This article originally appeared here in Institutional Investor on January 31, 2019
The Vanguard founder espoused low-cost index investing. I was a well-known investor in hedge funds. But one evening, Warren Buffett brought us together.
I only met Jack Bogle once — and that one time proved memorable for both of us.
Jack was the ultimate hedgehog. He wrote twelve books and probably gave a thousand speeches, each offering the same advice: Costs matter; use index funds.
In his eyes, I was his counterpoint: a fool who represented high-cost active management in a public bet against Warren Buffett.
Our meeting arose out of a dinner in 2016. I had invited our mutual friend, Steve Galbraith, to break bread with a former student of his from Columbia Business School and two of his colleagues. The student? Todd Combs. His colleagues? Two guys named Warren Buffett and Ted Weschler. We had a blast talking about education, endowments, banks, sports, and of course, investing.
When Steve poked fun at me about the bet, he mentioned his close friendship with Jack Bogle. Warren proceeded to wax poetically about Jack as a hero who added more value to investors’ wallets than anyone in history. Warren pondered aloud writing about Jack in the upcoming Berkshire Hathaway annual letter and asked Steve if he could get Jack’s blessing to do so. Sporting a grin a mile wide, Steve granted his approval without needing to ask.
Warren lavished similar praise on Bogle in his 2017 annual letter. One thing led to another, and Steve and Todd arranged for Jack, his wife, and family to attend the Berkshire Hathaway annual meeting for the first time. To Jack’s pleasant surprise, Warren publicly acknowledged his attendance and accomplishments to 40,000 of Warren’s closest friends.
That evening, I joined the Galbraith and Bogle families for dinner, where I met Jack for the first time. His eyes sparkled as he thanked the families for their support and described how much Warren’s praise meant to him. He was kind and gracious to me as well, and thanked me generically a few times. I was surprised that he never brought up the bet, knowing how passionate and outspoken he was about the subject matter.
I never thought much of the import of that event to him until I read the chapter he wrote in Lawrence Cunningham and Stephanie Cuba’s The Warren Buffett Shareholder: Stories from inside the Berkshire Hathaway Annual Meeting. Jack retold the entire story of that special day, and even wrote that he avoided discussing with me what he assumed was a sore subject.
An outside observer might presume that I believe the opposite of Jack — that I dismiss indexing, and that I am a spokesperson for hedge funds and active management.
They would be wrong. I don’t see the world in black and white.
The bet with Warren was a specific wager at a moment in time. I believed (and still do) that my odds of victory were favorable back in 2008, but my position in that wager did not pervade my investment philosophy in a similar way that it did for Warren and Jack.
I’m a huge proponent of index funds for anyone who cannot clearly articulate the competitive advantage they hold over other market participants, let alone for the masses of individuals who wouldn’t understand the importance of that prerequisite if asked. My parents, a doctor and a teacher, are stereotypical individuals who should invest in index funds.
Digging in deeper, I respected Jack’s stalwart promotion of the S&P 500 Index Fund over all other index funds. Jack proclaimed that large, U.S. companies made the best long-term investments and preferred those factors in his portfolio to all others. He didn’t call that stance an active bet, but he wasn’t blindly “buying the market” either.
On the other hand, I’ve always been curious about the dinner conversation in the Bogle household. Jack spent the early part of his career as an active value manager and later purchased a high-flying growth stock manager to add to the Wellington stable before he was dismissed from the organization. That painful transition catalyzed a new religion and the launch of Vanguard.
I first heard about Jack in the mid-1990s from his son, John Jr. My employer at the time, the Yale University Investments Office, invested in John’s actively managed, high-performing quantitative fund. I can only imagine what their conversations must have been like, as Jack preached low-cost indexing to the world and John Jr. proved time and again that he was an exception to the rule of active manager underperformance. Could Jack really turn on the evidence in his own family?
I wish I had a chance to debate these subtleties with Jack that night, but we were passing ships respecting other’s right-of-way. Steve had arranged a podcast conversation between us, but Jack took ill and time ran out before we made it happen.
I sent Steve condolences upon Jack’s passing, and he shared that I had helped create one of the happiest days in Jack’s life. I never could have imagined that a bet with Warren would create an opportunity to honor and celebrate such a giant in our industry.
For that alone, the bet was worth the price of admission.