Is bogleheads investing a philosophy or a truth?

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720pete
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Is bogleheads investing a philosophy or a truth?

Post by 720pete »

Excuse my ignorance on this one, but the question is in the title.

I'm young and trying to learn the investing ropes and a few nice people online have recommended Bogleheads and using a strategy of index fund portfolios and minimizing costs. I read The Bogleheads Guide to Investing and the book seems to treat the bogleheads investing concept as a given truth and a proven way to get the best return for your money when planning retirement.

It seems like bogleheads investing is a good idea for 95% of people out there, however it doesn't seem like its a strategy that many people employ. When I first started learning about investing I was immediately thrust into the notion of picking individual stocks and adding some index funds for diversity. The fact that many sites will recommend buying individual stocks over index funds seems silly if Bogleheads investing is really the best way to go about investing for retirement for 95% of average joes.

I read through some threads here about people considering dumping their investment advisors and going to a bogle portfolio and it seems like investment people are able to hold their own and make arguments about why NOT to go the Bogle way. Also I feel like if I went onto other online investment forums, the default advice for retirement savings would probably not be to buy low cost index funds. Can someone explain to me, is Bogleheads investing a truth or is it a philosophy? My understanding is that it is the best way to go, but many people have different ideas and approaches. If Bogleheads is proven to provide results that beat most mutual funds and individual stock portfolios, why are people going down the latter route?
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Re: Is bogleheads investing a philosophy or a truth?

Post by mptfan »

720pete wrote:If Bogleheads is proven to provide results that beat most mutual funds and individual stock portfolios, why are people going down the latter route?
1. Ignorance.

2. Apathy.

3. The investment industry has a strong incentive to convince you to invest in a way that maximizes their profit, and they take advantage of your ignorance and your apathy. Vanguard is very much the exception to this rule.
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Re: Is bogleheads investing a philosophy or a truth?

Post by gotherelate »

To those who follow it and believe in it, it is both. To those who don't, it is merely a philosophy. I think the main reason more people don't follow the "Bogle" philosophy of investing is because they have egos that won't fit inside a total market approach.
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Re: Is bogleheads investing a philosophy or a truth?

Post by dbr »

It's a truth that undermines the ability of the financial services industry to make money from people who don't know better or can be conned into doing things against their better interest. There is always something to sell to the next sucker that comes along. It is also a truth that is counter-intuitive based on denying the supposedly self-evident principals that "You get what you pay for." (In investing you don't.) and that "Smart people who work hard come out ahead." (You can't outsmart the market and hard work probably means you are trying to do just that.).* Boglehead investing is simple and boring, which means that investment columnists and "gurus" would have little to write about and nothing to sell.

* You still have to work hard enough to get an understanding of how things work and to pay attention to detail in how you manage your investments.
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Re: Is bogleheads investing a philosophy or a truth?

Post by yobria »

It's a bit like wondering why the junk food industry exists when there's so much evidence in favor of healthful eating. The answer is: People are only so smart, and only so capable of making good decisions (based on personal aptitude).

As in the junk food industry, marketing is a big part of the problem. Nobody gets paid if you own Vanguard Index funds. Welcome to capitalism.
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Re: Is bogleheads investing a philosophy or a truth?

Post by ObliviousInvestor »

gotherelate wrote:I think the main reason more people don't follow the "Bogle" philosophy of investing is because they have egos that won't fit inside a total market approach.
I agree. Or, at least, I agree that it's one of the reasons.

An additional reason is the fact that there are whole industries built on people investing in a non-Boglehead way.

-CNBC (and countless other similar media sources) relies on people caring about individual stocks and what the market does today.
-Brokerage firms like Edward Jones rely on people believing that active fund managers are likely to beat index funds. (Edited to add: The fund companies in question also rely on that belief, of course.)
-Discount brokerage firms like ETrade, TradeKing, etc. rely on people believing that picking stocks is the way to go.
-Numerous publishers rely on people believing that it's easy to earn above-market returns.
-Many registered investment advisors rely on clients trusting them to beat the markets.

There's a lot of money to be made by convincing people not to invest like Bogleheads.
Last edited by ObliviousInvestor on Mon Aug 13, 2012 11:37 am, edited 1 time in total.
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Re: Is bogleheads investing a philosophy or a truth?

Post by xerty24 »

mptfan wrote:
720pete wrote:If Bogleheads is proven to provide results that beat most mutual funds and individual stock portfolios, why are people going down the latter route?
1. Ignorance.

2. Apathy.

3. The investment industry has a strong incentive to convince you to invest in a way that maximizes their profit, and they take advantage of your ignorance and your apathy. Vanguard is very much the exception to this rule.
4. Skill
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Re: Is bogleheads investing a philosophy or a truth?

Post by bottlecap »

It's as much of a "truth" as you're going to get in the investment world. The overwhelming weight of evidence suggests that, at best, any advantage in active stock picking is eaten up by its costs and that, at worst, any out performance in picking stocks (or even other investments) due to pure chance.

In the face of this, the only logical choice over which you have any control is to diversify and reduce costs. This leads us to indexing.

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Re: Is bogleheads investing a philosophy or a truth?

Post by Call_Me_Op »

Why do people go to casinos? In the hope of striking it rich - even though they know the odds are against it.

The same goes with buying individual stocks (this is called speculation). Since a few stocks will experience stratospheric gains, someone who is a stock picker knows that there is a chance that one of their stocks may be the next Amazon.com - making them very rich. With index-fund investing, that will not happen. Instead, you will receive market returns. It just so happens that market returns beat the majority of investors. (Of course, the flip-side with individual stocks is that one or more of your stocks can crash and burn.)

A happy medium may be to invest with most of your money and speculate with a small amount.
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Re: Is bogleheads investing a philosophy or a truth?

Post by harikaried »

yobria wrote:Nobody gets paid if you own Vanguard Index funds. Welcome to capitalism.
You get paid if you diversify with low cost index funds. You tell your friends that you're beating all those active traders, and hopefully they learn from your experience. Welcome to capitalism. :)
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Re: Is bogleheads investing a philosophy or a truth?

Post by FabLab »

Why do others go down a different path? It would only be conjecture on my part, so I won't even try to answer. But, if I were in your shoes, I would carefully read Common Sense on Mutual Funds by John Bogle. That would do it for me.
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Re: Is bogleheads investing a philosophy or a truth?

Post by Khanmots »

I recently started a thread that attempts to show what the basic assumptions about the world are that drive *why* we do index investing and minimizing costs and all the rest.

Your question seems to come down to a questioning of the first two principals I mention:

Return requires risk
Many people seem to have an inherent aversion to admitting this. I'm sure you've noticed all the people attempting to justify switching from investment grade bonds to junk bonds, or switching from bonds to REITS, or any of the other yield-seeking moves. What these all have in common is people ignoring that these investments are not as safe. In trying for increased yield, you're taking increased risk. REITS dropped by up to 70% from their peak in the 2008 crash, that's far far far from behaving like a bond, and yet, even on these boards we've seen people trying to equate the two. Humans seem to have a inherent trait that makes us want to underestimate risk. Investing in individual stocks falls into this realm, where you're taking amazing amounts of risk for no increase in *expected* return but the possibility of obtaining a wider *spread* of returns (ranging from amazingly good to losing every dime).

Markets are efficient
This is the driver behind a large portion of your questions. If you believe that the market is largely inefficient then you believe that there are large mispricings, there are deals to be had that smart people can find. So you pay for funds with active management where they look for these deals and try to outsmart everyone else. Paying lots and lots of smart people to work at this full time makes for a high expense ratio. Or you try to find one that's drastically mispriced for yourself (with fewer information sources) and invest in an individual stock. On the other hand if you believe in a relatively efficient market then you believe that mispricings are found and corrected almost as soon as new information is available and before they get to be very large at all. That there's so many smart people looking full time that there's no big opportunities to be found. There's a lot of research into how efficient the markets are, Bogleheads believe that it shows pretty conclusively that we have a relatively efficient market where the cost to find the tiny opportunities matches or exceeds the money that can be made exploiting what you found.
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Re: Is bogleheads investing a philosophy or a truth?

Post by dhodson »

The problem with calling it absolute truth is that you will need a time machine to go into the future to say that with absolute certainty(although i think it would be more profitable to go into the past but i digress). If you look at the past then its truth and can be proven. There isnt any good reason to believe the future will be so much different than the past that it will cease to be true but nobody really knows that. Maybe a sub group of humans will develop mentat like capability and be able to accurately predict the future. Im not betting on that Dune (book and movie) type of future but who knows.
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Re: Is bogleheads investing a philosophy or a truth?

Post by RadAudit »

Taylor Larimore wrote:
RadAudit wrote:If I recall correctly, Mr. Bogle said something like this in one of the "Little Books ..." that index fund investing beat the average of active fund investing all the time in every market. And if the data showed something different, the data was wrong.
Nobel Laureate, Wm Sharpe, proves Mr. Bogle is correct:

`The Arithmetic of Active Management

Best wishes.
Taylor
According to Mr. Sharpe, the part about investing in low cost index funds seems to be a truth.
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The Boglehead Philosophy

Post by Taylor Larimore »

Hi Pete:

Welcome to the Bogleheads Forum!
I read The Bogleheads Guide to Investing and the book seems to treat the bogleheads investing concept as a given truth and a proven way to get the best return for your money when planning retirement.
Your understanding is correct although the Boglehead truth/philosophy (I consider them the same) is based on academic study and applies to most of our financial goals--not just "retirement."

Best wishes.
Taylor
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Re: Is bogleheads investing a philosophy or a truth?

Post by yobria »

xerty24 wrote:
mptfan wrote:
720pete wrote:If Bogleheads is proven to provide results that beat most mutual funds and individual stock portfolios, why are people going down the latter route?
1. Ignorance.

2. Apathy.

3. The investment industry has a strong incentive to convince you to invest in a way that maximizes their profit, and they take advantage of your ignorance and your apathy. Vanguard is very much the exception to this rule.
4. Skill
Oh I'm skillful at valuing securities. It's just that the institutional investors that set the prices, to say nothing of the market as a whole, have 1,000s of times more resources, information, industry contacts, models, etc. than I do. So my skill is really irrelevant. I'm not just in a boxing match against Mike Tyson, but against 1,000 guys punching at me at once.
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Re: Is bogleheads investing a philosophy or a truth?

Post by dratkinson »

People appreciate more what they learn on their own.


Go find/read/understand the following:

The William Sharpe article about "The Arithmetic of Active Management".

Warren Buffet's story about the Gotrocks family.


Once you find/read/understand above, you will create for yourself the underlaying mental basics of the BH investing philosophy.



I am not supplying you with the links to above to test your willingness to find/learn for yourself. The investment industry is praying you are not willing to do this work for yourself.
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Re: Is bogleheads investing a philosophy or a truth?

Post by Aptenodytes »

The way I would put it is that there is a boglehead approach to investing, and it is based on empirical evidence. The approach isn't something that could be labeled true or false, but the empirical foundation can be. If an engineer gave you a design for a bridge, you wouldn't ask if it was "true," though you could ask if the materials and geology assessments it was based on were true.

So you judge the boglehead approach based on how appropriate it is, in the same way you'd judge the bridge design. And you judge the underling empirical evidence according to standards of truth.

I think the wiki and book are actually very clear on all this.
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Re: Is bogleheads investing a philosophy or a truth?

Post by YDNAL »

720pete wrote:Excuse my ignorance on this one, but the question is in the title.
The Bogleheads Wiki is filled with information.
http://www.bogleheads.org/wiki/Main_Page
The Bogleheads' approach to investing begins with an investor deciding on percentage allocations to various asset classes, such as U.S. stocks, international stocks, U.S. bonds, and cash. The desired allocations are then implemented using low-cost vehicles which are true to the targeted asset classes. Tax costs are carefully considered, influencing decisions as to what investments to place in taxable versus tax-advantaged accounts. Bogleheads emphasize regular saving, broad diversification, and sticking to one's investment plan regardless of market conditions. Information relevant to the group's core beliefs is available in the Bogleheads' investment philosophy.
How you invest should incorporate truths and not just philosophies.
1. Regular savings matter.
2. Your allocation to Riskier/Safer Assets matters.
3. Broad diversification matters.
4. Costs matter (that includes the cost of taxes).
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Re: Is bogleheads investing a philosophy or a truth?

Post by scone »

The "truth" part is, costs matter. The "philosophy" part is the efficient markets hypothesis. You don't have to believe in EMH, in any of its forms, to benefit from low costs. I just finished giving my portfolio a makeover, drastically lowering the weighted average expense ratio. That will save about $250,000 over my investing time frame. Seriously, that's it. :D
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Re: Is bogleheads investing a philosophy or a truth?

Post by xerty24 »

yobria wrote:
xerty24 wrote:4. Skill
...I'm not just in a boxing match against Mike Tyson, but against 1,000 guys punching at me at once.
Then I suggest you not compete on boxing skill. There are a million companies in the world and the Goldman's of the world don't cover most of them.
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Re: Is bogleheads investing a philosophy or a truth?

Post by GregLee »

It's a strategy or approach to investing and retirement planning comprised of loosely related tactics (e.g. passive investing and asset allocation). It's not the sort of thing you could call "true", any more than you could the strategy of guerilla warfare, say. Maybe it works, maybe it's wise to adopt, maybe it's profitable, but not "true" or "false". And I would say it's too narrow and not sufficiently unified to count as a "philosophy". Maybe a "technology".

A parallel would be an approach to healthy living employing running as exercise, a high carb diet, and Zen as mental discipline, if all were recommended by some health guru.
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Re: Is bogleheads investing a philosophy or a truth?

Post by TSR »

Not to get too philosophical here, but I think a lot of people also like the illusion of control or agency. If you have a "set it and occasionally adjust your allocation" model, some people feel like they're giving up control. Those people take the attitude that "Whether this ship is sailing or sinking, I want it to be based on choices I made, not on the trade winds." Active trading/investing, seems to appeal to people who believe in the power of the individual choice to create destiny. Of course, Bogleheads don't buy into this dichotomy, given that, for example, I think I have an awful lot of agency/control just by saving as much money as I can and investing it wisely in something that is mathematically likely to do better than if I'd tinkered with it. But then, I'm not the type who believes he knows more than the market does about any given company.
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Re: Is bogleheads investing a philosophy or a truth?

Post by xerty24 »

GregLee wrote:Maybe it works, maybe it's wise to adopt, maybe it's profitable, but not "true" or "false". And I would say it's too narrow and not sufficiently unified to count as a "philosophy". Maybe a "technology".
Perhaps the word you were looking for is "religion"? They're entitled to have their splinter groups, false profits, and inconsistent ideology ;).
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Re: Is bogleheads investing a philosophy or a truth?

Post by Fallible »

TSR wrote:Not to get too philosophical here, but I think a lot of people also like the illusion of control or agency. If you have a "set it and occasionally adjust your allocation" model, some people feel like they're giving up control. Those people take the attitude that "Whether this ship is sailing or sinking, I want it to be based on choices I made, not on the trade winds." Active trading/investing, seems to appeal to people who believe in the power of the individual choice to create destiny. Of course, Bogleheads don't buy into this dichotomy, given that, for example, I think I have an awful lot of agency/control just by saving as much money as I can and investing it wisely in something that is mathematically likely to do better than if I'd tinkered with it. ...
Agree. Thinking of Boglehead philosophy always brings me back to, well, John Bogle. And in particular this simple perspective from his book on "Common Sense on Mutual Funds": "Classic index funds...eliminate the risk of individual stocks, the risk of market sectors, and the risk of manager selection, with only stock market risk remaining (which is quite large enough, thank you)."

Thank you, John Bogle.
Last edited by Fallible on Tue Aug 14, 2012 5:48 pm, edited 1 time in total.
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Re: Is bogleheads investing a philosophy or a truth?

Post by dbr »

Well, "common sense investing." Is that a philosophy, a religion, or a truth?

I think it is what it says, common sense.
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Re: Is bogleheads investing a philosophy or a truth?

Post by yobria »

xerty24 wrote:
yobria wrote:
xerty24 wrote:4. Skill
...I'm not just in a boxing match against Mike Tyson, but against 1,000 guys punching at me at once.
Then I suggest you not compete on boxing skill. There are a million companies in the world and the Goldman's of the world don't cover most of them.
Not millions, only thousands. And ruthless market efficiency rules them all - note what happens to price when new information comes out about even a micocap stock. It's hard to beat the market consistently, but it's easy to think you can.
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Re: Is bogleheads investing a philosophy or a truth?

Post by carolinaman »

IMO it is a philosophy that provides a sound, objective approach to investing that gives investors the best chance for long term success. That said, I do not agree with 100% of the philosophy but I do agree with the vast majority of it. I think you will find others like that as you follow the forum discussions.
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Cause #4: Innumeracy

Post by lawman3966 »

mptfan wrote:
720pete wrote:If Bogleheads is proven to provide results that beat most mutual funds and individual stock portfolios, why are people going down the latter route?
1. Ignorance.

2. Apathy.

3. The investment industry has a strong incentive to convince you to invest in a way that maximizes their profit, and they take advantage of your ignorance and your apathy. Vanguard is very much the exception to this rule.
I'd add (4) Innumeracy.

I never cease to be amazed at the difficulty people have understanding the effects of fees on their portfolios. The population that fails to grast these concepts include one guy with a Master's degree in computer science I met, among many other people who are smart about other subjects. They believe one myth after another because they simply don't think mathematically.

One example. Myth: actively managed mutual funds don't decline as much as index funds in a bear market. Response: the active fund is about 90% stock and 10% cash. One could mimic the "cushioning" effect of the active fund by merely allocating differently between stocks and cash. In fact, the advisory fee worsens rather than improves the fund's performance under all circumstances, not just during bear markets.

One answer to your question about the number of people following the active route is that it's very difficult to present information strategically enough and often enough to compete with the advertising generated by the financial industry. Vanguard has advertised a little more often lately. But, for most of the last 30 years, a person would have to actively seek out information on passive investing to have learned of its existence, and even possibly, read a book! In contrast, people are constantly bombarded with propaganda to the effect that experts can beat the market, both in advertisements and on the investment porn networks.
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Re: Is bogleheads investing a philosophy or a truth?

Post by wwross »

TSR wrote:Not to get too philosophical here, but I think a lot of people also like the illusion of control or agency. If you have a "set it and occasionally adjust your allocation" model, some people feel like they're giving up control. Those people take the attitude that "Whether this ship is sailing or sinking, I want it to be based on choices I made, not on the trade winds." Active trading/investing, seems to appeal to people who believe in the power of the individual choice to create destiny. Of course, Bogleheads don't buy into this dichotomy, given that, for example, I think I have an awful lot of agency/control just by saving as much money as I can and investing it wisely in something that is mathematically likely to do better than if I'd tinkered with it. But then, I'm not the type who believes he knows more than the market does about any given company.

TSR -- That's one of the most insightful things I have read in a while.
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How true.

Post by Taylor Larimore »

Yobria wrote:
It's hard to beat the market consistently, but it's easy to think you can.
Thank you for another insightful truth (I have not heard before).

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Is bogleheads investing a philosophy or a truth?

Post by xerty24 »

yobria wrote:
xerty24 wrote:There are a million companies in the world and the Goldman's of the world don't cover most of them.
Not millions, only thousands.
Ok, probably not millions of stocks but about >60,000 publicly traded ones, which is still probably 55 thousand more than are covered by any analysts. There are >20 million companies just in the US, so it depends whether you meant to include private equity as well as public.
It's hard to beat the market consistently, but it's easy to think you can.
True enough.
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Re: Is bogleheads investing a philosophy or a truth?

Post by etm »

The reason is that as Gore Vidal once said, "The schools don't teach children about alcohol and money." Vidal was making a joke. But there is something serious about it. Drinking and managing your money can literally ruin you if not done correctly and in moderation. But it's not something our society teaches. And money is often seen as a taboo, rather than a liberating force. The money industry, with their pseudo charts and graphs and jargon, makes it seem complex, when it isn't.
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Re: Is bogleheads investing a philosophy or a truth?

Post by meowcat »

Read "The Power of Passive Investing" by Richard Ferri. It is filled from cover to cover with irrefutable evidence, facts, and data that prove active investing just doesn't work. There are no such books supporting active investing over passive strategies.
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Re: Is bogleheads investing a philosophy or a truth?

Post by xerty24 »

meowcat wrote:There are no such books supporting active investing over passive strategies.
That's right. But there are billionaire investors who didn't write books on exactly how they did it... Soros, Buffett, Ichan, Paulson, Simons, Dalio. All at least $10B each as of Forbes' last wealth census.
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Re: Is bogleheads investing a philosophy or a truth?

Post by arcticpineapplecorp. »

720pete wrote:

It seems like bogleheads investing is a good idea for 95% of people out there, however it doesn't seem like its a strategy that many people employ.
From 8/12/12 Wall Street Journal Sunday, “In 1990s index funds held $1 out of every $50. Today, it’s $1 out of $4…what’s changed? Investors appear to have wised up to the way management costs dent active fund’s returns. On average, actively managed stock funds charge investors 0.9% a year. To earn their keep, their managers need to beat the market by at least this amount each year—and over the past 5 years, fewer than 30% have managed that feat.”

Not sure what the definition of "many people" is, but 25% (1 out of 4) is still better than 2% (1 out of 50). The percentages are at least moving in the right direction!
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Re: Is bogleheads investing a philosophy or a truth?

Post by edge »

It is a strategy
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Re: Is bogleheads investing a philosophy or a truth?

Post by trademil »

Khanmots wrote: Your question seems to come down to a questioning of the first two principals I mention:
Markets are efficient
I have to disagree.
You don't have to believe markets are efficient to prefer indexing on active management, even if you believe there are very large mispricings in the market and that talented people can and do make money off of it, it is enough to believe:
1.I do not have the talent/resources/time/ability to benefit from searching for and taking advantage of market inefficiency.
2.I do not have the talent, resources and time to find the active managers that do can the ability to outperform the market, using their past performance is not enough to evaluate their talent since the luck component is too big and the time frame is too short (by the time I have enough data to evaluate the manager he might already retire...or the market might have change that much that his talent-driven-results form decades ago are no longer relevant since the needed talent has changed).

As for why most people stick to the strategy of stock picking, and friend once told me:
"You don't have a chance to get filthy rich by buying TSM, you do by buying this high-risk bio-tech start-up".
What do you do if you want a risk level higher then 100%/0% stock/bond allocation?
Some might say: "tilt to small value", OK, but what if your wanted risk level is even higher? much much higher? and you do not have the ability to use leverage, then maybe betting on a single stock where you have the chance to lose it all or to become filthy rich becomes the logical choice?

There is no "truth" saying that 106$ in your pocket are worth more then 1/1000 chance to have 100,000$ and 999/1000 chance to have 0$, just because the expected value of the former is only 100$.

There is not "truth" saying "expected value" is the "true" measure of value. Some might apply other function on the probability distribution to derive its value for them, and you can't say their metric is "false", it is a subjective preference, just like risk tolerance is.
dbr
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Re: Is bogleheads investing a philosophy or a truth?

Post by dbr »

trademil wrote:
There is not "truth" saying "expected value" is the "true" measure of value. Some might apply other function on the probability distribution to derive its value for them, and you can't say their metric is "false", it is a subjective preference, just like risk tolerance is.

The above comment is, of course, correct.

As an example, there are probably more people who are wealthy because they own a successful business than because they invested in either the market or a successful single stock. In the case of the ultra rich this is spectacularly true. Also, most small business enterprises fail. Success as a celebrity is probably another path, and celebrity is a very rare event. The most likely risk free path to wealth is inheritance, but that is only risk free in that the die is cast at birth rather than much later on. Both successful businesses and celebrity have the feature that hard work is involved while in investing it is less clear that hard work is very much associated with success. Note that much investing wealth actually consists of taking money away from other people by virtue of cleverness, hard work, and luck. This is not even remotely a version of stock picking.
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abuss368
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Re: Is bogleheads investing a philosophy or a truth?

Post by abuss368 »

720pete wrote:Excuse my ignorance on this one, but the question is in the title.

I'm young and trying to learn the investing ropes and a few nice people online have recommended Bogleheads and using a strategy of index fund portfolios and minimizing costs. I read The Bogleheads Guide to Investing and the book seems to treat the bogleheads investing concept as a given truth and a proven way to get the best return for your money when planning retirement.

It seems like bogleheads investing is a good idea for 95% of people out there, however it doesn't seem like its a strategy that many people employ. When I first started learning about investing I was immediately thrust into the notion of picking individual stocks and adding some index funds for diversity. The fact that many sites will recommend buying individual stocks over index funds seems silly if Bogleheads investing is really the best way to go about investing for retirement for 95% of average joes.

I read through some threads here about people considering dumping their investment advisors and going to a bogle portfolio and it seems like investment people are able to hold their own and make arguments about why NOT to go the Bogle way. Also I feel like if I went onto other online investment forums, the default advice for retirement savings would probably not be to buy low cost index funds. Can someone explain to me, is Bogleheads investing a truth or is it a philosophy? My understanding is that it is the best way to go, but many people have different ideas and approaches. If Bogleheads is proven to provide results that beat most mutual funds and individual stock portfolios, why are people going down the latter route?
Hi 720pete,

I thought it was a religion!

Regards.
John C. Bogle: “Simplicity is the master key to financial success."
protagonist
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Re: Is bogleheads investing a philosophy or a truth?

Post by protagonist »

It's a philosophy, and those who lose sight of that and consider it a "truth" are, in my humble opinion, dangerously blinding themselves.

"When I see that I am wrong I change my mind. What do you do?" (probably misquote of John Maynard Keynes)

That said, for now at least, I agree with Trademil's very good argument for low-cost indexing above: "You don't have to believe markets are efficient to prefer indexing on active management, even if you believe there are very large mispricings in the market and that talented people can and do make money off of it, it is enough to believe:
1.I do not have the talent/resources/time/ability to benefit from searching for and taking advantage of market inefficiency.
2.I do not have the talent, resources and time to find the active managers that do can the ability to outperform the market, using their past performance is not enough to evaluate their talent since the luck component is too big and the time frame is too short (by the time I have enough data to evaluate the manager he might already retire...or the market might have change that much that his talent-driven-results form decades ago are no longer relevant since the needed talent has changed)."
Sam I Am
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Re: Is bogleheads investing a philosophy or a truth?

Post by Sam I Am »

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dratkinson
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Re: Is bogleheads investing a philosophy or a truth?

Post by dratkinson »

(Second thought.)

"Ooo, ooo, Mr. Kotter, it's both... an investing philosophy based on investing truth."
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
Lumpr
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Re: Is bogleheads investing a philosophy or a truth?

Post by Lumpr »

edge wrote:It is a strategy
+1

I would add: derived from empirical evidence and reason.
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Re: Is bogleheads investing a philosophy or a truth?

Post by bmelikia »

It is a truth in the sense that if you wish to successfully achieve market return you can do so quite well. It is not, however, a truth to say that this is the path to investment success. The "success" part would require the markets to perform well enough during your investment career - because if your investments are tracking the markets, and the markets do not perform well - then your investments fail to perform well.

When I've explained indexing to people and they say something like "oh, I get it! Indexing is more of a guarantee that your investment will do well." I more or less explain that this is incorrect. It ensures that you will do better than most actively managed funds but it does not guarantee that you will do well with your investment.

After all, past performance is never a guarantee of future results!
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle
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William4u
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Re: Is bogleheads investing a philosophy or a truth?

Post by William4u »

protagonist wrote:It's a philosophy, and those who lose sight of that and consider it a "truth" are, in my humble opinion, dangerously blinding themselves.

"When I see that I am wrong I change my mind. What do you do?" (probably misquote of John Maynard Keynes)
I think the "truth or philosophy" contrast is a false dilemma. If I believe in a philosophy, I also believe it is true. Philosophies can be true or false, accurate or inaccurate. A philosophy is simply a considered view of the way the world is and/or ought to be. The Boglehead philosophy has various parts, and includes:

1. a view of how the world works (e.g., index funds will likely outcompete most active funds in the long term after taxes and expenses).

2. a view of how the world ought to be (e.g., people generally ought to invest regularly and early for their long-term goals).

If index funds are more likely to outcompete active funds, and if people generally ought to invest early in life for their long-term goals, then at least these two important parts of the Boglehead philosophy are true. The Boglehead philosophy is true if and only if its parts are true. I believe its many parts (including the two mentioned above) are true. Is there a part of the Boglehead philosophy that has been shown to be likely false? I haven't heard of one yet.

But that doesn't mean I must be dogmatic about the Boglehead philosophy. A dogmatic person is unwilling to revise his or her beliefs in light of new evidence or reasons. I believe the Boglehead philosophy because of the evidence in favor of it, and am willing to respond to new evidence as it comes in (although I do not take it that every new, hot active fund is compelling evidence against the index strategy, but there is plenty of evidence for why that is).
AndroAsc
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Re: Is bogleheads investing a philosophy or a truth?

Post by AndroAsc »

The Boglehead approach is as close to the truth as you can get, because many of its "basic principles" (e.g. diversification, active vs passive) are based on almost 5 decades of peer-reviewed research. Wall Street investment pornography is some BS that people make up or hyped up in order to milk the masses of their own ignorance. Yes, it true that economic/investment science is not hard science like physics, but it's definitely more reliable and holds more truths than marketing hype from Wall Street.

However, the implementation of the Boglehead approach and the many variations (e.g. Do I tilt? How much exposure to foreign stock?) is probably a matter of style, since there is no conclusive body of research that suggests that one implementation is better than another. So in that sense, the fine details of the Boglehead approach is philosophical.
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