You Cannot Beat The Market

John Bogle died the other day.  He started Vanguard Investments.  He made a lot of money for himself over the years but the value he created for investors was many multiples of that.  That’s the cool thing about entrepreneurship and value creation.  An inventor executes on an idea and makes money.  But, the thing they created really helps people leverage something in their lives that has much greater utility and value than anything the creator might make.  Steve Jobs and the iPhone come to mind.

Bogle relied on the principle articulated by Eugene Fama that you cannot beat the market.  The market is basically efficient and investors ought to be able to invest in very low fee funds and make money.  One estimate is he is saving investors $100B dollars per year.

There are a ton of tributes spewing forth for him.  Perhaps the best way to understand him is to listen to this podcast.  It’s an AQR podcast called The Curious Investor.  The topic was active versus passive investing.

Here is the description:

In this episode, hosts Dan Villalon and Gabe Feghali are joined by two titans of the investment industry who represent opposing sides of a highly contested debate: Do you stick with the index or do you try to beat it? Widely considered to be the father of passive investing, Jack Bogle founded the Vanguard Group in 1974, and has been preaching the gospel of passive ever since. Dan and Gabe visited him in his office outside of Philadelphia with their boss, Cliff Asness, the co-founder and CIO of AQR. Cliff is very outspoken and has written extensively about how as an active investor he tries to beat the market. The foursome huddled around a small table to debate active versus passive investing, and things got pretty contentious right off the bat.

The thing is, if you are a typical investor you don’t have time to watch every single thing in the market.  Today with computers, you have zero chance of being fast enough.  There is no edge.  The only edge you have is time.  That leads to passive investing.  It is the only sure fire way for average investors to build wealth.