Jack Bogle does a little bit of fact-checking over the weekend after a handful of market writers falsely attribute the Efficient Markets Hypothesis (EMH) to he creation of his index fund product and investment philosophy. With Eugene Fama’s Nobel prize win, Vanguard’s brand and Bogle’s name seem to have been thrown around quite a bit amidst the many introductory explanations to EMH.
Jack once said that he would rather buy a cheap actively managed fund than an expensive index fund, but people seem to confuse his aversion to excessive fees to an aversion to stock picking.
His research has proven time and time again that it is managers’ fees that reduce their efficacy versus an index. And so he prefers the index – not because he believes that markets are efficient but because he believes active costs cannot be justified consistently.
David Henderson’s “A Nobel for the Random Walk of Stock Prices” (op-ed, Oct. 15) describes me as “one high-profile beneficiary of Mr. Fama’s insight,” allegedly inspiring my founding of the Vanguard 500 Index Fund in 1975.
This is untrue. Perhaps to my shame, I didn’t even learn of Eugene Fama’s “efficient market hypothesis” (EMH) until a decade after my creation of the 500 Index Fund. Rather, I was inspired by another Nobel laureate, economist Paul Samuelson, who in his 1974 essay in the Journal of Portfolio Management demanded “brute evidence” that active money managers could beat the market index. Such evidence has yet to be produced.