Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns
The Little Book of Common Sense Investing is the classic guide to getting smart about the market. Legendary mutual fund pioneer John C. Bogle reveals his key to getting more out of investing: low-cost index funds. Bogle describes the simplest and most effective investment strategy for building wealth over the long term: buy and hold, at very low cost, a mutual fund that tracks a broad stock market Index such as the S&P 500.
Introduction:
Mutual fund investors, too, have inflated ideas of their own omniscience. They pick funds based on the recent performance superiority of fund managers, or even their long-term superiority, and hire advisers to help them do the same thing. But, the advisers do it with even less success (see Chapters 8, 9, and 10). Oblivious of the toll taken by costs, fund investors willingly pay heavy sales loads and incur excessive fund fees and expenses, and are unknowingly subjected to the substantial but hidden transaction costs incurred by funds as a result of their hyperactive portfolio turnover. Fund investors are confident that they can easily select superior fund managers. They are wrong.
Contrarily, for those who invest and then drop out of the game and never pay a single unnecessary cost, the odds in favor of success are awesome. Why? Simply because they own businesses, and businesses as a group earn substantial returns on their capital and pay out dividends to their owners. Yes, many individual companies fail. Firms with flawed ideas and rigid strategies and weak managements ultimately fall victim to the creative destruction that is the hallmark of competitive capitalism, only to be succeeded by others.* But in the aggregate, businesses grow with the long-term growth of our vibrant economy.
This book will tell you why you should stop contributing to the croupiers of the financial markets, who rake in something like $400 billion each year from you and your fellow investors. It will also tell you how easy it is to do just that: simply buy the entire stock market. Then, once you have bought your stocks, get out of the casino and stay out. Just hold the market portfolio forever. And that’s what the index fund does.
This investment philosophy is not only simple and elegant. The arithmetic on which it is based is irrefutable. But it is not easy to follow its discipline. So long as we investors accept the status quo of today’s crazy-quilt financial market system; so long as we enjoy the excitement (however costly) of buying and selling stocks; so long as we fail to realize that there is a better way, such a philosophy will seem counterintuitive. But I ask you to carefully consider the impassioned message of this little book. When you do, you, too, will want to join the revolution and invest in a new, more economical, more efficient, even more honest way, a more productive way that will put your own interest first.
Contents:
- A Parable
- Rational Exuberance
- Cast Your Lot with Business
- How Most Investors Turn a Winner’s Game into a Loser’s Game
- Focus on the Lowest-Cost Funds
- Dividends Are the Investor’s (Best?) Friend
- The Grand Illusion
- Taxes Are Costs, Too
- When the Good Times No Longer Roll
- Selecting Long-Term Winners
- “Reversion to the Mean”
- Seeking Advice to Select Funds?
- Profit from the Majesty of Simplicity and Parsimony
- Bond Funds
- The Exchange-Traded Fund (ETF)
- Index Funds That Promise to Beat the Market
- What Would Benjamin Graham Have Thought about Indexing?
- Asset Allocation I: Stocks and Bonds
- Asset Allocation II
- Investment Advice That Meets the Test of Time