We had to pay our respects. And the FT Editorial does the job in a nice, succinct way. Jack Bogle, the father of passive investing, arguably the most impactful innovation in the investment management industry, passed away last week. The editorial aptly starts by quoting Noble Prize-winning economist Paul Samuelson’s article in which he argues that “There might be stock pickers who beat others consistently but they were “remarkably well hidden” and trying to find them rather than investing in the market as a whole was a waste of money.”
Samuelson pointed out that Wall Street was ignoring this inconvenient truth, despite reams of academic evidence, and called for a revolution. “The ball is in the court of the practical men: it is the turn of the Mountain to take a first step toward the theoretical Mohammed,” he wrote.The Mountain soon arrived in the form of Jack Bogle, the charming, iconoclastic and persuasive financial pioneer who died this week at the age of 89. Bogle’s innovation — the first mutual fund to follow passively the Standard & Poor’s 500 index — changed Wall Street and saved billions in fees. “He is a hero to them and to me,” the investor Warren Buffett once wrote.”
Bogle not only highlighted the merits of passive investing but also highlighted the issue of conflict of interest at the heart of the investment industry –“ Technology needed a human face and Bogle provided it. It also needed someone to reject the conflict of interest at the heart of the investment industry. As long as mutual funds convinced people that star fund managers achieved higher returns, they could charge fat fees. Bogle was willing to court unpopularity by admitting that his fellow emperors lacked clothes.”
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