Vanguard's principles for investing success

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Vanguard's principles for investing success

Postby Barry Barnitz » Sun Mar 24, 2013 2:12 pm

Hi:

Vanguard Institutional has recently published a 40 page whitepaper, Vanguard's principles for investing success, where the fundamental principles of investment planning are examined from the Vanguard perspective.

Link: Vanguard's principles for investing success, Vanguard Institutional, 03/07/2013

The investment guidance Vanguard provides to investors relies on four principles that can be stated very simply:

>Define clear goals,
>invest with balance and diversification,
>minimize cost,
>stay disciplined over the long term.

In this white paper, Vanguard's principles for investing success, we explain the rationale and data underlying these principles and show how investors can put them into practice.


regards,
Image | blb | December Birthday Celebration: Ludwig van Beethoven
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Re: Vanguard's principles for investing success

Postby jidina80 » Sun Mar 24, 2013 9:03 pm

It's so nice to see that Vanguard created this summary document. They desperately needed it. Thanks for sharing, Barry.

I had be pointing people to IFA's 12 Step program to learn the basics, in addition to Vanguard's 'Plain Facts'.. I might be able to point people to Vanguard for more now.

IFA's stuff is still good: http://www.ifa.com/pdf/IFA_12-step_Brochure.pdf
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Re: Vanguard's principles for investing success

Postby nisiprius » Sun Mar 24, 2013 9:20 pm

The investment guidance Vanguard provides to investors relies on four principles that can be stated very simply:

>Define clear goals,
>invest with balance and diversification,
>minimize cost,
>stay disciplined over the long term.
Gee, where have I read something like that before...
1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep Costs Low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: Vanguard's principles for investing success

Postby nedsaid » Sun Mar 24, 2013 10:26 pm

For whatever it is worth, I will post some things that I have learned over the years.

It is much easier, at least for me, to make good buy decisions than to make good sell decisions. I have often found that what I sell does better that what I replaced it with. It is another way of saying what Warren Buffett says, "For investors when motion increases returns decrease." It also shows the randomness of returns from the markets.

Investing is for brainy people what golf is for athletes. Just as golf has humbled many a great athlete, the markets teach humility to those who think they can outsmart it. It seems that whenever I tell people that I have had success investing, the markets show me that I am not as smart as I think I am.

Boring is good, boring that pays a dividend is even better. What can be more boring than indexing? Boring works because you aren't trying to outsmart anyone. You have very little in transaction costs and you don't have to worry about what to buy and what to sell. Get a plan, stick to it. The next to most boring strategy to indexing is value investing. If you are going to try to beat the market, value investing gives you your best shot. It takes patience, but it is fun to see the dividends roll into your account. Value has a shot of working because you are buying the unpopular, unloved, and underfollowed segment of the market.

Bear markets are really where you make your money even though it doesn't feel like it. If you will buy when others are selling in a panic, you will pick up shares at a bargain price. It also helps a lot not to sell when the markets are down.

I am not a believer in market timing but I think you need to pay attention to valuations. You can look for good opportunities to rebalance or to buy undervalued assets. I have refused to chase hot assets and pounce when buying opportunities present themselves. I have rebalanced or pounced on opportunities maybe four times since 2000. Three of the decisions worked great, one not so great.

Pretty much successful investing is keeping yourself from doing really stupid things. I have my share of dumb things I have done but fortunately I learned from them. Having a written plan really helps in minimizing the dumb things we are all tempted to do.

I had some success at my favorite mutual fund company by focusing on mid-cap and smaller companies. I try to keep 38-40% of my stocks in small and mid-cap stocks. I was very happy to see Mel Lindauer talk about the "unloved mid-caps", I am not alone in seeing this as a rich area of the market.

Keeping expenses low is something that I have always had my eye on. I started buying index funds in mid 1990's.

I get a big kick out of the engineers and quants that come to the forum armed with statistics, ratios, and graphs. I think the math is very important but what we are really trying to do is quantify human behavior. It can't be done precisely. If people are in a panic, they could care less about the standard deviation or P/E or whatever of a stock. They will sell. The stats, graphs and that are useful and give us an idea of what might happen in the future but human behavior is unpredictable. I am more interested in the behavioral aspects of investing. Jason Zweig's articles on Your Money and Your Brain are very interesting to me. Quantitative analysis has its limits.

Slow and steady wins the race. Investing consistently and systematically is vital to your success. You won't be a good investor if you aren't a good saver.
A fool and his money are good for business.
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Re: Vanguard's principles for investing success

Postby Twins Fan » Mon Mar 25, 2013 1:06 pm

Does anyone else find it funny that there is another thread going on right now about Vanguard and the challenges ahead in the bond market? Almost as if they're questioning the balance, diversified, and stay disciplined parts mentioned in this thread.
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Re: Vanguard's principles for investing success

Postby gkaplan » Mon Mar 25, 2013 1:45 pm

Twins Fan wrote:Does anyone else find it funny that there is another thread going on right now about Vanguard and the challenges ahead in the bond market? Almost as if they're questioning the balance, diversified, and stay disciplined parts mentioned in this thread.


I'm not sure that I would draw that conclusion about the Vanguard article.
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