"Little Book of Common Sense Investing--10th Anniversary Edition" A Gem

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Taylor Larimore
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"Little Book of Common Sense Investing--10th Anniversary Edition" A Gem

Post by Taylor Larimore » Tue Oct 24, 2017 6:04 pm

Bogleheads:

Our mentor, John Bogle, has written an updated and revised edition of his best-seller, The Little Book of Common Sense Investing. Warren Buffet gives us this endorsement:
Rather than listen to the siren songs from investment managers, investors--large and small--should instead read Jack Bogle's The Little Book of Common Sense Investing.
These are valuable quotes from Jack's book which I call "Investment Gems":
"Simple arithmetic suggests, and history confirms, that the winning strategy for investing in stocks is to own all of the nation's publicly held businesses at very low cost."

"The traditional index fund by definition, basically represents the entire stock market basket, not just a few scattered eggs. It eliminate the risk of picking individual stocks, the risk of emphasizing certain market sectors, and the risk of manager selection. Only stock market risk remains."

"The traditional (total market) index fund operates with minimal expenses and with no advisory fees, with tiny portfolio turnover, and with high tax efficiency."

"Less to Wall Street croupiers means more to Main Street Investors."

"Fund investors are confident that they can consistently select superior fund managers. They are wrong."

"Simply buy a Standard & Poor's 500 Index fund or a total stock market index fund. Then, once you have bought your stocks, get out of the casino--and stay out. Just hold the market portfolio forever."

"Buy a well-run index fund and own the whole market." -- William Bernstein quote.

"The investment business is a giant scam." -- Jack R. Meyer, former president of Harvard Management Company quote.

"It is dangerous to apply to the future inductive arguments based on past experience"

"Simply buying a portfolio that owns shares of every business in the United States and then holding it forever. This simple concept guarantees you will win the investment game played by most other investors who--as a group--are guaranteed to lose."

"When there are multiple solutions to a problem, choose the simplest one. By far the simplest way to own all of U.S. businesses is to hold the total stock market portfolio or its equivalent."

"The beauty of such a market-cap-weighted index is that it never needs to be rebalanced by buying and selling shares due to changing stock prices."

"Owning the stock market over the long term is a winner's game, but attempting to beat the stock market is a loser's game."

"The record of an investor in the first index mutual fund: $15,000 invested in 1976; value in 2016, $913,340.

"Instead of joining the crowd of investors who dabble in complex algorithms or other machinations to pick stocks, or who look to past performance to select mutual funds, or who try to outguess the stock market (for investors in the aggregate, the three inevitably fruitless tasks), choose the simplest of all solutions--buy and hold a diversified, low-cost portfolio that tracks the stock market."

"Investors as a group must necessarily earn precisely the market return, before the costs of investing are deducted.."

"Before costs, beating the market is a zero-sum game. After costs, it is a loser's game."

"Paraphrasing Upton Sinclair: It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it."

"Since 1980, stock returns have averaged 11.5 percent per year, and the average fund has provided a nontrivial--but clearly inadequate--return of 10.1 percent."

"Costs make the difference between investment success and investment failure."

"But while past performance tells us what happened, it cannot tell us what will happen."

"Rule of thumb: Assume that a fund's turnover costs equals 1 percent of the turnover rate."

"If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds." -- Morningstar Study

"The more the managers and brokers take, the less the investors make."

"High fund returns tend to revert toward or below the mean of average returns."

"When counterproductive investor emotions are magnified by counterproductive fund industry promotions, little good is apt to result"

"The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course."

"Assuming that the future is like the past, you can outperform 80 percent of your fellow investors over the next several decades by investing in an index fund and doing nothing else."-- Mark Hulbert, editor of the highly regarded Hulbert Financial Digest.

"Managed mutual funds are astonishingly tax--inefficient."

"Fund returns are devastated by costs, adverse fund selections, bad timing, taxes, and inflation."

"While it is probably a poor idea to own actively managed mutual funds in general, it is truly a terrible idea to own them in taxable accounts." -- William Bernstein, author of "The Four Pillars of Investing.

"Index funds do not trade from security to security and, thus, they tend to avoid capital gains taxes."

"Both common sense and humble arithmetic tell us that we're facing an era of subdued returns in the stock market."

"Fully 95 percent of the decade-long returns on bonds since 1900 have been explained by the initial yield."

"The average tenure of active equity fund portfolio managers is just under nine years."

"281 of the (355) equity funds that existed in 1970 are gone, mostly the poor performers.--Just 10
mutual funds -- only one fund out of every 35--outpaced the market by more than one percentage point per year. Let's face it: those a terrible odds!"

"Don't look for the needle in the haystack. Just buy the haystack."

"There is simply no systematic way to assure success by picking the funds that will beat the market, even by looking (perhaps especially by looking) to their past performance over the long term."

"In every mutual fund prospectus, in every sales promotional folder, and in every mutual fund advertisement citing a fund's investment returns (albeit often in print almost too small to read), the following warning appears: 'Past performance is no guarantee of future results.' Believe it!"

"Suppose you had picked a fund with a top-quartile performance in the five years to March 2012. What proportion of those funds would be in the top quartile over the subsequent five yours (to March 2017)? The answer is just 22.4 percent: Less than chance would suggest."

"Buying funds based purely on their past performance is one of the stupidest things an investor can do."--Jason Zweig, Wall Street Journal columnist.

"Experienced advisers can help you avoid the potholes along the investment highway. (Put more grossly, they can help you to avoid making such dumb mistakes as chasing past performance, or trying to time the market, or ignoring fund costs.)"

"The average nominal investor return came to just 6.3 percent per year during 1991-2016, despite a strong stock market in which a simple S&P 500 Index fund earned an annual return of 9.1%."

"The average annual return of funds recommended by advisors: 2.9 percent. For equity funds purchased directly: 6.6 percent." -- Harvard Business School study (1996-2002)

"In the 1994-2003 Fidelity study, the Merrill Lynch funds were 18 percentage points(!) below the fund industry average. The Goldman Sachs and Morgan Stanley funds were 9 percentage points below. But the Wells Fargo and Smith Barney funds were 8 percentage points behind in terms of 10-year returns."

"The simplicity of a broad-market, low-cost index fund, bought and then held forever, is likely to be the optimal strategy for the vast majority of investors."

"Rely on your own common sense. Emphasize an S&P 500 Index fund or an all-stock-market index fund. (They're pretty much the same.) Carefully consider your risk tolerance and the portion of your investment you allocate to equities. Then, stay the course."

"Profit from the Majesty of Simplicity and Parsimony. Hold traditional low-cost index funds that track the stock market."

"Your index fund should not be your manager's cash cow. It should be your own cash cow."

"S&P reports that its international index (world markets, less U.S. stocks) outpaced 89 percent of actively managed international equity funds over the past 15 years."

"Betting on one winning sector and then another is exactly that: betting. But betting is a loser's
game.
"

"A strategy of trading based on after-the-fact popularity is a recipe for unsuccessful investing."

"It may not be as exciting as gambling, but owning the the traditional stock market index fund at rock-bottom cost is the ultimate strategy."

"The conservative nature of a balanced stock/bond portfolio can reduce the possibility of counterproductive investor behavior (i.e., getting frightened when the stock market plunges and liquidating your stock position)."

"During the 15-year period from 2001-2016, the performance of the bond indexes is also impressive, outpacing an average of 85 percent of all actively managed bond funds in the six categories."

"The value of bond index funds is derived from the same forces that create value in stock index funds: broad diversification, rock-bottom costs, disciplined portfolio activity, tax efficiency and focus on shareholders who place their trust in long-term strategies."

"During the past decade, the principles of the traditional index fund have been challenged by a sort of wolf in sheep's clothing, the exchange-traded fund (ETF).

"Let me be clear. There is nothing wrong with investing in those indexed ETFs that track the broad stock market, just so long as you don't trade them."

"As of this writing, some 250 more ETFs have been launched in the past 12 months, and some 200 have gone out of business."

"A 'double whammy': betting on hot market sectors (emotions) and paying heavy costs (expenses) are sure to be hazardous to your wealth."

"While I can't assure you that traditional index investing is the best strategy ever devised, I can assure you that the number of strategies that are worse is infinite."

"If you believe in indexing, then you know that there is no free money. Ultimately the push toward enhanced indexing is about enhancing the bottom line for managers. -- Try to beat the market in any manner and you're likely to get beaten by the cost of doing so." -- Jim Wiandt, founder of ETF.com.

"In recent years, "smart beta" ETFs (whatever exactly that means) have become a hot product. -- They focus on weighting portfolios by so-called factors. -- The goal is to create great profits for the manager by gathering the assets of investors seeking a performance edge."

"You must ask yourself these questions: "Among similar portfolios, do I prefer a certain (relative) outcome or an uncertain one? Is it better to be safe than sorry?" Only you can decide."

"Traditional market-cap weighted index funds (such as the Standard & Poor's 500) guarantee that you will receive your fair share of stock market returns, and virtually assure that you will outperform, over the long term, at least 90 percent of the other investors in the marketplace."

"The greatest enemy of a good plan is the dream of a perfect plan." -- Carl von Clausewitz

"Betting against the market (and spending a considerable amount of money to do so) is indeed likely to be a hazardous undertaking. -- Smart beta is stupid." -- William Sharpe, Nobel Laureate in economics.

"It can be shown that maximum diversification is achieved by holding each stock in proportion to its value to the entire market. -- For most of us, trying to beat the market leads to disastrous results." -- Professor Jeremy Siegel, author of "Stocks for the Long Run."

Mr. Buffett confirms Mr. Graham's Endorsement of the Index Fund. "Finding superior value was once a rewarding activity, but no longer."

"When it's so easy--in fact unbelievably simple--to capture the stock market's returns through an index fund, you don't need to assume extra risks--nor the burden of excessive costs--to earn superior results."

"Mr. Buffett spoke these words directly to me at a dinner in Omaha in 2006: "A low-cost index fund is the most sensible equity investment for the great majority of investors. My mentor, Ben Graham, took this position many years ago, and everything I have seen since convinces me of its truth.""

"Ninety-four percent of the differences in portfolio returns is explained by asset allocation."

"My highest recommended general target allocation for stocks would be 80 percent for younger investors accumulating assets over a long time frame. My lowest target stock allocation, 25 percent, would apply to older investors late in their retirement years."

"In general, investors should not engage in tactical allocation."

"Frequent peeking at the value of our investments is not only unproductive, but counterproductive."

"Investors will be better served to consider generating retirement income through a total return approach--using a combination of fund dividends and regular withdrawals from accumulate capital to generate a steady stream of monthly checks during retirement."

"My view that a U.S.-only equity portfolio will serve the needs of most investors was (and still is) challenged by, well, everyone. Since my 1993 book, the U.S. S&P 500 Index has earned an average annual return of 9.4 percent. The non-U.S. portfolio has had an annual return of 5.1 percent."

"If you choose to invest in Target Date Funds, -- it will not surprise you to know that I believe that low-cost, index-based Target Date funds are likely to be your best option."

"Whatever asset allocation strategy you decide is best for you, you absolutely must take into account the role of Social Security."

"The Roth IRA is likely the better choice for most new investors."

"Do not adhere rigorously to spending rules such as 4 percent annually. Maintain a level of flexibility in your retirement spending plan."

"Basic arithmetic works. Your net return us simply the gross return of your investment portfolio less the costs you incur."

"Don't think you know more than the market; no one does. And don't act on insights that you think are your own but are usually shared by millions of others."

"Deep down, I remain absolutely confident that the vast majority of American families would be well served by owning their equity holdings in a Standard & Poor's 500 Index Fund (or a total stock market index fund) and holding their bonds in a total bond market index fund."

"No matter what happens, stick to your program. Think long term. Patience and consistency are the most valuable asets for the intelligent investor. 'Stay the course.'"
Thank you Mr. Bogle!

The Three-Fund Portfolio

More Investment Gems

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "Little Book of Common Sense Investing--10th Anniversary Edition" A Gem

Post by nedsaid » Tue Oct 24, 2017 6:59 pm

Taylor, you are a good author but a brilliant editor. I can just read "Taylor's Gems" and save the money buying the books. Good thing you didn't edit Readers' Digest, the magazine would have been about 5 pages! You do a great job distilling things down to their essence. You could probably boil my 8,000 or so posts down to probably five sentences! I would never have to post again. Again, good work.
A fool and his money are good for business.

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Re: "Little Book of Common Sense Investing--10th Anniversary Edition" A Gem

Post by Taylor Larimore » Tue Oct 24, 2017 7:23 pm

Taylor, you are a good author but a brilliant editor. I can just read "Taylor's Gems" and save the money buying the books. Good thing you didn't edit Readers' Digest, the magazine would have been about 5 pages! You do a great job distilling things down to their essence. You could probably boil my 8,000 or so posts down to probably five sentences! I would never have to post again. Again, good work.
Ned:

Thank you for your kind words.

My "Investment Gems" are not meant to replace a book. Instead, they are designed to help investors choose a book they would like to read--and at the same time learn some of the best ideas from the best authors.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "Little Book of Common Sense Investing--10th Anniversary Edition" A Gem

Post by snarlyjack » Tue Oct 24, 2017 7:35 pm

Taylor,

Just wanted you to know that I ordered the book
from "Barnes & Noble". Should be here in 3 days,
$24.95. I' am very excited...

Thank you once again for all your help & my
next book will be your new book on the 3 fund
portfolio. Congrats, it's very exciting :happy

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Re: "Little Book of Common Sense Investing--10th Anniversary Edition" A Gem

Post by LadyGeek » Tue Oct 24, 2017 7:50 pm

This review is now in the wiki (replacing the 2007 version). See: Taylor Larimore's Investment Gems
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: "Little Book of Common Sense Investing--10th Anniversary Edition" A Gem

Post by iceport » Tue Oct 24, 2017 8:29 pm

As noted in Jack's presentation at the 2017 Bogleheads Conference (thanks for the links LadyGeek), the new 10th anniversary edition adds new chapters on:
  • Asset Allocation
  • Retirement Investing
  • Dividends
"Discipline matters more than allocation.” ─William Bernstein

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Re: "Little Book of Common Sense Investing--10th Anniversary Edition" A Gem

Post by Freefun » Sun Dec 01, 2019 4:43 pm

Remember when you wanted what you currently have?

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Re: "Little Book of Common Sense Investing--10th Anniversary Edition" A Gem

Post by tomd37 » Sun Dec 01, 2019 5:14 pm

Freefun - Thanks for the reminder about this revised edition. I just went to my bookshelf and read the new chapters again. I had labeled the new version table of contents with the old chapter numbers and it was easy to get to the new chapters as mentioned by Iceport.
Tom D.

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Amazon "#1 Best Seller--Bogleheads Guide to The Three-Fund Portfolio"

Post by Taylor Larimore » Sun Dec 01, 2019 9:16 pm

Freefun wrote:
Sun Dec 01, 2019 4:43 pm
This book is on sale at amazon today for $4.99

https://smile.amazon.com/Little-Book-Co ... B075Z6HSCJ

So is this book

https://smile.amazon.com/Bogleheads-Gui ... B07DH1QYJK
Freefun:

Thank you for the alert. The $4.99 sale price is for the kindle edition of The Bogleheads Guide to The Three Fund Portfolio which is currently the #1 Best Seller in Investing Portfolio Management. It would make a great Christmas Present and all royalties go to The John Bogle Center for Financial Literacy..

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Taylor's idea (The Three-Fund Portfolio) combines the nth degree of diversification, a sensible investment balance between stocks and bonds, efficiency and economy. Simplicity is the watchword."
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "Little Book of Common Sense Investing--10th Anniversary Edition" A Gem

Post by abuss368 » Mon Dec 02, 2019 12:33 pm

Freefun wrote:
Sun Dec 01, 2019 4:43 pm
This book is on sale at amazon today for $4.99

https://smile.amazon.com/Little-Book-Co ... B075Z6HSCJ

So is this book

https://smile.amazon.com/Bogleheads-Gui ... B07DH1QYJK
Thanks! I enjoyed reading this book and I am thankful that Taylor has so generously donated the proceeds to The John Bogle Center for Financial Literacy.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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