“The Little Book of Common Sense Investing” is a book written by John C. Bogle, the founder of Vanguard Group and a pioneer in the field of mutual fund investing. The book provides a practical guide to investing for individual investors, with a focus on low-cost index funds and passive investing strategies.
There are a few investment managers, of course, who are very good – though in the short run, it’s difficult to determine whether a great record is due to luck or talent. Most advisors, however, are far better at generating high fees than they are at generating high returns. In truth, their core competence is salesmanship. Rather than listen to their siren songs, investors – large and small – should instead read Jack Bogle’s The Little Book of Common Sense Investing” Warren Buffett, Chairman of Berkshire Hathaway, wrote in his 2014 annual shareholder letter.
Some key themes and ideas presented in the book include:
- The importance of minimizing costs: Bogle argues that investors should focus on minimizing the costs of their investments, including expense ratios and trading fees, as these costs can eat into returns over time.
- The value of diversification: Bogle advocates for diversifying one’s portfolio across a wide range of asset classes, to help reduce risk and improve long-term returns.
- The dangers of trying to “beat the market”: Bogle warns against the temptation to try to “beat the market” through active trading or picking individual stocks, as this approach is often unsuccessful and can be costly.
- The benefits of a long-term focus: Bogle argues that investors should focus on the long term and avoid making short-term decisions based on market fluctuations or the latest headlines.
Overall, “The Little Book of Common Sense Investing” provides a clear and concise introduction to investing for individual investors, and offers practical advice on how to build a diversified portfolio and achieve long-term financial success.
Table of Contents
Who was John Bogle?
John Bogle was an American investor, business magnate, and philanthropist. He was the founder and former CEO of The Vanguard Group, a mutual fund company that is now one of the largest investment firms in the world. Bogle passed away in 2019 at the age of 89
Bogle is known for his advocacy of index funds, which are investment vehicles that aim to replicate the performance of a market index such as the S&P 500, and for his criticism of the high fees charged by many mutual funds and investment managers. He is also credited with popularizing the concept of passive investing, which involves buying and holding a diversified portfolio of stocks and bonds rather than actively trying to outperform the market through individual stock picking or market timing.
“If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds and in his crusade, Jack was frequently mocked by the investment management industry. Today, however, he has the satisfaction of knowing that he has helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me” Warren Buffett said in his 2016 annual report
Details about the Book The Little Book of Common Sense Investing
Chapter Two: Rational Exuberance.
Chapter Three: Cast Your Lot with Business.
Chapter Four: How Most Investors Turn a Winner’s Game into a Loser’s Game.
Chapter Five: The Grand Illusion.
Chapter Six: Taxes Are Costs, Too.
Chapter Seven: When the Good Times No Longer Roll.
Chapter Eight: Selecting Long-Term Winners.
Chapter Nine: Yesterday’s Winners, Tomorrow’s Losers.
Chapter Ten: Seeking Advice to Select Funds?
Chapter Eleven: Focus on the Lowest-Cost Funds.
Chapter Twelve: Profit from the Majesty of Simplicity.
Chapter Thirteen: Bond Funds and Money Market Funds.
Chapter Fourteen: Index Funds That Promise to Beat the Market.
Chapter Fifteen: The Exchange Traded Fund.
Chapter Sixteen: What Would Benjamin Graham Have Thought about Indexing?
Chapter Seventeen: “The Relentless Rules of Humble Arithmetic.”
Chapter Eighteen: What Should I Do Now?At the end of each chapter, there is the “Don’t Take My Words for It” section, where Bogle quoted some of the world’s best financial minds in support of the arguments presented in the chapter.One chapter that may be particularly relevant for many readers is Chapter 3, “The Illusion of Active Management.” In this chapter, Bogle discusses the evidence that suggests that actively managed mutual funds, which try to outperform the market by selecting individual stocks or bonds, often fail to do so in the long run. He argues that the vast majority of actively managed funds underperform their benchmark indexes, and that this underperformance is due, in large part, to the high fees that these funds charge.Another chapter that may be of interest is Chapter 7, “The Paradox of Success.” In this chapter, Bogle discusses how the success of mutual fund companies and investment managers can often lead to their own downfall, as they become too large and unwieldy to continue to generate strong returns for their investors. He argues that investors should instead focus on finding low-cost index funds that offer broad diversification and are more likely to deliver long-term returns that meet or exceed their benchmarks.Bogle also advises investors to be cautious about taking financial advice from those who stand to benefit financially from their recommendations, such as financial advisors who receive commissions for selling particular products. He advises investors to be especially wary of those who make grandiose claims or promise quick or easy solutions, as these are often red flags that the advice may not be in the investor’s best interests.Bogle advises investors to avoid the temptation to chase short-term performance and instead focus on building a long-term, diversified portfolio. He notes that many actively managed funds that have performed well in the past often underperform in the future, and that it is difficult to predict which funds will outperform in the short term.Don’t try to time the market: Bogle advises investors to avoid trying to “time” the market by trying to predict when to buy and sell stocks or other investments. He notes that this can be a futile and costly exercise, and advises investors to instead focus on building a long-term, diversified portfolio and holding onto it through good times and bad.
Warren Buffet Bet On Index Funds
Yes, Warren Buffett, one of the most successful investors of all time, has made a public bet that a low-cost index fund will outperform a basket of actively managed hedge funds over a 10-year period. The bet, which began in 2007, was made with a group of hedge fund managers who believed that they could outperform a simple index fund by picking individual stocks and securities.
The bet was designed to demonstrate the superiority of a passive investment approach, in which investors buy and hold a diversified portfolio of stocks and bonds rather than trying to outperform the market through individual stock picking or market timing. The index fund chosen for the bet was the Vanguard S&P 500 Index Fund, which tracks the performance of the S&P 500 index and charges very low fees.
As of 2021, the bet has been ongoing for over a decade, and the index fund has consistently outperformed the basket of hedge funds. This outcome is consistent with the evidence that suggests that actively managed funds, on average, underperform their benchmark indexes over the long term due to their high fees and the difficulty of consistently picking winning stocks or securities.
Read more about the bet here
Warren Buffett Bet about Index Funds
Video on Jack Bogle’s Common Sense Investing Principles
John Clifton Bogle popularly known as Jack Bogle wrote a book in 2007 that was titled “The Little Book of Common Sense Investing”. The book is built around a simple concept i.e. don’t waste your time and money by investing in single stocks or actively mutual funds and instead invest in index funds. Jack Bogle may not be amongst the most well-known money managers and investors; it will be difficult to present anyone who’s had a bigger impact on the investing public
Quotes by John Bogle
- In investing, what is comfortable is rarely profitable.”
- “The mutual fund industry is filled with hyperbole, misinformation, and a good deal of flimflam. It’s an industry that has embraced the gimmick and rejected the substance of investment.”
- “The simplest and most efficient investment strategy is to buy and hold all of the nation’s publicly held businesses at very low cost.”
- “In the long run, a portfolio of diversified stocks and bonds has historically been the safest and most profitable investment for the majority of investors.”
- “The individual investor should act consistently as an investor and not as a speculator.”
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Overall, The Little Book of Common Sense Investing is a comprehensive and informative guide to investing that is suitable for both novice and experienced investors. It provides practical advice on how to build a diversified portfolio, choose the right investments, and avoid common pitfalls, and is well worth reading for anyone looking to make informed investment decisions
Have you read the Book The Little Book of Common Sense Investing? Did you like it?
