What the Business of Investing Is All About

Dan Culloton: You've said, or strongly implied, in your most recent book, "Enough," that storing up wealth and prestige and reputation and money is really not what investing business and the business of investing should be about. What should it be about?

John Bogle: It should be about giving honest-to-god, down-to-earth human beings the chance to accomplish their own financial goals. And people have laughed. In my book, "Common Sense on Mutual Funds," the last chapter is called "On Human Beings." And somebody actually had the temerity to ask me, "Why on earth would you have a chapter about human being in a book on investing?" What can one say? What planet is this poor soul living on? That's what it's all about for me.

Dan: How can the industry better serve human beings?

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John: The industry can better serve human beings by cutting way back on marketing and moving way up on management. Cutting way back on salesmanship and moving way up on stewardship. Cutting way back on speculation in the way we invest and moving way up on investment as distinct from speculation. Cutting costs. Cutting portfolio turnover. Cutting back on innovation. All of those things will make this a better industry. And they fly in the face, of course, of the contemporary ways people think of running companies. But the point is, managing other people's money is very different from trying to sell other people products and services.

Dan: And how can individual investors help themselves?

John: Educate yourself that it's a simple business, that the issue is not how to pick stock but how much to have in stocks. Understand the difference between a stock and a bond. Ownership versus loanership, is what we call it. Understand the incredibly important role of cost in all of this. Learn how to run a compound interest table. Take an 8% return and compound it for 50 years, and then compound it at 5.5% for 50 years. That's the 8.5% market return in this example. The 8% market return less 2.5% of costs, and costs can easily run to that level.

And it turns out that the investor who is aware of that and cuts back on cost is greatly advantaged. Because under the existing system in an 8% market, and a 5.5% return to you, you end up after 50 years with maybe 25% of the capital, and Wall Street end up with the other 75%, the managers and the brokers.

You put up 100% of the capital and you took 100% of the risk, why should someone who put up none of the capital and took none of the risk get 75% of the return?

And if you think about things that way, in kind of this global sense, that's really all the education you need.

Dan: Jack, thank you very much for being here today. You've been very generous with your time.

John: Good to be with you, Dan.

Dan: Thank you.

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