Wednesday, July 5, 2017

Enough: True Measures of Money, Business, and Life

John Bogle thinks there should be more to investment management and business in general than maximizing profit. In his distinguished career, he has put his money where his mouth is by creating a structure for Vanguard that strongly incents employees to minimize investor costs. In his book Enough: True Measures of Money, Business, and Life, Bogle describes Vanguard’s history and explains his business philosophy.

The book opens with the story of Joseph Heller being told that a hedge fund manager “had made more money in one day than Heller had earned from his wildly popular novel Catch-22 over its entire history. Heller responds, ‘Yes, but I have something he will never have ... enough.’” Bogle believes there are more important goals once you have enough money.

Vanguard began amid a business dispute and it was “barred from assuming responsibility for investment management and marketing.” This proved to be a happy result for investors because it helped make Vanguard the investor-friendly organization it is today. Vanguard eliminated the need for investment management by forming “the world’s first index mutual fund.” Without marketing, it converted “to a no-load, sales-charge-free marketing system.”

Keeping investor costs low is very important to Bogle. “On balance, the financial system subtracts value from our society.” He doesn’t want to add to this problem. He also shares Charlie Munger’s “concerns about the flood of young talent into a field [fund management] that inevitably subtracts so much value from society.” “Today, if fund managers can claim to be wizards at anything, it is in extracting money from investors.”

Some investors have a hard time accepting low-cost index investing approach that Bogle advocates because it seems too simple. But Bogle says that “Financial institutions operate by a kind of reverse Occam’s razor. They have a large incentive to favor the complex and costly over the simple and cheap, quite the opposite of what most investors need and ought to want.”

Canadians may be surprised to learn that Bogle is leery of ETFs: “I have serious questions about the rampant trading of most ETFs.” While Vanguard offers low-cost mutual funds, they are not available to Canadians, and we tend to look to ETFs for low costs. Bogle does “admire the use of broad market index ETFs that are held for the long term.”

Fans of diversifying with commodities will get only blunt words from Bogle. “Commodities have no internal rate of return. Their prices are based on supply and demand. That is why they are considered speculations, and rank speculations at that.”

Bogle worries that professions, including financial services, that should be worthy of trust are being undermined by profit motives. “Profession by profession, the old values are clearly being undermined. ... Unchecked market forces not only constitute a strong challenge to society’s traditional trust in our professions, but in some cases these forces have totally overwhelmed normative standards of professional conduct, developed over centuries.” “Over the past half-century-plus, the fund business has turned from stewardship to salesmanship.”

Bogle is critical of the practice of paying CEOs with stock options. This drives short-term thinking, but measuring “CEO performance should be based on the long-term building of intrinsic value.”

Convincing people to pursue more than just money can be a tall order. He quotes Descartes on this point: “A man is incapable of comprehending any argument that interferes with his revenue.”

Bogle sacrificed a great deal of personal wealth when he created Vanguard to strongly incent its employees to keep costs low. “In comparison to nearly all, if not all, of my peers in this business, I am something of a financial failure.” But he is “doing just fine, thank you.” He has enough and measures his success with a different yardstick.


  1. Thanks for posting this, Michael. Yet another book that demands to be read.

    1. @Russ: Glad you like it. In my opinion, the best books are the ones that still seem important many years after they are written.