"Bogle on Mutual Funds" A Gem

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Taylor Larimore
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"Bogle on Mutual Funds" A Gem

Post by Taylor Larimore » Tue Oct 08, 2019 12:27 pm

Bogleheads:

In 2015, Wiley, a book publisher, did a reprint of Mr. Bogle's first book, Bogle on Mutual Funds published in 1993. These are valuable excerpts:

"This book does not attempt to tell you how the attain wealth without risk, nor does it attempt to tell you how to select the next "number one" equity fund. Both of these tasks are, in a word, impossible."

"In my view, attempting to build a lifetime investment program around the selection of a handful of individual securities is, for all but the most exceptional investors, a fool's errand."

"Beware of concluding too much from past returns in the financial markets."

"For all types of assets, the concept of regression the the mean is fundamental to understanding the financial markets."

"Manage your affairs with prudence, intelligence, and discretion. Do not speculate. Consider probable income as well as probable safety of capital."

"The term real return is used to describe the nominal rate of return reduced by the rate of inflation."

"There have in fact been many years, and even a few decades, in which long-term bonds and bills provided higher nominal returns than stocks."

"Clearly, the magic of compounding, combined with the normalizing effect of dollar-cost averaging, minimizes the volatility of investment returns."

"$10,000 invested at the 1929 stock market high would have fallen to $1,400 at the market low in 1932."

"If you are spending your current income, it is the most serious risk to which you are exposed."

"Think of (bond) duration as the number of years at which you are indifferent to an increase or decrease in interest rates."

"As a general rule, it is unwise to assume significant credit risk; generally confine your bond holdings to those with high credit quality."

"It is impossible to forecast the future course of interest rates with any degree of accuracy."

"The first principle of mutual fund investing is broad diversification of securities."

"Commodity pools, tax-shelters of various types, real estate limited partnerships, and other exotic investment programs have, time and again, been tried and found wanting."

"The collective performance record of professional managers strongly suggests that you might consider simply owning the market via an index fund."

"Mutual fund investors should own sector funds only for a specific purpose and only for a small portion of their equity assets."

"Over the long term, surprises, while they occur in all types of stocks, are less likely among the large blue-chip issues."

"Turnover has a significant influence on two aspects of investment performance: (1) the cost of managing the fund and (2) the realization of capital gains."

"I believe that Alpha is a flawed measure of what to expect from a fund."

"Statistics are no substitute for judgment."

"Selecting equity funds on the basis of past performance is likely to be a futile effort."

"The record is crystal clear that past performance success is rarely the precursor of future success."

"No fund can consistently sustain exceptionally high relative returns."

"Limit narrowly based funds (such as international and small company funds) to perhaps 20% of your equity assets in the aggregate."

"Do not try to beat the market by engaging in short-term trading among sector funds."

"If looking at the past absolute returns of common stock funds is a futile method of forecasting their future total returns, it is equally futile in the case of bond funds."

"Consider (bond) credit quality very carefully. Principal will fluctuate as interest rates move up and down, but money in a defaulted bond is gone forever."

"Compromising on quality in a money market fund, whether taxable or tax-exempt, is unacceptable."

"You should recognize that owning a single carefully chosen mainstream balanced fund is not essentially risky."

"Fund prospectuses are largely tedious documents that tend to obscure some very important information by burying it amid technical matters of limited investment significance."

"Thanks to a vigorous effort by the SEC in 1988, prospectuses now do a generally good job of setting forth the costs of fund ownership."

"The most comprehensive source of information about individual funds is Morningstar Mutual Funds."

"The Morningstar star system appears to have little predictive value."

"I would give much of the press failing grades on its breathless quarter-by-quarter designations of the "best" portfolio managers."

"With the sole exception of Consumer Reports, the press ignores the impact of sales loads on investment returns."

"The intelligent investor should realize that figures can lie and should critically examine reported fund performance."

"During that decade (10 years ended December 31, 1992), only three of the 36 advisers (newsletters) in operation during the full period outpaced the unmanaged index of the total stock market."

"Since the management fees and transaction costs incurred by passive investors are substantially lower than those incurred by active investors, and both provide equal gross returns, then passive investors must earn the higher net returns."

"I believe the all-encompassing Wilshire 5000 Index should be the prefered indexing standard."

"Actively managed international funds also normally have higher expense ratios. Total annual costs may reach 3.8%."

"The Lehman Bond Index (total bond market), in substance, is an appropriate choice for investors with an intermediate-term time horizon and seeking top quality."

"Cost is but one of the three sides of the eternal triangle of investing; potential reward and potential risk are the other two."

"There is one large invisible cost, often ignored because of its invisibility. It is the cost the fund incurs in executing its portfolio transactions. -- A variety of studies suggest that they approximate 0.5% to 2% of fund assets per years."

"Given the great complexity of federal and state tax codes, it goes without saying that you should seek tax advice only from qualified professionals."

"The combination of taxes and inflation has a truly staggering impact on the average annual returns achieved from bonds composed entirely of taxable income."

"If you are a taxable investor, you should never purchase the shares of a fund immediately before it distributes a substantial capital gain."

"The impact of taxes on both realized capital gains and investment income significantly reduces the rates of mutual fund return reported by the press."

"You should probably not even consider a variable annuity for assets that you may need to liquidate in the foreseeable future."

"Municipal bond funds are apt to be more attractive than direct municipal bond ownership, because transaction costs in the municipal markets are likely to be substantially higher for individuals than for institutional investors."

"Only the naive, ill-informed investor fails to consider the relationship between income return and capital return; the implications of taxes on dividend income and realized capital gains; and the potential taxes on unrealized gains."

"The most fundamental decision of investing is the allocation of your assets."

"My highest recommended target allocation for stocks would be 80% for younger investors accumulating assets over a long time frame. My lowest target stock allocation, 50%, would apply to older investors in the distribution phase."

"Your success in investing will depend in part on your character and guts, and in part on your ability to realize, at the heights of ebullience and the depths of despair alike, that this, too, shall pass away."

"It is basic economics that riskier types of assets demand higher returns than more secure types."

"I emphasize again how critical it is to invest as much money as you can as early as possible and as often as practicable."

"The number of funds you own should exemplify the aphorism that less is more; less burdensome detail, more investment focus."

"It is my conviction that the mutual fund industry has substantial room for improvement and that even the best firms, without exception, can be much better."

"Mutual funds should be bought to be held."

"The chance that a #1 fund in, say, the past ten years will repeat as #1 in the next ten years is essentially zero."

New fund concepts--often glamorized as "new products" or, presumably even better, "hot new products"--are also dangerous."

The Twelve Pillars of Wisdom:
1. Investing is not nearly as difficult as it looks.
2. When all else fails, fall back on simplicity.
3. Time marches on. (compound interest)
4. Nothing ventured, nothing gained. (take reasonable risk)
5. Diversify; diversify; diversify.
6. The eternal triangle. (risk, return, and cost)
7. The powerful magnetism of the mean.
8. Do not overestimate your ability to pick superior equity mutual funds, nor underestimate your ability to pick superior bond and money market funds.
9. You may have a stable principal value or a stable income stream, but you may not have both.
10. Beware of "fighting the last war." (past performance)
11. You rarely, if ever, know something the market does not.
12. Think long term."

Thank you, Jack. We miss you.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "Bogle on Mutual Funds" A Gem

Post by retiringwhen » Tue Oct 08, 2019 1:40 pm

Taylor,

As a Vanguard IRA holder in 1993, I received an offer to buy that book when it first came out. It was the key guide to my investing along with a handful of lesser impactful books.

It turned me into an unacknowledged Boglehead for 24 years, then I found bogleheads.org and learned that my outlook had a name! :sharebeer

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Re: "Bogle on Mutual Funds" A Gem

Post by Bylo Selhi » Tue Oct 08, 2019 3:08 pm

Thank you Taylor for posting those snippets. They're as important today as they were when Jack originally wrote them.

I recall buying the paperback edition of the book at Sea-Tac airport around 1994 and reading it on the flight home. As I'm sure it did for many others, it opened my eyes about investing, indexing and the financial "services" industry.

Jack graciously signed it for me at one of the early Bogleheads meetings. It now sits proudly alongside many others of his books.

Is this a reprint of the original or is there some new/revised material?

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Re: "Bogle on Mutual Funds" A Gem

Post by Taylor Larimore » Tue Oct 08, 2019 3:51 pm

Bylo Sehli wrote: Is this a reprint of the original or is there some new/revised material?"
Bylo:

This is a "reprint" of what has become an investment "Classic." It contains many accolades from investment authorities but it is without "new revised material."

Best wishes.
Taylor
Last edited by Taylor Larimore on Tue Oct 08, 2019 5:20 pm, edited 1 time in total.
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "Bogle on Mutual Funds" A Gem

Post by 1789 » Tue Oct 08, 2019 4:59 pm

Thank you Taylor for sharing wonderful excerpts from Mr Bogle's book. I need to re-read this to refresh my memory. Jack did so much for all regular investors. I honestly think that the reason why a lot of people invests with Vanguard are two folds. One is due to the influence Jack left on us (a great speaker and defender of average investor) and the second one is structure it created at Vanguard. But nowadays I am busy with reading your book on " The Bogleheads' Guide to Investing" :sharebeer.
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Re: "Bogle on Mutual Funds" A Gem

Post by abuss368 » Tue Oct 08, 2019 8:08 pm

Thank you Taylor for the wonderful summary of Mr. Bogle's book. I have both the original and updated version of the book on my shelf. I have learned much.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: "Bogle on Mutual Funds" A Gem

Post by abuss368 » Tue Oct 08, 2019 8:09 pm

1789 wrote:
Tue Oct 08, 2019 4:59 pm
Thank you Taylor for sharing wonderful excerpts from Mr Bogle's book. I need to re-read this to refresh my memory. Jack did so much for all regular investors. I honestly think that the reason why a lot of people invests with Vanguard are two folds. One is due to the influence Jack left on us (a great speaker and defender of average investor) and the second one is structure it created at Vanguard. But nowadays I am busy with reading your book on " The Bogleheads' Guide to Investing" :sharebeer.
The Bogleheads Guide to the Three Fund Portfolio is an excellent read. One that I learned much from.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: "Bogle on Mutual Funds" A Gem

Post by dwickenh » Tue Oct 08, 2019 8:17 pm

Thank you Taylor, I have the 2001 version of the 12 Pillars of Wisdom during a speaking engagement. He presented them during the 2001 bear market and made sure people knew that he himself had questioned the wisdom once, but stayed the course none the less. I have that speech as reading material in my throne room and read it almost daily!!

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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Re: "Bogle on Mutual Funds" A Gem

Post by abuss368 » Wed Oct 09, 2019 11:28 am

dwickenh wrote:
Tue Oct 08, 2019 8:17 pm
Thank you Taylor, I have the 2001 version of the 12 Pillars of Wisdom during a speaking engagement. He presented them during the 2001 bear market and made sure people knew that he himself had questioned the wisdom once, but stayed the course none the less. I have that speech as reading material in my throne room and read it almost daily!!

Dan
Most investors would be so much better off if they simply followed the Twelve Pillars!
John C. Bogle: "Simplicity is the master key to financial success."

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Re: "Bogle on Mutual Funds" A Gem

Post by pkcrafter » Wed Oct 09, 2019 11:46 am

Thank you Taylor for your unwavering belief in the simple and true Boglehead way.

You are a Boglehead gem. :sharebeer


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: "Bogle on Mutual Funds" A Gem

Post by tennisplyr » Wed Oct 09, 2019 12:26 pm

Thanks for the reminders Taylor
Those who move forward with a happy spirit will find that things always work out.

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Re: "Bogle on Mutual Funds" A Gem

Post by Phil DeMuth » Wed Oct 09, 2019 12:28 pm

The book that changed my life...

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Re: "Bogle on Mutual Funds" A Gem

Post by garlandwhizzer » Wed Oct 09, 2019 12:47 pm

Thanks, Taylor, for this post so full of Bogle's financial wisdom and insight. I can never read too much of Bogle. Even when you reread it again and again, his strait-forward, simply-stated wisdom keeps its freshness, a pleasant contrast to the financial industry and media hawking their high profit wares. Bogle was both a saint and a sage who shared his insights essentially for free to the public. Hats off to you Taylor for your support of this website that carries on his heritage.

Garland Whizzer

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Re: "Bogle on Mutual Funds" A Gem

Post by Stinky » Wed Oct 09, 2019 1:46 pm

John Bogle was the best.

Taylor, thanks for posting.
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Re: "Bogle on Mutual Funds" A Gem

Post by pkcrafter » Wed Oct 09, 2019 10:56 pm

Phil DeMuth wrote:
Wed Oct 09, 2019 12:28 pm
The book that changed my life...
Thanks for the feedback, Phil. Glad you took the time to contribute.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: "Bogle on Mutual Funds" A Gem

Post by Taylor Larimore » Thu Oct 10, 2019 9:02 am

Phil DeMuth wrote:
Wed Oct 09, 2019 12:28 pm
The book that changed my life...
Phil:

Your book, "The Affluent Investor" helped change my life. It is one of my "Gems."

https://www.bogleheads.org/wiki/Taylor_ ... tment_Gems

Thank you and best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Who you are is far more important than what you have."
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "Bogle on Mutual Funds" A Gem

Post by abuss368 » Thu Oct 10, 2019 8:31 pm

Stinky wrote:
Wed Oct 09, 2019 1:46 pm
John Bogle was the best.

Taylor, thanks for posting.
:sharebeer
John C. Bogle: "Simplicity is the master key to financial success."

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Re: "Bogle on Mutual Funds" A Gem

Post by abuss368 » Thu Oct 10, 2019 8:32 pm

Phil DeMuth wrote:
Wed Oct 09, 2019 12:28 pm
The book that changed my life...
I could not agree more! "Bogle on Mutual Funds" impacted us immediately. We stopped trading individual stocks and returned to Vanguard.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: "Bogle on Mutual Funds" A Gem

Post by usagi » Fri Oct 11, 2019 12:51 am

Somehow I overlooked these two gems:

"Over the long term, surprises, while they occur in all types of stocks, are less likely among the large blue-chip issues."

"I believe the all-encompassing Wilshire 5000 Index should be the prefered indexing standard."

I find them a bit incongruent as I would expect that the first quote would lend the answer to the second to be the S&P500.

Jack, was the best. A true hero of the lower and middleclass masses. What a great man.

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Re: "Bogle on Mutual Funds" A Gem

Post by Howard Donnelly » Fri Oct 11, 2019 2:48 am

Excellent. Thank you, Taylor.

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Re: "Bogle on Mutual Funds" A Gem

Post by caveman11 » Fri Oct 11, 2019 4:43 am

I was reading it this morning! :happy 8-)

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Re: "Bogle on Mutual Funds" A Gem

Post by mancich » Fri Oct 11, 2019 5:10 am

Thank you for posting this sir. The world needs a lot more people like Jack Bogle.

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Re: "Bogle on Mutual Funds" A Gem

Post by Bylo Selhi » Fri Oct 11, 2019 6:21 am

usagi wrote:
Fri Oct 11, 2019 12:51 am
Somehow I overlooked these two gems:

"Over the long term, surprises, while they occur in all types of stocks, are less likely among the large blue-chip issues."

"I believe the all-encompassing Wilshire 5000 Index should be the prefered indexing standard."

I find them a bit incongruent as I would expect that the first quote would lend the answer to the second to be the S&P500.
Surprises aren't necessarily bad ;)
Jack, was the best. A true hero of the lower and middleclass masses. What a great man.
Truly surprising in the financial services industry ;)

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Re: "Bogle on Mutual Funds" A Gem

Post by get_g0ing » Fri Oct 11, 2019 1:28 pm

Excellent, Taylor. This was a great read from Jack Bogle, feel indebted to him.

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