Why Warren Buffett Said A Man You've Probably Never Heard Of 'Has Done Probably More For The American Investor Than Any Man In The Country'

Why Warren Buffett Said A Man You’ve Probably Never Heard Of ‘Has Done Probably More For The American Investor Than Any Man In The Country’

Warren Buffett’s name carries the same weight in the world of investing that Michael Jordan’s carries in the world of professional basketball. Like Jordan, Buffett is widely regarded as one of, if not the best, of all time. So, why does Buffett credit a man you’ve probably never heard of as having “done more for American investors than anyone else in the country”?

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Buffett was referring to Vanguard founder Jack Bogle. Vanguard offers some of the investing world’s most highly respected and best-performing investment funds. Vanguard’s offerings are available in a wide variety of sectors. They work by tracking some of the world’s largest indexes and bundling stocks into one diverse package. This allows retail investors to earn passive income or grow wealth through a diversified fund without having to become market experts themselves.

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Diversifying investment is a critical element of building a quality portfolio. However, diversification was much easier said than done before Bogle helped make Vanguard a household name. Retail investors who wanted to build investment portfolios by themselves had to become knowledgeable in multiple investment sectors. Then they had to identify stocks with growth or upside potential and track them constantly to figure out when to buy, hold, or sell.

Aside from that, an investor’s best option was to buy into a hedge fund, which brought about a different set of complications. First, they were not always available to non-accredited investors. Second, many of the best hedge funds had high fees that ate up a significant portion of any passive income or profits the fund generated. Buffett, who has always been known for his frugality and pragmatism, was never a big fan of hedge funds.

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Buffett was vocal about his preference for passive index funds like Vanguard’s because they offered similar performance to hedge funds without the high fees. Buffett believed that index funds offered better returns once management and trading fees were taken out of investor profits from hedge fund investments.

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Buffett’s convictions were so strong that he famously “put his money where his mouth was” in 2008. He made a $1 million challenge to any hedge fund manager who could beat the returns he generated by investing in passive index funds over a decade. Tom Sedies, who was managing Protegee Funds at the time, took Buffett up on his bet, and the race was on.

Buffett chose Vanguard’s S&P 500 index fund, while Sedies relied on a combination of five hedge funds. By the time it was over, the Financial Times reported that the Vanguard fund Buffett chose had returned 126%, while Sedies’ hedge funds only generated 36% returns during the same period. Buffett planned to make the results public at his Berkshire-Hathaway (NYSE: BRK.A, BRK.B) shareholders’ meeting, but he also invited Bogle.

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Buffett proclaimed Bogle “has probably done more for the American investor than any man in the country,” during his keynote speech. “I estimate that Jack, at a minimum, has saved and left tens and tens and tens of billions into their pockets, and those numbers are going to be hundreds and hundreds of billions over time,” Buffett continued. It was high praise considering the source.

Buffett’s endorsement put index funds on the map in a way that they hadn’t been before. It helped pave the way for Vanguard to become a household name and gave millions of investors an alternative to expensive hedge funds. Buffett had long crusaded against high management fees, and Bogle helped him show investors there was an equally effective way to diversify their holdings.

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This article Why Warren Buffett Said A Man You’ve Probably Never Heard Of ‘Has Done Probably More For The American Investor Than Any Man In The Country’ originally appeared on Benzinga.com

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