The Little Book of Common Sense Investing Book Summary

Book Summary

15 min

Brief Summary

John Bogle is the right mentor to teach you about investing. He is the founder of Vanguard Group and creator of the world’s first index mutual fund. His value investing strategies have helped many people become wealthy. Common sense tells us the best investment strategy is to buy and hold all of the nation’s publicly held businesses at a low cost. Trying to beat the stock market is a loser’s game especially because of the fees involved. Owning a diversified portfolio of stocks for the long term is the way to go.

About the Author

An American investor, business magnate, and philanthropist, John Clifton "Jack" Bogle was the founder and C.E.O. of The Vanguard Group and developed the first index fund. His ideal investment vehicle is a low-cost index fund that is held over the long term with the reinvestment of dividends and dollar-cost averaging. His 1999 book, Common Sense on Mutual Funds: New Imperatives for the Individual Investor, is a bestseller.

He was born in 1929 in Montclair, New Jersey. He lived through the Great Depression. His parents lost their home, and his father became an alcoholic, resulting in his parents divorcing. He graduated magna cum laude from Princeton University in 1951, where he studied economics and investment.

Walter L Morgan hired him after reading Bogle's thesis paper.

He worked for the Wellington Fund and became an assistant manager in 1955. He pushed for Wellington to move from concentrating on a single fund to a new fund that he created. In 1970, he replaced Walter Morgan as chairman of Wellington. He was fired after approving a merger that did not go well.

In 1974, he founded the Vanguard Company, one of the most successful companies in the investment world. In 1999, Fortune magazine described him as one of the four investment giants of the 20th century. In 1976, he founded First Index Investment Fund, which eventually became the Vanguard 500 Index Fund, the first index mutual fund available to the public.

Suffering from heart issues, he resigned as C.E.O. His second in command, John J Brennan, became C.E.O. Bogle had a heart transplant in 1996. He later returned to Vanguard and assumed the title of senior chairman, which led to a fight with Brennan.

Bogle created the world's first index mutual fund in 1975. He insists that index funds are a better investment vehicle than actively managed mutual funds. He defends that an actively managed fund can't beat the performance of a low-cost index fund over the long run, especially given the fees that come with the actively managed fund. He believes in the following common-sense approach to investing:

Choose low-cost funds.

Advice costs money.

Past performance doesn't predict future results.

Use past performance to determine consistency and risk.

Beware of rock star mutual fund managers.

Beware of asset size

Don't invest in too many funds

Buy and hold your fund portfolio.

Married to Eve Sheered with six children, Bogle lives in Bryan Mawr, Pennsylvania. He received honorary doctorates from Princeton University in 2005 and Villanova University in 2011.

Topics

Money & Investments

The Little Book of Common Sense Investing Book Summary Preview

John C Bogle is the former C.E.O. of Vanguard Mutual Fund Group, the largest fund company. In 1976, he developed the first-ever index fund for any individual investor, which revolutionized the market place. According to Dr. Paul Samuelson of M.I.T., "The creation of the first world's fundamental indexing fund by John Bogle is equally important as the invention of the alphabet and the wheel." Today, index funds make up $1 trillion in invested funds. Index funds are well-liked among renowned investors, including Warren Buffet. In his book, Bogle encourages readers to create a "defensive portfolio," with an expanded selection of diversified stocks that you invest in for the long term.

An index fund holds a diversified portfolio that reflects the financial market or a specific market sector. If the companies increase in value, the market value of the index fund rises too.

Over the long term, U.S. corporations are sure to have strong business fundamentals. Investing in an index fund that holds the entire market for the long term is a smart move.

Investing in individual stocks is not only risky but can be costly. Such investors rarely receive the overall R.O.I. that they expect. Evaluating the attractiveness of a stock is tricky. That's why many investors invest in an actively managed fund, where a fund manager pools money from several investors and then invests this money into stocks. The fund manager is in charge of managing the stock portfolio. This is very costly because of brokerage commissions, fund manager's fees, that eats away at your profits.

Moreover, these funds, in the long run, yield less profit than the overall stock market. If you invested $10,000 in 1980, by 2005, you would have 70% less invested in an active fund than an index fund. Additionally, costs compound over time.

Investors pay a lot of money to actively managed funds for their financial expertise. They don't perform as well as the overall stock market. 24 out of 355 mutual funds that existed in the 1970s have outperformed the market and stayed in business. Just because a fund performed well for the past 40 years does not mean it will continue to do so in the next decade. The manager will retire at some point, and what then?

Investors continue to invest in actively managed funds. That's because fund managers, instead of disclosing the real costs of the funds, boast about the high returns. 198 of the 200 most successful funds in the late 1990s reported higher returns than the investors made. Also, many investors let their emotions and popular opinion shape their decisions when it comes to actively managed funds. For example, while they only invested $18 billion in the stock market during the first half of the 1990s, investors spent $420 billion in the stock market during the second half of the 1990s when the stocks were overvalued. Only when the bubble burst did people realize they had given into the hype.

Investors often invest in actively managed funds because its popular to do so.

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