respect for the individual;
recognition that, "even one person can make a difference"; financial incentives
to each and every crew member, based on
the rewards we earn for our fund shareholders compared to our peers. Our great
crew has made me look good for almost 25 years, and that is the least that
I owe to them. I've read lots of books and articles about business management
and corporate strategy, but I've never seen the phrase "human beings" as representing the key to business leadership.
But when I think of both our clients and crew, that phrase has been the key
to everything we've accomplished. Maybe the theorists and strategists are
right to ignore it, but it has worked for us. Simplicity and human beings.
That's about it.
Where leadership comes into play, I'm not quite clear. But we've got
lots of marvelous leaders at Vanguard. Not just the "big shots," but the crewabove
and below decks, those who shoot the cannons and those who load them, those
who take in the sails and man the sheetsthose who make the ship sail
and navigate the course. Above all, my goal was to have a crew of servant-leaders, the phrase Robert Greenleaf chose
to apply to an institution in which everyone is part leader, part servant,
all human beings who care, and who want to lift those whom they serve and
those with whom they serve alike.
Yet someone has to be the leader, and I've tried not only to set the
values and shape the strategy, but to make them clear and unmistakable. To
use the right words from the world's most magnificent language. To pass on
the traditions that Walter Morgan left to me, and to build on them with new
traditions. To be persistent in pursing the mission. To look ahead as far
as my vision can see, and to speak out on our goals with the zeal of a missionary,
the stubbornness of an idealist, and the soul of a street fighter. To be as
smart as my limited brainpower will allow.
It is up to othersindeed to historyto evaluate what it
is this one human being has accomplished, and the extent to which Vanguard
shareholdersindeed all mutual fund shareholdershave been served
by the voyage of the HMS Vanguard. But I know, as I hope you know after hearing
these comments, that whatever the answer is, it would never have come to pass
if I had not come here as a young man quite by accident of fate, and fortuitously
discovered, indeed often at exactly the opportune moment, the Golconda that
began with Fortune magazine in 1949, and
then Walter Morgan and Wellington Fund; then my family; and then Vanguard
itself and the "Vanguard" name; and then the first index fund and the novel
distribution strategyone diamond after another right here in my own
backyard, just as Russell Conwell's words promised that I would. All that
I had to do was dig for them.
Oh, yes. I referred earlier to that one other diamond I found here.
Paradoxically, it was a diamond in the form of a heart. (And as we all know,
in games of cards, a heart beats a diamond every time.) It's true in life,
too. The diamond represented by the doctors and nurses, my guardian angels
at Hahneman Hospital, and the anonymous donorand his familyof
the heart that beats in my body tonight. I received it on February 21, 1996,
only weeks or perhaps months before my own tired heart would have expired.
I have received more blessingssurely more "acres of diamonds" right
here in greater Philadelphiathan any other human being on the face
of this earth. And the blessing you have brought to me with this Award for
Excellence in Leadership tonight is one more blessing that I shall treasure
From the bottom of my new heart, I thank you, one and all.
Return to Speeches
in the Bogle Research Center
©2008 Bogle Financial Center. All Rights Reserved.