John Bogle Punks World, Admits Index Funds Aren’t Real
Today in celebration of April Fools Day I'll be featuring some personal finance stories that are less-than-true (translation: they're made up), but offer a humorous take on some of the money issues we all face. The following is a guest post from FMF reader, and humor writer extraordinaire, Kev at Special Kind of Stupid.
John Bogle, founder of Vanguard, has finally come clean on a practical joke he started over thirty years ago: index funds do not really exist.
“I got you guys good,” shouted Bogle during his morning press conference. “The look on all your faces is priceless!”
The idea of starting the Vanguard 500 fund, the very first index fund, in 1976 was made after Bogle and Warren Buffet made a friendly wager.
“Buffet bet me 500 smackers that he could punk the world better than I could,” exclaimed an exuberant Bogle as he sprayed champaign all over nearby reporters.
Warren Buffet’s practical joke was buying into GEICO and shutting it down, but making the rest of the world believe the insurance company was still up and running.
“He’s still at it too,” remarked Bogle. “Buffet doesn’t want to admit defeat. He’s got a GEICO commercial on television every ten seconds. I’m like, ‘dude… when are you going to tell those poor GEICO customers they don’t really have insurance?’”
Bogle’s scheme was a bit more subtle. He invented a new investment vehicle.
The idea behind index funds is to replicate the movements of a specific financial market, or to simply set rules of ownership that never waver.
However, in practice, Bogle, as he put it, “just made junk up.”
“I invested the money in whatever,” admitted Bogle. “One time I invested in cattle. Lost a bundle on that one. Their teeth fell out or something. I never really got a clear answer what happened.
“Another time I used some of the money to help produce a movie. A science fiction epic starring John Travolta? Well, it sounded like a good idea at the time. They told me he was going to dance in the film, so I figured it was a sure thing.”
Asked to explain how the Vanguard 500 and subsequent index funds at Vanguard have been so successful over the years, Bogle beamed with pride.
“That’s the beauty of it all. I invested most of the money in Buffet’s Berkshire Hathaway. That stock’s been so successful, no amount of rotting cow teeth or John Travolta could sink my portfolio. In fact, I usually had a surplus.
“I gave investors their 8% to 12% profit or whatever each year, and I pocketed the rest. It’s been awesome!”
When informed his revelations will likely result in charges of fraud, Bogle smiled.
“You’ll have to catch me first.”
lol... I liked the part about Travolta starring in a sci-fi epic... lol
Posted by: J in FL | April 01, 2008 at 11:50 AM
Consider the index fund's nature. It is required to buy new stocks placed into the index. When all similar index funds repeat that process - an overvaluation occurs.
A large number of index stocks accumulate stocks with overvaluation at purchase.
Look at the first two quarters of a stock's price change after joining the DJIA or the S&P 500. That's index fund accumulation.
A systemic accumulation of stocks at too high a price is adverse to profit.
There's an older, contrarian slogan, "The majority is always wrong." When many people exercise the same strategy, stocks are bought high - when everybody else buys. And sold low - when everybody else sells.
Posted by: Conan The Libertarian | April 01, 2008 at 12:40 PM
That Bogle... such a prankster!
Posted by: kev | April 01, 2008 at 05:17 PM
Hilarious - that Buffet & Bogle duo just crack me up...
Mike
Posted by: Four Pillars | April 01, 2008 at 07:37 PM