By Dr. Rikki Racela, WCI ColumnistIn Episode 322 of The White Coat Investor podcast, Dr. Jim Dahle mentioned the book Atlas Shrugged, written by Ayn Rand. Rand had a great quote regarding money, which was Jim’s quote of the day for that episode (“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.”). He also recommended reading her quintessential novel to understand what people mean when they ask, “Who is John Galt?”
For those who have not read the book, consider this a spoiler alert (though if you’ve ever looked at how thick the book is, I might be saving you a ton of time!). In the book, people everywhere were asking this question as a sign of despair, commiserating each discussion of the negative things that were occurring around the world in the novel. Not until the middle of the book do you actually find out who John Galt was—an inventor of an ultra-efficient engine that would change the world.
But what did he do with this wondrous, breathtaking innovation? John Galt left it abandoned in the factory where he worked. It is only at the end of the novel that John Galt comes out into the public eye with his invention to make the world right again. After reading the book, I couldn’t help but make a comparison between John Galt and his fictional world to that of another John, the great John Bogle, and our own real-life investing world. In analyzing the comparison of both these Johns, we can gain greater insight into John Bogle the man and the direction of our financial institutions.
They Share a First Name, and Then Some
First, let’s start with the obvious: they share a first name. John Galt and John Bogle also shared similar humble beginnings. In the novel, John Galt did not come from money, and he worked hard to educate himself. He ended up working in a random factory when he invented his machine. John Bogle, in a similar vein, was born into a poor family in New Jersey, having attended public school in his early years and only going to a private high school through merit-based scholarships. He had to work throughout his undergraduate years to pay his tuition at Princeton.
In many of his books, Bogle recalls working hard for money, recounting one particularly mind-numbing job as a bowling pin setter in a random bowling alley in Sea Girt, NJ (I can’t even imagine!). Both of our protagonists were not born into means, and through necessity, they developed themselves through hard work and grit. In doing so, both changed the worlds in which they lived.
This reinforces a central tenet that Ayn Rand makes about greatness: to become great, you have to suffer through hard work (and maybe be born into less means to bring greatness out of you). Another protagonist in another Rand novel, The Fountainhead, also came from modest means to become a great architect. Bogle himself wrote in his books that the financial tribulations endured in his youth gave him a spirit which he quotes as, “Never give up, never, Never, NEVER!” It was Bogle’s formative years that truly built the foundation for later greatness, something that Rand posits is necessary in the character development of Galt.
More information here:
Investing According to Jack Bogle
Happy Anniversary to the Index Fund—Which, by the Way, Was NOT Invented by Jack Bogle
Both Johns Shrugged
I mentioned earlier that John Galt did not give the world his marvelous invention until the world was ready. In an uncanny and similar way, John Bogle laid the groundwork for the index fund, years before it debuted, when he was an undergraduate at Princeton. His senior thesis focused on the fact that fees eat into an investor’s return, and the only way to get the best return for investors was to minimize them as much as possible, aka the idea of a passive index fund. However, after completing this thesis, Bogle did not pursue those ideas to the eventual conclusion of an index fund. Just like Galt, Bogle abandoned his revolutionary idea. The idea of a lowest-cost investing vehicle lay in the depths of Firestone Library (where all senior theses end up on Princeton’s campus), and Bogle took a job as an active fund manager at Wellington after graduation.
In his book Trillions, Robin Wigglesworth mentioned that Bogle went as far as publicly supporting active management and the fees therein. After graduating college, Bogle wrote an article in the Financial Analyst Journal under the pen name John B. Armstrong (which was his maternal grandfather's last name) supporting active management. Wigglesworth proposed that Bogle did not have the information at hand to really hash out that passive indexing would be better than active management in terms of fees. But Bogle was phenomenally intelligent, and I believe he was doing what Galt did; Bogle shrugged. Like Galt’s world not initially being ready for his invention, Bogle recognized the investing world of the 1950s after he graduated was not ready for a low-cost investing product.
That, I think, was the reason for Bogle using a pen name. He didn’t believe active management was really the lowest-cost path for individual investors, and he didn't want to put his real name on the paper. At the time he graduated college, it would have been career suicide to have suggested getting away from active management and following a possible passive strategy. The world that he graduated into was all about active management. The redundant thought was that retail investors had no chance of financial success without having an active manager guide them in which stocks to pick. They needed active managers to run mutual funds that were the predominant vehicle to diversify at that time. So, instead of forcing a low-cost passive index fund onto the financial industry, Bogle decided to leave that card in his back pocket. The index fund was the logical conclusion to his Princeton senior thesis, but instead of trying to fight the headwind against him, he shrugged.
Legends of the Fall
In Atlas Shrugged, there was a breakdown of the functioning of the world. Social services were breaking down. Transportation, such as flights and trains, were being abandoned. The world was descending into chaos. Only when the world hit rock bottom did John Galt and other great movers of the world come out of hiding.
Similarly, the investing world for an individual investor around Bogle’s time was equally chaotic. Fees, including trading costs and expense ratios, were exorbitant.
And then the 1970s hit. The early 1970s were not kind to the so-called Nifty Fifty, and most were devastated during the 1973-74 bear market. Not only did the market drop as much as 30% at that time, but the economy was at the beginning of arguably the worst inflation our nation had ever seen in terms of magnitude and length. Jack Bogle was fired as CEO of Wellington in 1974. It was at this desperate time when Bogle came out with the index fund that could be sold to retail investors.
Wigglesworth wrote in his book that Bogle’s invention had reached its time. Because he was no longer CEO at Wellington, Bogle was relegated to the back office duties of the Wellington Fund. He was not allowed to do active management. The index fund was an alternative to active management where Bogle could serve investors in a way that avoided the horrendous costs and fees associated with investing. Just as investors were getting pummeled by a terrible bear market, crushing inflation, and punishing industry fees, Bogle’s true nature came out. Similar to Galt, Bogle had to wait for the right time.
More information here:
A Debt of Gratitude for Financial Mentors
Galt and Bogle: A Giant Among Giants
What is found in Rand’s masterpiece is that most of the book doesn't actually focus on John Galt but on the other giants of the world that kept the world and innovation going. And so was Bogle, where the index fund revolution was not really about him. Instead, it was built by other giants in the finance industry. It’s a common misconception that the index fund was all Bogle’s idea. The index fund structure that Bogle used was actually developed by John “Mac” McQuown at Wells Fargo, where, though innovative, he was quite unsuccessful in making Wells Fargo money.
In the excellent movie Tune Out the Noise, which documents the growth of factor investing, McQuown recounts the response of then-Wells Fargo president Ransom Cook when Bogle asked about the S&P index fund, “Give to him. Give it to him.” Unfortunately for McQuown but lucky for Bogle, Wells Fargo could not sell index funds outside of institutions under the laws of the Glass-Steagall Act.
(For a little history, this act was enacted in 1933 to separate commercial banking from investment banking. It was thought that a root cause of the Great Depression in 1929 was the mixing of traditional banking with speculative investments, i.e. if I deposited a few hundred bucks in my local bank, that local bank could take my money and legally invest in Bitcoin.)
Bogle was the lead of countless other innovators and financial leaders helping investors maximize their returns. From Fama/French with their insights into factor investing and Tversky and Kahneman with the development of behavioral economics to Ric Ferri, Paul Merriman, and the owner of this website in their endearing efforts on financial literacy, John Bogle is not alone in pushing a new and better investing world forward. Like Galt, who stood with other fictional innovators whose inventions and hard work were just as important in making a better world, Bogle was a giant among giants, and he needed other financial industry giants to innovate and make the investing world better for retail investors.
More information here:
Actors as Asset Classes: Viewing Stock Traits Through a Hollywood (Camera?) Lens
Financial Trivia Questions That Just Might Stump You
The End Is Just the Beginning
Atlas Shrugged ends with John Galt leading the innovators of the world out of hiding, indicating that this was the beginning of a better world. And so was the world of investing when Bogle started Vanguard. We are living now in a better investing world, and since Vanguard was formed, we have continued to see continually lower fees, more tax-efficient vehicles like the invention of ETFs, and increased education in how to optimally invest.
Luckily, the time that Bogle shrugged is behind us, and we are living through a time now when great innovators in the financial space are carrying the mantle of low-cost optimal investing forward. We should forever be grateful to Bogle and all the other good guys in the investing industry for helping us, as Jim Dahle says, “get a fair shake,” and for not shrugging off this difficult task anymore.
Is the world of Atlas Shrugged and John Galt similar to our investing world and John Bogle? Are we now at a time, as suggested at the end of Atlas Shrugged, where investing only gets better from here?
I dunno Rikki… John Galt’s whole story arc is convincing innovators to withhold their insights from a world he saw as undeserving and irredeemable. Bogle did the opposite. He engaged with a flawed world, shared his insights, and made it a better place. A far more admirable approach in my opinion (more like Hank or Dagny if you had to pick a character from this book). Indeed, the whole point of Galt as a character was never to be a hero, but a cautionary tale.
definitely I agree sort of imperfect analogy. Bogle didn’t really give up on the world like Galt and organize a mass exodus from supporting the world. But like Galt withholding his invention, Bogle did withhold his Princeton thesis insights and even encouraged active management under a pseudonym, and eventually like Galt came to bring index funds to retail investors when the time was right.
I was somewhat jolted to see that the book “Atlas Shrugged” was being used here as an example rather than a cautionary tale.
I enjoy these investment sites to learn more about money. But they are often inhabited by people who have lost their humanity and in whom greed has taken hold in some dark, gambler’s addiction sort of way. Deep down, a nidus of fear that flames to take over every decent part of that person’s soul.
I see other people here who, like me, just want to learn how to do something we have to do. That is, take care of our money. I would say these pages tend to be 40/60. A sad commentary on the human soul.
I will just say that, despite the nationality of the writer, these pages have more than a tinge of the white supremacy flavor, too. If you don’t see that, just read the first couple of paragraphs again with that in mind. The “White man knows better” than everyone else (therefore, has to mete out his “greatness” as the “little people” can handle it, the white male as god, GOD myth theme on the right, also) is the heart of white male supremacy and of the current political movement on one side. Time for those folks to just STOP IT.
Dear KS,
I was somewhat jolted to see how you project your own issues onto the author. I am sorry for your troubling, paranoid views.
Dear KS,
Get help.
Best wishes,
Hey KS yeah not sure about white supremacy. Just pointing out a kind of similarity within heroes found in the narrative of Atlas Shrugged as well as our the narrative of our financial narrative.
KS,
Respectfully, that was just about the most ridiculous response to ever show up on this blog.
KS, I’m worried about your mental state. Please try to stay away from tribal politics and go outside and touch grass.
“despite the nationality of the writer”
Rikki is from Jersey, or did you think anyone not frankly Caucasian would be from another country?
Seems that perhaps KS is projecting their racial biases onto Rikki. Can we get a psych consult for KS?
White supremacy? Nope. Sorry. Reread it. Didn’t see a scintilla of it. It must be exhausting walking through the world straining to find something to get offended by. Goodness gracious our public schools have failed. Go feed your cats.
interesting to hear that Jim has recommended reading the book
notably in the book the protagonists consider only gold as real money. You can find “Francisco’s money speech” as an excerpt online.
Whereas Jim has argued that gold isn’t money
Why would one have to agree with everything one reads? I think everyone ought to read The Communist Manifesto, but there’s little of it I agree with.
I agree, to suggest one has to agree with everything they read would be absurd
Galt is a fictional character who has more in common with Zek, the Grand Nagus of the Ferengi Alliance (Star Trek) than Bogle who affected reality.
Like Rand and her fictional character Galt, the Ferengi saw altruism and “handouts” as evil. ( Armin Shimerman who played the Ferengi Quark on Deep Space Nine also was an actor in the movie Atlas Shrugged. )
To compare Bogle to Galt and by extension the Ferengi is a mistake.
For God’s sake, it was a good article and a good read, and anyone who is criticizing it down in the comments is only doing that so they can “humble brag” that they actually read the book. Because Atlas Shrugged is long, and difficult, and saying “that doesn’t quite go along with the character’s arc” is the finance-equivalent of saying “the market is about to collapse” (sexy to be a skeptic!).
Just thank the writer for the (enjoyable) article and criticize something else.
Bogle supported increased taxation on day trading, he organized Vanguard as a cooperative, he died with an estate of about $80M. Had he organized Vanguard differently, he would have had greater wealth.
Rand’s philosophy was ethical egoism. This is akin to the Ferengi model of profit at all costs. While the Ferengi at first were portrayed as almost comical characters, over time as the series developed, they were excellent capitalists, engineers and negotiators. In that, Galt and the Grand Nexus have some things in common (ears notwithstanding).
IMHO Jack Bogle is a lot like Atticus Finh from “To Kill a Mockingbird.” Both men are all about integrity and doing what’s right, even when it’s not popular. As Atticus stands up for justice in a prejudiced world, Bogle pushed for low-cost investing and transparency in a field often driven by greed. Their dedication to helping everyday people and sticking to their principles makes them timeless heroes in their own ways.
Also in Atlas Shrug, whole life insurance salespeople are a lot like Wesley Mouch. Mouch is all about looking out for himself and gaining political power, bending rules to help a few people while hurting everyone else. Similarly, these salespeople focus more on their commissions than on what actually best for their clients. They push whole life policies that are often unnecessary and costly, much like Mouch pushes harmful policies. They exploit the system to make money, putting their clients’ financial well-being at risk while pretending to have their best interest at hart.
Interesting article. Kinda sad to go to the comments and see people project their own politics. Someone even claimed the article was white supremacy?!? I guess that label can be applied to absolutely anything and everything these days lol.