by John C. Bogle, Founder,
The Vanguard Group
On Receiving the Honorary Degree of Doctor of Humane Letters
At the Commencement Exercises of Eastern College
St. Davids, PA
For learning about wisdom and
for understanding words of insight, to teach knowledge and prudence,
I will pour out my thoughts to you, and the knowledge will be pleasant
to your soul.
I'm sure you recognize those phrases from the
Book of Proverbs, even as I hope it is not presumptuous for me to
choose them as my theme today. But on this signal day in your lives,
I hope that recounting the daunting challenges I've faced in building
a business enterprise from the ground up will provide you with a
few kernels of wisdom and insight. But first let me extend to each
one of you warmest congratulations on this commencement day, the
completion of another giant step in your education.
While I'll use Vanguard, the firm that has become
my life's work, to illustrate my points, my message is intended
to be universal. Truth told, there is no organization, no
enterprise, no line of work, no human endeavor that
cannot profit from the core ideas I'll discuss—ideals that can give
meaning to even the most mundane of tasks. Indeed, I hope that what
I have to say will resonate beyond your careers and into your own
lives. In the words of Walt Whitman,
"A new worship I sing,
You captains, voyagers, explorers, yours,
You engineers, you architects, machinists, yours,
You, not for trade or transportation only,
But in God's name, and for thy sake O soul."
Of course I am mindful that Eastern college
is a Christian college, and that spiritual formation has been an
important part of your preparation for thoughtful and productive
lives of faith and service. But whatever one's religion, there are
self-evident truths in all of our lives: The power of the human
spirit, the principles of justice and mercy, the equality of all
men and women, and, for each of us, our endowment by the Creator
"with certain unalienable rights . . . to life, liberty, and the
pursuit of happiness," just as our Declaration of Independence tells
us. This commencement day is a wonderful time to honor those ideals,
to revel in them, and to celebrate our good fortune in being citizens
of the United States of America.
The Meaning of Investment in Our Lives
The fact is that a firm like Vanguard could
have come into existence only in this land of opportunity.
For the field of finance entails much more than merely putting one's
money to work to build abstract personal wealth. Investing
is required to provide the capital to make industry and commerce
ever more productive and enhance the quality of our lives. And saving
is required if our citizens are to take responsibility for providing
resources for their children's college educations and for their
The essential link between investment and saving,
of course, is liquid, open, fully-informed financial markets—markets
founded on sound accounting principles and protection of ownership
rights. It is this combination of creative capital, widespread shareholder
ownership, and vibrant financial markets that has played a critical
role in the prosperity that America enjoys today, the most productive
economy in all human history.
Mutual funds have been in the vanguard, as it
were, of the unprecedented surge of "People's Capitalism" in America,
a development in which Vanguard has played a central role. While
success—not only in business, but in all human endeavors—demands
faith above all, it also requires a combination of luck, leadership,
and strategy, I can testify first-hand that each of these ingredients
has played its role in whatever success this once-little enterprise,
born in Valley Forge, may have achieved.
To begin with, I was lucky, not only to be born
in America, but to be born at the top of a bull market, just a few
months before its peak on September 3, 1929. The ensuing Great Crash
killed the investment business for a quarter-century, so opportunities
were rife when I graduated from Princeton in 1951. I was hired by
legendary mutual fund pioneer Walter L. Morgan to join his Wellington
organization and soon became his heir-apparent. In 1967, I was named
head of Wellington, and alas, unwisely entered into an overly-opportunistic
And then more luck . . .and again, it was a
tumble in the stock market. As 1973 began, the worst market decline
since 1929-1933 got underway. As it worsened, my new partners and
I had a falling out, and I was fired in January 1974—an extraordinary
opportunity, albeit well-disguised. I started a new firm, named
it Vanguard, and I took on my new job exactly the same way I left
my old one: Fired with enthusiasm. Incorporated on September
26, 1974, just seven days before the market bottom, we really had
nowhere to go but up.
The stock market, to say the least, did its
part. Then at a level of 570, the Dow Jones Industrial Average closed
yesterday at 10,400—a near 20-fold gain, the highest for any quarter-century
in the entire 200-year history of the U.S. stock market. It would
be easy for you to conclude that in such a glorious environment
for stocks, any fool could have built a giant mutual fund organization.
Truth told, you would be close to the mark. As I've often said,
"never confuse genius with luck and a bull market."
Luck, moreover, has kept me alive. Beginning
in 1960, I had a tough fight with a congenital heart disease. As
the years passed, it gradually worsened, and in 1995 I neared death's
door. Early in 1996, almost five years ago, the miracle of a heart
transplant was visited on me. So I thrive today, not only to carry
on my career, but to have this grand opportunity to present this
message to you today. Now, that's good fortune writ large!
So much for luck. Strategy was the second pillar
in Vanguard's development. Strategy that enabled us to capitalize
on the unique competitive advantage that led to Vanguard's becoming
a financial giant, although building a giant institution was always
the furthest thing from my mind. Rather, my goal was to build a
model institution. According to the late Robert Greenleaf,
founder of the Servant-Leadership movement, these are three of the
cornerstones of a model institution:
First, a goal, a concept of a distinguished
serving institution in which all who accept its discipline
are lifted up to nobler stature and greater effectiveness than
they are likely to achieve on their own or with a less demanding
Second, an understanding of leadership
and followership, since everyone in the institution is part
leader, part follower. If an institution is to achieve as a servant,
then only those who are natural servants-those who want to lift
others-should be empowered to lead.
Third, an organization structure focusing
on how power and authority are handled, including a discipline
to help individuals accomplish not only for themselves, but for
I had not known of Mr. Greenleaf's philosophy
when I founded Vanguard. But that model bears a striking resemblance
to what I wanted to accomplish. Our core concept was to transform
the very focus of a mutual fund business that served two masters—something
the Apostle Matthew tells us that no man can do—by creating an institution
that would serve only its shareholders-owners.
Let me explain: Until we came into existence,
the industry had been tied strictly to an organization structure
in which funds tried to serve both their shareholders and
their external managers, who drew down generous shares of the funds'
investment returns, an obvious conflict. The Vanguard mutual funds—and
thus our shareholders—would own their fund manager. Our fund
shareholders would become the beneficiaries of the entrepreneurial
rewards that fund managers traditionally arrogate to themselves,
for we would operate at cost. Taking this "road less traveled by,"
I hoped, would lift our enterprise to a nobler stature.
Nobler or not, 26 years of history have shown
that our concept of an institution that serves solely its own investors
can provide measurably greater investment effectiveness than firms
with less demanding disciplines. Our structure is the key, not only
to our business strategy of delivering low-cost funds and
providing commensurately enhanced investment returns, but to our
investment strategy as well. For we have focused on funds
with durable investment principles, conservative objectives, and
carefully-defined financial characteristics.
Given this focus, it was only logical that Vanguard's
first major decision would be to create the world's first index
fund, a fund that in essence buys shares in all of America's enterprises
and holds them forever, and whose defining idea is the guarantee
that its shareholders will earn nearly 100% of the annual returns
generated by the financial markets—something that precious few investors
ever accomplish. Our passively-managed index funds hew to this line
assiduously; our actively-managed funds are modeled on the same
principles. We promise investors their fair share of the financial
markets' returns; no more, no less. And I believe that we have kept
Common Sense and Wisdom
If our investment ideas sound simple to you,
it is because that's exactly what they are. Our focus on the client
means providing each shareholder's assets with the stewardship that
we would apply to the investment of our own assets. Our focus on
the crew begins with the word "crewmember," for we have no employees.*
Our goal is that each and every crewmember be part leader, part
follower, each one treated as we would like to be treated ourselves.
If those ideas sound like the Golden Rule to you, well, that's fair
enough. And if all this sounds like common sense to you, it is because
that's exactly what it is.
Indeed, I have no hesitation in equating what
we call common sense today with what was thought of as wisdom
not so many years ago. The Book of Proverbs, of course, is all about
wisdom—the proverbial wisdom of Solomon. While we find some of our
most durable phrases in Proverbs—Haste makes waste . . . He who
hesitates is lost . . . Birds of a feather flock together . . .
Opposites attract—wisdom is the central theme. Clearly laden
with common sense, Proverbs helps us to recognize in new situations
the long-standing and fundamental patterns of life, and fosters
our ability to see the world in others' terms. Surely these ancient
words from Proverbs have universal application, even today:
Wisdom is the principal thing; therefore
get wisdom, and with all thy getting, get insight . . . Happy
are those who find wisdom and those who get insight, for her income
is better than silver, and her revenues better than gold.
Leadership—The Three Elements
Wisdom and insight are essential to sound leadership.
Leadership requires foresight, and it is impossible to imagine foresight
without wisdom. "Foresight is the lead the leader has," Robert Greenleaf
says, "the armor of confidence in facing the unknown . . . the ability
to create a role that is uniquely important to the leader as an
individual." That role, in my own experience, must both draw heavily
on the leader's innate strengths and minimize his human failings;
that role also must be right for the time and place in which the
leader happens to live.
Please be clear that foresight is not
to be confused with brilliance, nor some magical ability to know
the unknowable. For me at least, foresight is based on common sense—wisdom,
if you will—understanding the obvious forces of society (demographics,
education, and the like), and insight into the obvious aspirations
of a community of human beings. I've been described as having "the
uncanny ability to recognize the obvious"—a paradox, since the obvious
is something anyone can recognize.
Simplicity is the key, so I ask you to remember
Occam's Razor: When there are many solutions to a problem, the
simplest one is most likely correct With the knowledge that
the simplicity of Vanguard's organizational structure and the simplicity
of our index funds have been the key to what we have built, you
too might well look first to simple solutions to the challenges
you'll face in the years ahead.
While foresight is necessary to build and protect
an institution, the enterprise also needs a sense of mission. Of
course, wisdom is required to determine what that mission may be,
but it should focus on this overriding purpose: To create an
institution that stands for something. For me that something
was to earn a reputation for giving investors a fair shake. To act
with integrity. To speak with candor. To commit to excellence—not
just in word, for rare is the enterprise that ignores the concept
of excellence—but in deed as well. Those principles will work for
you too, if only you go at the task with all of the passion and
drive at your command.
Along with foresight and mission,
leadership requires a sense of caring. In Greenleaf's words: "Caring
is the basis of leadership, the work upon which a good society
is built . . . the essential virtue of the model institution. Caring
requires not only compassion and concern; it demands self-sacrifice
and tough-mindedness and discipline. When the enterprise falters,
it must be cared for, and the burden must be shared by all who work
for it, all who own it, all who are served by it, all who govern
it. Every responsible person must care, and care deeply, about the
institutions that touch their lives." Wherever you go, please never
forget that responsibility.
Caring is central to the mission of any corporation
worth its salt. The wisdom and insight given to me by caring enough
to spend the past 50 years meeting face-to-face with individual
investors and crew members are priceless beyond measure-the ultimate
in business intelligence, yes, but in human understanding too, and
far more valuable than piles of investor surveys and polls. These
visits create a deeper understanding of the needs and values of
all of the individuals who over the years have come to trust us—those
we serve, and those with whom we serve alike. I've said it 1,000
times: Treat others as real, honest-to-God, down-to-earth human
beings, who have their own hopes and fears and goals for personal
achievement. If you understand that kind of caring, you're off
to a great start.
Levels of Leadership
Leadership, to be clear, is not the sole
province of those who may, through good fortune or extraordinary
determination, or even faith, come to lead entire enterprises or
large organizations. Obviously, not everyone will do that. But each
one of you graduating today has the opportunity for leadership within
your own field—large or small, lofty or mundane—no matter where
you ply your trade. Whatever you do, you can grow happy helping
others in your field; you can add things that could not have been
added had you not come along; you can make things grow and flourish.
Yes, you can.
Today I ask you rightfully-proud graduates to
learn from the lessons of hard experience I've described; to learn
from the story of a once-tiny firm that has strived to become a
model institution, one that would strive do the right things in
the right way; to learn from the Book of Proverbs. Learn to apply
the wisdom of Solomon to your own personal insight and foresight,
your own personal mission, your own personal sense of caring. Especially
in these days when materialism in America has too often gained the
upper hand over the human spirit, learn, above all, that not only
sound investing but sound living are all about simplicity and economy.
As you move on to the next stage in your life,
whether your career is with a large organization or with a small
business or in a profession, whether it is alone or with others,
or whether it is as a parent raising a family, I assure you that
there are infinite opportunities out there in this great land of
ours, magnificent opportunities for you to contribute to building
a better world, a place where we all can live and flourish.
proud to say that one of our crewmembers is here today, receiving
his degree as Master of Business Administration. So I take this
opportunity to give a hearty Vanguard salute to Earl Robinson.
Note: The opinions expressed in this article do not necessarily represent the views of Vanguard's present management.
to Speeches in the Bogle Research Center
©2010 Bogle Financial Center. All Rights Reserved.