The Devil’s Invention

June 27, 2011

Bogle, for his part, has always seemed ambivalent about ETFs. He thinks the low costs, broad diversification and tax efficiency of the more conventional S&P 500 type of ETFs have the same advantages as traditional index funds, but he frets that excess speculation in them will eat into investors' returns via high transaction costs and thus cause investors to buy and sell them at inopportune times. "The ETF is a little bit like the famed Purdey shotgun that you buy over in London," he says. "It's the greatest shotgun ever made. It's great for killing big game in Africa, but it's also great for suicide." Needless to say, Vanguard launched no ETFs under Bogle's watch as CEO or chairman. And yet once he stepped down as chairman in 1999, it wouldn't be long before Vanguard, too, felt the need to enter the fray. Perhaps, despite Bogle's best intentions, his beloved index fund was on its way to becoming the devil's invention.

This article was lightly edited to reflect the editorial conventions of the Journal of Indexes.

Copyright © 2011 by Lewis Braham.

Reprinted with permission of McGraw-Hill.


1 As described in Justin Fox, "The Myth of the Rational Market" (New York: HarperCollins, 2009), pp. 111-112.

2 Ibid., p. 130.

3 Ibid., p. 129.

4 Lewis Braham, "Vanguard's Arachnophobia," Fund Watch column,, March 23, 2000.



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