"The Little Book of Common Sense Investing"

By John Bogle, patron saint
of do-it-yourself investors

I have a lot of respect for Vanguard founder John Bogle. Unlike every other financial services company at the time, Vanguard was set up to operate at cost, rather than to extract profits from account holders to funnel to its executives and shareholders. Vanguard's customers are its owners; it's a mutually-owned mutual fund company. If Bogle hadn't given up ownership of Vanguard, he'd probably appear in every Forbes List of Very Rich People ever published, and the rest of us would be that much worse off in retirement.

"The Little Book of Common Sense Investing" details Bogle's philosophy when it comes to investing in the stock market. It boils down to a few simple ideas: in aggregate, investors are the market, so in aggregate we can't beat the market. Costs matter; the returns you get are exactly what you don't pay for. Diversify as much as possible. And you can't buy past performance¹, so don't try to time the market!

I read this book at the end of June, which turned out to be quite timely as the news was filled with all sorts of doomsday scenarios about how Brexit would bring about a recession, now was the time to sell everything, and on and on. A month later, U.S. markets continue to hit new highs. Here are a few quotes to help weather the next market scare.

The returns earned by investors as a group must fall short of the market returns by precisely the amount of the aggregate costs they incur. It is the central fact of investing. ... the "relentless rules of humble arithmetic."

We know that neither beating the market nor successfully timing the market can be generalized without self-contradiction. What may work for the few cannot work for the many.

To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.

The greatest enemy of a good plan is the dream of a perfect plan.

Every single firm in the fund industry acknowledges my conclusion that past fund performance is of no help in projecting the future returns of mutual funds.

Common sense tells us—and history confirms—that the simplest and most efficient investment strategy is to buy and hold all of the nation's publicly held businesses at very low cost.

The simple fact is that selecting a mutual fund that will outpace the stock market over the long term is, using Cervantes' wonderful observation, like "looking for a needle in the haystack." So I offer you Bogle's corollary: "Don't look for the needle in the haystack. Just buy the haystack!"

And a hat tip to Benjamin Franklin:

Beware of little Expenses; a small Leak will sink a great Ship.

Great Estates may venture more, but little Boats should keep near shore.

My highly subjective rating: worth a read for both new investors and those looking for peace of mind. Bogle reminds us that to date, there has never been a permanent global recession, so selling out of the market and betting against capitalism doesn't look like a winning strategy. Do the best we can for the things that are under our control and stay the course.


1 Over the period he examined, Bogle found that a portfolio of Morningstar 5-star rated funds, the highest rating for successful recent performance, subsequently made barely half the return of the entire market. Statisticians call this reversion to the mean. (back)