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Post by pkcrafter » Thu Aug 30, 2007 11:39 am

Continuing our series on Mr. Bogle's 12 Pillars of Investing, here is Pillar #8.

The Vanguard Diehards forum has a well-earned reputation as one of the best investment resources on the internet because of its 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 8.

Do Not Overestimate Your Ability to Pick Superior Equity Mutual Funds, nor Underestimate Your Ability to Pick Superior Bond and Money Market Funds.

In selecting equity funds, no analysis of the past, no matter how painstaking, assures future superiority. In general, you should settle for a solid mainstream equity fund in which the action of the stock market itself explains about 85% or more of the fund's return, or an low-cost index fund (100% explained by the market). But do not approach the selection of bond and money market funds with the same skepticism. Selecting the better funds in these categories on the basis of their comparative costs holds remarkably favorable prospects for success.

Ref: Link to Pillar #7 ... ght=#64208

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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Post by White Coat Investor » Thu Aug 30, 2007 8:06 pm

I think this applies very well to choosing a bond fund within a particular category, but not necessarily choosing which type of bond fund is the best type for your portfolio. That can be a bit more complicated, but certainly within the reach of a well-informed, amateur investor. Hard to argue with his reasoning about equity funds though. In fact, this pillar may be one of Mr. Bogle's greatest contributions to the investing world.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Post by unclemick » Fri Aug 31, 2007 8:26 am

Yep - only took forty years (1966-2006) to sort of 'get it'.

Real money - aka 100% retirement is Target Retirement.

heh heh heh - Sigh! :lol: 15% in individual stocks. Someone has to be a poster child for why they do studies/books on investor behavior. It's da hormones don't you know - the urge to putz is incurable. Learning to manage the disease is critical. :wink:

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