BACK TO BASICS WITH JACK BOGLE - PILLAR 2

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pkcrafter
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BACK TO BASICS WITH JACK BOGLE - PILLAR 2

Post by pkcrafter » Sat Jul 21, 2007 9:17 am

BACK TO BASICS WITH JACK BOGLE - PILLAR 2

The Vanguard Diehards forum has a well-earned reputation as one of the best investment resources on the internet because of it’s long history of attracting and helping newer, inexperienced investors. The seeds of success have grown from the fundamental teachings of our mentor, Jack Bogle. I feel our mission has been, and continues to be, to pass along the wisdom of Mr. Bogle.

In recent years, the forum has also attracted more knowledgeable investors who enjoy discussing sophisticated ways to reduce risk and/or increase investing returns. This is interesting and educational for knowledgeable and experienced investors. However, our advanced discussions are sometimes confusing and possibly even overwhelming for newbies and less-experienced investors. As a result of these more sophisticated conversations (about which experts often disagree), it is not unusual to see new investors with a few thousand dollars trying to start with complicated slice-and-dice portfolios.

I discussed this problem with Mel and Taylor with the idea that the best way to help new and less sophisticated investors would be to post a series of conversations that will bring us back to Jack Bogle's common sense, easy-to-understand ways to invest successfully. Mel and Taylor agreed and suggested I review each of Jack's "12 Pillars of Wisdom."

The 12 Pillars were originally published in 1994 as an Epilogue in Mr. Bogle's first book, Bogle on Mutual Funds. I will post a series of conversations featuring each of Mr. Bogle's "Twelve Pillars of Wisdom" for the benefit of our new and less-experienced investors. Replies are encouraged but please keep on topic.

Pillar 2. When All Else Fails, Fall Back on Simplicity.

There are an infinite number of strategies worse than this one: Commit, over a period of a few years, half of your assets to a stock index fund and half to a bond index fund. Ignore interim fluctuations in their net asset values. Hold your positions for as long as you live, subject only to infrequent and marginal adjustments as your circumstances change. When there are multiple solutions to a problem, choose the simplest one.

Link to Previous Post - Pillar 1.
http://www.diehards.org/forum/viewtopic ... 57a5f47ba9


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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bob90245
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Re: BACK TO BASICS WITH JACK BOGLE - PILLAR 2

Post by bob90245 » Sat Jul 21, 2007 9:41 am

pkcrafter wrote:There are an infinite number of strategies worse than this one: Commit, over a period of a few years, half of your assets to a stock index fund and half to a bond index fund..
Sounds just like the portfolio Scott Burns calls "The Couch Potato" portfolio. :D

Here is another Scott Burn story readers may like:
No, the Couch Potato Portfolio is practiced in real life by one of the inventors of modern portfolio theory itself.

Where did I learn this?

From Richard Thaler, probably the leading behavioral economist in America.

Here's the story. A clear master of the amused diffidence required of all faculty members at the University of Chicago and similar institutions, professor Thaler was making a presentation on "naive portfolios." His audience: a group of financial planners and journalists. Using an overhead projector, professor Thaler moves smoothly from one chart to another until he shows one that quotes Harry Markowitz, an early pioneer in the development of modern portfolio theory and winner of a Nobel Prize for same.

And there it is, in black and white!

When asked how he invested his retirement funds, Markowitz answered:

"I should have computed the historic co-variances of the asset classes and drawn an efficient frontier. Instead ... I split my contributions 50/50 between bonds and equities."

He wanted, he added, to "minimize my future regret."

Why, he's just like the rest of us!

unclemick
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Post by unclemick » Sat Jul 21, 2007 10:25 am

Hmmm

Defensive Investor chapter, The Intelligent Investor, 4th ed by Ben Graham. ?1972?

50/50 500Index/GIC(guaranteed insurance contracts) - unclemick's 401k 1977 to 1993.

Thanks Ben and Jack for my successful early retirement at age 49! Add in the rest of the Vanguard crew for keeping me there (lifestrategy, and then target). 1994 Bogle on Mutual Funds, rollover to Lifestrategy moderate about 95, Target about 2006.

heh heh heh - yep Pillar 2 is a good one.

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Taylor Larimore
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Simplicity

Post by Taylor Larimore » Sat Jul 21, 2007 10:59 am

Hi Paul:

Each of Mr. Bogle's "Twelve Pillars" contain a valuable lesson about how to invest successfully.

"Simplicity" changed my life and is my favorite "Pillar." This is what I wrote about it:

http://socialize.morningstar.com/NewSoc ... vSeq=32713

Best wishes.
Taylor

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ryan
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great idea

Post by ryan » Sat Jul 21, 2007 2:06 pm

Posting these Pillars is such a great idea. Keep'em coming!

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fundtalker123
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Post by fundtalker123 » Sat Jul 21, 2007 2:55 pm

Bogle has also said 100-(your age) = % to invest in stocks is a pretty simple rule of thumb if you want more/less than 50/50 stocks.

YDNAL
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Post by YDNAL » Sat Jul 21, 2007 3:22 pm

Paul,
Thanks for your contribution.

I just celebrated my 1-year anniversary with Vanguard using a 'keep it simple' approach after 30+ years of performance chasing , constant tweaking, individual stocks and the other pitfalls attributable to most investors.... Diehards are the minority, you know.

Keep them coming.

Regards,
Landy dba YDNAL

660ky612
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Post by 660ky612 » Sat Jul 21, 2007 3:51 pm

YDNAL wrote:

>I just celebrated my 1-year anniversary with Vanguard using a 'keep it simple' approach after 30+ years of performance
>chasing , constant tweaking, individual stocks and the other pitfalls attributable to most
>investors.... Diehards are the minority, you know.

30 years performance chasing? Would you mind share your story of why it doesn't work, possibly in another thread?
Write a private mail to me if necessary.

Best Wishes,

660ky612 from HKSAR

YDNAL
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Post by YDNAL » Sat Jul 21, 2007 4:06 pm

660ky612,
You mis-read my quote:
after 30+ years of performance chasing , constant tweaking, individual stocks and the other pitfalls attributable to most investors.

It's not 30 years of performance chasing but 30+ years of investing which have, at one point or another, dealt with all of the above pitfalls.

Regards,
Landy

dcd
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Post by dcd » Sat Jul 21, 2007 4:16 pm

Thanks for these posts. Concentrating on the basics really helps me "behave" better.
Denny

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