A Dozen Things I’ve Learned from John Bogle About Investing


1. “In many areas of the market, there will be a loser for every winner so, on average, investors will get the return of that market less fees.”  The mathematics of what he describes is inescapable.  Costs and expenses are a huge drag on investing performance. 


2. “The Prussian General Clausewitz has said, ‘The greatest enemy of a good plan is the dream of a perfect plan.’ And I believe that an index strategy is a good strategy.”  For what Warren Buffet calls the “know-nothing investor” the good plan ironically is better than the theoretically perfect plan.


3. “The case for indexing isn’t based on the efficient market hypothesis. It’s based on the simple arithmetic of the cost matters hypothesis.”  Too many people use Vanguard’s success as support for the EMH, when it isn’t.  Your inability to beat Mr. Market  does not mean that he is efficient. You are just lousy at predicting his irrational short term wiggles. That I can’t predict the behavior of a crazy high school friend has nothing to do with efficiency but rather unpredictable behavior. Mr. Market is both a benchmark and your competition. You need to beat him after fees and costs. Few can beat him and so most should be him.


4. “We all think we’re above average investors just like we all think we’re above average dressers, I suppose, above average intelligence. Probably we all think we’re above average lovers for all I know” and “intelligent investors …won’t be foolish enough to think that they can consistently outsmart the market.” One dysfunctional human bias is overconfidence which is a huge problem for people when they invest. Most people think they are one of the few people who can beat the market, which is one why active management will never disappear. 


5. “The investor is often his own worst enemy. … The marketing colossus known as the mutual fund industry provides the weaponry which enables investors’ to indulge their suicidal instincts… The principal role of the mutual fund is to serve its investors.”  Financial intermediaries want you to trade since trading generates fees.  When a broker calls suggesting that you trade he is like a barber suggesting that you get a haircut. You will get a haircut but it will most likely be a financial one which is unpleasant.  Making it too easy to trade and providing you with information that might cause you to trade are all too common. Often the best thing you can do is nothing.


6. “…maximum tax efficiency, low turnover, and low turnover cost, and no sales loads.” That people willingly pay sales loads of 5% when they buy an investment boggles the mind. That people think they can engage in frenetic trading and outperform the markets is less surprising but no less a problem as is tax inefficiency.


7. “Mutual funds are not mutual in that they’re controlled by an investment advisor, or manager, or promoter, or marketer who’s in business to earn money on his capital with the exception of Vanguard, everybody else is in business to serve the manager.” Vanguard is unique in that there are no shareholders since it is a non-profit.  That difference aligns the interests of investors and the fund.    


8. “Asset allocation is critically important.”   The categories of assets bought by investor gets too little attention from the average investor despite the fact that this decision is the biggest driver of returns.   Bogle has said that “A good place to start is a bond percentage that equals your age.  Although I don’t slavishly adhere to that rule…” 


9. “If you have trouble imaging a 20% loss in the stock market, you shouldn’t be in stocks.” and “The index guarantees your fair share of whatever returns the stock market bestows on us, but it also guarantees your fair share of whatever losses the stock market is mean spirited enough to inflict on us.” Stocks will periodically suffer a substantial drop in value. If you do not have the stomach to endure that drop you will inevitably sell at the bottom and so Bogle is telling anyone with this level of fear to stay out of stocks.  “Time is your friend; impulse is your enemy” believes Bogle and if you get fearful in the event of a big drop in the stock market you will sell at the worst possible time.  Investing in index funds will not prevent you from falling into this trap.


10. “A 401(k) is a thrift plan trying to be a retirement plan.  It was never designed to be a retirement plan.  To be a retirement plan, you have to keep putting money in and can’t be allowed to take money out, and you can’t be allowed to borrow from it.” To have a happy retirement you must save. A lot. A savings rate of 10- to 20% of income is not too high and the later in life you get the more you need to save. People are living longer and longer after they retire and sometimes retirement arrive suddenly before people expect.


11. “What can one say about a theory that works most of the time? Not a good idea to rely on it.” Bogle’s thought is consistent with the ideas of people like James Montier and Nassim Taleb. Picking up pennies in front of a steamroller is unwise. Sadly, intermediaries who do this for others in return for a fee can look surprisingly talented, like the turkey who looks good a few months before Thanksgiving. 


12. “The goal of the advisor shouldn’t be to beat the market by picking stocks or winning funds. Advisors add value by providing the discipline required for successful investing. They add value in areas like tax efficiency, risk management, estate planning and retirement planning.”  There are lots of ways a financial advisor can help you that do not involve stock picking, including setting savings goals, reducing taxes, estate planning and buying the right level of insurance. They can also help you avoid getting fearful when others are fearful and greedy when others are greedy.  

3 thoughts on “A Dozen Things I’ve Learned from John Bogle About Investing

  1. Pingback: Overheard Conversation on Stocks, Politics and the Economy - A Wealth of Common Sense

  2. Pingback: A Dozen Things I’ve Learned from Marty Whitman/Third Avenue about Investing | 25iq

  3. Pingback: The fundamental difference between Venture Capital and Value Investing | 25iq

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