John Bogle on Investing: The First 50 Years

10

MUTUAL FUNDS: THE PARADOX OF LIGHT AND DARKNESS

Distinguished Speaker SeriesThe Houston ClubHouston, TexasJanuary 14, 1998

MY 1993 BOOK on mutual funds concludes with what I describe as “Twelve Pillars of Wisdom” for investors. The final chapter begins with this lofty quote from Ecclesiastes: “Wisdom excelleth ignorance as far as light excelleth darkness.” That book is described as a “how-to-invest guide,” but as I considered my mandate to speak in this respected forum for airing the ideas of so many distinguished speakers over the years, it occurred to me that the theme of light and darkness might also profitably be used to accommodate a rather different approach.

My remarks today, while I hope they will stimulate your investment thinking, will focus, not on the use of mutual funds in your own investment and savings programs, but on the diverse factors—some widely known, some less so—that have fostered the growth of the mutual fund industry, as funds have replaced, first savings deposits, then life insurance, and then pension plans to become the investment of choice for America's families. If we have ever had a clear case of “creative destruction”—the phrase the economist Joseph Schumpeter chose to describe the process by which one industry strikes at the heart of another by providing a novel solution to society's needs—surely this industry's rise to preeminence is its apotheosis.

But, as the laws of physics tell us, a strong action engenders an equal and opposite strong reaction, ...