Wiley Vanguard founder Jack Bogle
- Jack Bogle wrote his senior thesis at Princeton University about the concept of open-end mutual fund companies.
- The thesis would lead to his first job, and some of the principles would become the foundation for Vanguard, which now manages $5.1 trillion.
- At the time, mutual funds only oversaw $2 billion. Now, the industry counts $21 trillion of assets.
Jack Bogle's senior thesis led to an A+ grade, a job offer, and the foundation for what would become a $5.1 trillion company.
As a Princeton University student, Bogle found inspiration for his thesis while flipping through the December 1949 issue of Fortune magazine, he detailed in a book released Thursday, "Stay the Course: The Story of Vanguard and the Index Revolution."
The article described an unfamiliar business: an open-end fund company, which continuously offers shares for sale, with shares redeemable on demand. The piece chronicled the history of the first such company, Massachusetts Investor Trust, which was founded in 1924 and now does business as MFS Investment Management.
Bogle's interest was piqued, so he spent the next 18 months researching what became a senior thesis on the history and future prospects of open-end investment companies - the then-standard term for mutual funds. He fell "madly in love with the subject," he wrote.
"I was convinced that the 'tiny' $2 billion mutual fund industry would become huge, and would remain 'contentious,'" he wrote, quoting language from the Fortune article. "I was right on both counts: today's $21 trillion mutual fund colossus is among the nation's largest and most dominant financial sectors."
His 130-page thesis, "The Economic Role of the Investment Company," concluded that such investment companies should be operated as efficiently, honestly, and economically as possible, with future growth maximized by reducing sales charges and management fees. Among his other principles, he said that companies should focus on managing their investment portfolios and serving shareholders, and that they should exert influence on corporate policy.
"Mutual funds seem destined to fulfill this crucial segment of their economic responsibility," he wrote. In the year ending June 30, Vanguard engaged with 721 companies under its investment stewardship program, according to its annual report.
"Yes, there was a lot of idealism in those conclusions. But, barely out of my teenage years, I was a typically idealistic scholar," Bogle wrote.
"Six-plus decades after I first read that Fortune article, my idealism has hardly diminished. Indeed, likely because of my lifelong experience in investing, that idealism is even more passionate and unyielding today. There's little question that many of the values I identified in my thesis would constitute the core of Vanguard's remarkable growth."
The thesis earned Bogle an A+. It also impressed the founder of an investment company - Walter Morgan, another Princeton alumnus - who offered Bogle a job at his firm, Wellington Management Company. Bogle would rise to be Morgan's successor as chief executive officer at age 35, before being fired and then founding what would become Vanguard.
Today, Vanguard oversees $5.1 trillion and employs more than 40,000 people.