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Jack Bogle shares the $1 billion investing mistake that cost him his job

Jack Bogle, founder of the Vanguard Group, pauses at a portfolio manager conference in New York.
Scott Eells/Bloomberg via Getty Images

Even the most successful investors make money mistakes, including Vanguard founder Jack Bogle.

His worst bet, he says, was merging the mutual fund company he was running in the 1960s and early '70s, Wellington Management Co., with a go-go fund management group. It cost him $1 billion in assets and his job.

Bogle was hired by Wellington Management, which did the investing for the conservative Wellington Fund, straight out of college in 1951. He worked his way up to executive vice president by 1965.

Shortly after, hoping to keep his fund alive during the "go-go era," he initiated a merger in 1966 with investment counseling firm Thorndike, Doran, Paine & Lewis. The small Boston firm was owned by four young partners and managed the hot Ivest Fund, a $30 million aggressive mutual fund, among others.

Bogle became CEO of the merged company and, for a while, the union was a success. But when the market collapsed in the early '70s, so did the company's prospects.

"Assets of our flagship, the conservative Wellington Fund, had tumbled from a high of $2 billion in 1965 to less than $1 billion, on the way to a low of $480 million," Bogle writes in his 2018 book, "Stay the Course." "The earnings of Wellington Management Company plummeted, and its stock price followed suit, dropping from a high of $50 per share in 1968 to a low of $4.25 in 1975."

In 1974, the Wellington board fired Bogle as CEO. "It was the most heartbreaking moment — actually, until then, the only heartbreaking moment — of my entire career," he writes.

Bogle's mistake convinced him that rather than trying to actively beat the market, he should create a passively managed fund that tracked the market. And, ultimately, that led to his crowning achievement: launching The Vanguard Group and creating the world's first index mutual fund.

As he writes in "Stay the Course": "Vanguard was 'conceived in Hell and born in strife.' Its creation was the result of an unsatisfactory compromise that ended an ugly fight for control of Wellington Management Company, a fight that cost me my job as CEO and made it appear for a time that my career in the industry I loved was over."

Today, Vanguard, the world's largest mutual fund company, manages $5 trillion in assets. And Bogle has done well for himself, too: Now 89, his estimated net worth is somewhere in the low eight figures.

Don't miss: Jack Bogle reveals the biggest risk of the next financial crisis and why he's still investing

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Jack Bogle: I'm no hero, I just gave a damn about investors
Jack Bogle, founder of the Vanguard Group, pauses at a portfolio manager conference in New York.
Scott Eells/Bloomberg via Getty Images
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