John Bogle on Investing: The First 50 Years

Rating:
Summary: No nonsense book by one of the greats
Review: A good, practical, no-nonsense book on investing that emphasizes returning to basics and tried and true approaches that have always worked over the long term. He points out that investing needn't be, and perhaps shouldn't be, rocket science, and that you can do quite well in the market over the long term just by matching the performance of the market, and not trying to beat the market. As many people found out recently, pursuing a momentum strategy in an era of already overheated PE's and buying the latest hot story stock can be dangerous to your portfolio's health. Following a value-oriented fundamental approach with at least part of your portfolio can be a useful way of reducing volatility and improving your performance even if you're a died-in-the-wool momentum investor. This advice is especially timely coming as it does in the aftermath of the recent bear market. Another important point that many experts emphasize is that it's important to implement an investment program that matches your needs and risk tolerance, perhaps the most important thing in an investing program, since if you can't sleep at night, you probably won't be able to maintain it over the long haul.

As Bogle points out, since 90% of fund managers fail to beat the averages over the long haul, the best strategy is to buy a fund that tracks the major indexes, which does two things. First, it minimizes costs, so you won't pay any management fees as you would for your typical mutual fund. Also, most investors don't realize such costs as advertising and sales expenses are minimal for an index, compared to other funds, and those are typically passed on to the investor in the load or management fee. Since there are now more mutual funds than there are stocks on the New York Stock Exchange (which is over 5000) and as I said, 90% of them fail to beat the indexes, it's hard to imagine a more sobering reason for making an index at least a part of your investing strategy. So overall, a good book on investing emphazing a no frills, common-sense, and back-to-basics approach.

Although Bogle amply documents and demonstrates that most fund managers can't beat the averages over the long haul, and so the best way to invest in a mutual fund is to buy one that invests in the indexes and avoid the costs of managed funds, this doesn't mean a small investor can't beat the averages. The reason most funds don't is that most own so many stocks, as in the case of the Magellan fund, which used to own 1400 stocks, that they're forced to buy too many second and third tier stocks (or worse), which degrades their performance. The individual investor, however, can cherry-pick and do much better that way, assuming he's successful at it. But the point is that mutual funds have an inherent disadvantage in terms of owning a quality portfolio that inevitably stacks the odds against them, a limitation which small investor doesn't have.

A brief side note here. I noticed the forward is by Paul Volcker, the former Federal Reserve Chairman who was succeeded by the present Al Greenspan. Volcker went on to head up the World Bank after that job, and I was glad to see he's still around and working.

Rating:
Summary: Back-to-basics approach
Review: A good, practical, no-nonsense book on investing that emphasizes returning to basics and tried and true approaches that have always worked over the long term. This advice is especially timely coming as it does in the aftermath of the recent bear market. Bogle points out that it's important to implement an investment program that matches your needs and risk tolerance, perhaps the most important thing in an investing program, since if you can't sleep at night, you probably won't be able to maintain it over the long haul. He also emphasizes that investing needn't be, and perhaps shouldn't be, rocket science, and that you can do quite well in the market over the long term just by matching the performance of the market. As many people found out recently, pursuing a momentum strategy in an era of already overheated PE's and buying the latest hot story stock can be very risky. Following a value-oriented fundamental approach with at least part of your portfolio can be a useful way of reducing volatility and improving your performance even if you're a died-in-the-wool momentum investor.

The best to do this is by following a strategy of just investing in a fund that tracks the major indexes, which does two things. First, it minimizes costs, so you won't pay any management fees as you would for your typical mutual fund. Also, most investors don't realized such costs as advertising and sales expenses are minimal for an index, compared to other funds, and those are typically passed on to the investor in the load or management fee. But the most important reason is that 90% of fund managers fail to beat the averages over the long haul. Since there are now more mutual funds than there are stocks on the New York Stock Exchange (which is over 5000) and as I said, 90% of them fail to beat the indexes, it's hard to imagine a more sobering reason for making an index at least a part of your investing strategy. So overall, a good book on investing emphazing a no frills, common-sense, and back-to-basics approach.

A brief side note here. I noticed the forward is by Paul Volcker, the former Federal Reserve Chairman who was succeeded by the present Al Greenspan. Volcker went on to head up the World Bank after that job, and I was glad to see he's still around and working.

Rating:
Summary: A Great Collection from One of Investing's Great Minds
Review: Bogle is brilliant on so many of the investment issues that matter most to individual investors -- investing intelligently, the fallacy of active management, how the investment-management industry screws its customers and gets away with it, etc. But as good as he is as an investment "guru," he is even better as a writer.

His writing combines a deft mastery of mathematics with the ability to lay it out on the page so carefully that you'll wonder how you didn't think of the idea. His prose is simple, concise, and often, funny. Bogle is best in speeches and essays, this book combines a very well selected combination of both.

I read other investment literature, and I frequently see the articles and speeches in this book cited. Any interested observer of financial markets, investor wanting to keep from losing his shirt, or professional in the investment management industry would benefit from reading this book. I heartily recommend it!

Rating:
Summary: Interesting Perspectives on Markets, Business, and Life
Review: In this 443-page compilation of 25 of his speeches over the last 25 years, John Bogle effectively addresses topics of interest to both investors and those in business. Fans of earlier books, including his Common Sense on Mutual Funds, and devotees of passive stock and bond index strategies, will enjoy this book.

It is especially interesting to read John Bogle's speeches delivered from 1-25 years ago and compare his predictions of the future to what has actually occurred. Comparisons to the market of today can then be made.

For example, in a speech given a year following the "great stock market crash of October 19, 1987", John Bogle on p.68 related his analysis of why the market downturn occurred, including these two reasons: (1) stock prices too high (p/e ratios hitting 23 for the S&P 500 index in 1987); (2) some deterioration in the economic outlook, with no progress being made to reduce the Federal buget defict and a whiff of inflation. Sound anything like 2000 and 2001?

A more recent speech included in the book, from January 2000, predicting that the market's heady optimism will depart and leave stock market returns of 5.2% or so over the next decade. As John Bogle readily admits, however, anything can happen in the stock market.

There are many sections which detail the evolution of, and triumph of, passive indexing over active management. Other speeches provide a historical overview of the founding of Vanguard and its rise over the last 25 years.

Business leaders will find inspiration from several speeches delivered with a more personal note, in which he provides perspectives on the need for persistence, the need for lifelong learning, and the desire to build meaning into life through devotion to commitments to others. Very moving is his speech following his receipt of a transplanted heart.

More recent speeches by John Bogle, which give you a sense of what can be found in this book (but not the added value of looking at speeches from years past and comparing predictions made to what has actually occurred), can be found at the Vanguard website. Look for the Bogle Financial Markets Research Center.

This is not the first book a reader interested in investing should tackle. That honor belongs to John Bogle's 2nd book, "Common Sense on Mutual Funds." Other books should follow, including, perhaps, those by Larry Swedroe, Burton Malkiel, and Bruce Temkin.

For those who have already read several books on investing, the speeches in this book provide added perspective and reinforcement regarding the role of passive indexing, the folly of trying to outperform the market over the long term, and the philosophical ideal of service to others through truth and fairness. For these readers I wholeheartedly recommend adding this book to your investment library.

Rating:
Summary: The Whole Bogle in Bite-Sized Bits
Review: John Bogle is one of the investment legends of American finance. While still a student at Princeton University, he recognized the importance of strategic allocation of long-term investments into common stocks and the potential of creating great results by matching the market, rather than trying to exceed it. Depending on the length of time you choose, around 80 percent of professionally managed portfolios will underperform indexes like the Standard and Poor's 500. This volume contains his thesis, written in 1951, to show the original basis of his important insights.

Mr. Bogle brings two dimensions to this volume that are well worth your reflection. First, he is an astute thinker about how the individual investor can make the most money with limited risk. Second, he is a man of great principle, and serves as a conscience for an important segment of our financial industry, the one containing mutual funds.

The book primarily presents his ideas in the form of 25 speeches he made over the last several decades organized around four themes:

Investment strategies for the intelligent investor

The weaknesses of the mutual fund industry

The experience of Vanguard (the mutual fund firm he founded) in providing good economic returns

Personal perspectives on life.

The investment ideas are consistent with what Mr. Bogle has written in his excellent books, such as Bogle on Mutual Funds:

Keep it simple (match the market with an index of common stocks constantly owned)

Focus on the potential for economic productivity of public companies rather than on the fluctuations in the prices of their shares (and the negative emotions those fluctuations can generate)

Get your investing done in low-cost ways that minimize expenses and taxes (index funds do this)

Stewardship should be the guiding principle for the mutual fund company (the client's interests come before the company's interests).

I enjoyed seeing these ideas expressed as speeches. They are more powerful in this form because they are more concentrated than in a whole book. In addition, Mr. Bogle is a man of passion, and he lets his passion show in the speeches more than he does in the books.

To me, however, the best part of the book was the section on personal perspectives. Later in his life, Mr. Bogle had a heart transplant, and these speeches reflect the changed perspectives that experience has had on his life. If you are like me, you will be touched in important ways by these reflections.

One of the great potential benefits of reading this book is to see where the bar can be set in how one man can make a large difference through the clarity and consistency of his life. Mr. Bogle's commitment to inexpensive index funds has added tens of billions in wealth for millions of people. In the future, his influence will probably continue to expand. His principles around the idea of economic stewardship will probably live even longer in peoples' minds. Ask yourself: What needs to be done better about what I do for a living? Then ask yourself: How can I help make those things happen? Let John Bogle's example illuminate and inspire your journey.

May you compound your success peacefully and constructively, like your indexed investments do!

Rating:
Summary: Bogle Reflects Integrity In A Sea of Financial Doubt
Review: John C. Bogle is to the average investor what Carl Sagan was to the lay astrophysicist---an imparter of knowledge blessed with the ability to make the complex and esoteric both comprehensible and intriguing. From his days at Princeton University in the late 1940s and early 1950s Bogle was a man determined to write the proverbial book on mutual funds. In the 1970s, Bogle established the Vanguard family of mutual funds for the common man and woman. Today, Vanguard is second only to Fidelity among mutual funds in assets under management. More importantly, and unlike its elitist rival, Vanguard boasts a family of impressive no-load funds. Chief among them are index funds which mirror the performance of the leading domestic and international stocks and bonds markets. An insightful financial analyst, Bogle long ago realized that despite all the hype and occasional home run on the part of actively-managed mutual funds, over a reasonable time horizon actively-managed mutual funds generally do not out-perform the major financial indices, indeed they comp[are rather unfavorably. Accordingly, and to the dismay of many alleged market gurus, Bogle proceeded to take the mystery (as well as the fees and charges) out of mutual fund investing for those of us who don't own yachts and villas along the Mediterranean. His no-load indexed funds are a prudent approach for the regular guy and gal who hope to retire with financial security and comfort. His story is a worthwhile read as much for its knowledge and wisdom on mutual fund investing as it is for the author's honesty and integrity. "John Bogle on Investing" is particularly welcomed in light of recent criminal charges leveled against many of our largest mutual funds and investment houses. Bogle writes as he speaks, with authority and sincerity. I highly recommend "John Bogle on Investing."

Rating:
Summary: Changed my investment outlook
Review: The first two sections of this book changed my investment outlook. I now intend for the majority of my investments to be invested passively using index funds.

His arguments that most mutual funds underperform their respective index is convincing. This coupled with the difficulty of picking the managers that will outperform the index over the long term in advance, has convinced me that only by investing in the index can you guarantee that you will be investing in one of the leading funds.

The other 3 sections while interesting are more ruminations from Bogle about life, business and the stock markets. Interesting but not world changing. In fact I suspect that most people would be better off buying "Common Sense on Mutual Funds" by Bogle.

I would heartily recommned this book to anyone who wishes to be convinced that they can maximise their return, while avoiding the risk of underperformance by investing in index funds.