IndexFunds.com Staff

Bogle Wins $25 Bet

"I'm usually a $5 bettor, so I look at it as being 400 percent larger than usual. He says he bet on the wrong one. That's like saying I bet on the wrong horse. " - John C. Bogle

Five years after making the biggest bet of his life, John C. Bogle, founder of the Vanguard Group, collected $25 from Robert Markman of Markman Capital Management.

When Markman founded the actively managed Markman Conservative, Moderate and Aggressive Funds in 1995, Bogle challenged him to a bet. The Moderate Allocation Fund that Markman chose was outgained by the Vanguard 500 index fund 226 percent to 156 percent over the five-year period. With taxes figured in, the margin was even greater, 214.3 percent to 113.5 percent.

In 1995, after Markman had been had been criticizing the foolishness of passive index investing for years, Bogle, a longtime proponent of passive index investing, challenged him to the bet.

While gracious in sending the check to Bogle, "I trust you will invest it wisely," he complained that he had chosen the wrong fund. The Markman Aggressive Allocation Fund returned 240 percent (pretax) over the same 5-year period.

"He says he bet on the wrong one," Bogle said, "That's like saying I bet on the wrong horse."

Regardless, since the bet came to an end in March, the Markman Aggressive Fund has slumped badly. 5-year annualized returns dropped from 27.7% at the end of March to 20.9% annualized at the end of May. The Vanguard 500 held steady, with a 5-year annualized return of 26.76% at the end of May, 2000.

The two made another 5-year bet, with Markman choosing the Aggressive Allocation Fund, and Bogle proposing a bet of $5. The Vanguard fund has a good lead already. Either way, Bogle comes out ahead.