How John Bogle first dissented on need for an index fund and then made them so popular..

Superb piece by Stephen Mihm of Bloomberg tracking the history of index fund idea. I didn’t know this at all. John Bogle who pretty much made index fund his own idea actually dissented against it!:

The idea of an index fund appeared in 1960, when the University of California economist Edward Renshaw co-authored a paper, “The Case for an Unmanaged Investment Company,” with an MBA student, Paul Feldstein, for the Financial Analysts Journal. It anticipated many of the ideas that would animate the first index funds.

Renshaw and Feldstein examined the investment landscape and noted that the number of mutual fund options was growing at a staggering rate. Yet many of these funds, they observed, failed to outperform the Dow Jones Industrial Average. Given that retail investors were ill-equipped to determine which actively managed fund would do better than average, why not just aim for average?

 Moreover, they noted, “real economies in supervision could be obtained by eliminating the cost of advisory service.” In time, this could translate to superior returns over actively managed stock portfolios. In a few short pages, they laid out a clear case for an unmanaged stock fund that tracked an index.

And no one listened.  Well, almost no one. As my fellow Bloomberg View columnist Justin Fox recounted in “The Myth of the Rational Market,” a few months after the Renshaw and Feldstein article, another article appeared in the same journal titled “The Case for Mutual Fund Management.” The “unmanaged fund,” the author sniffed, might “superficially appear” to be a sophisticated idea, but it was doomed to fail, given the technical obstacles to tracking an index in real time – it was hard to do without incurring significant transaction costs.

The author of this attack was one John B. Armstrong. But this was a pseudonym. Armstrong’s real name was John C. Bogle, then working for the actively managed Wellington Fund. 

Wow..That is some turnaround..

The idea then continued to excite the academics who advanced the thought. Initially it was offered only to institutional till Vanguard under Bogle made it their own..

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