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Post by pkcrafter » Tue Sep 11, 2007 1:32 pm

Continuing our series on Mr. Bogle's 12 Pillars of Investing, here is
Pillar #10.

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 10. Beware of "Fighting the Last War."

Too many investors-individuals and institutions alike-are constantly making investment decisions based on the lessons of the recent, or even the extended, past. They seek stocks after stocks have emerged victorious from the last war, bonds after bonds have won. They worry about the impact of inflation after inflation, having turned high real returns into so-so nominal returns, has become the accepted bogeyman. You should not ignore the past, but neither should you assume that a particular cyclical trend will last forever. None does.


Pillar 9 ... ght=pillar

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 » Tue Sep 11, 2007 4:56 pm

Guilty as charged. I worry that I fall prey to this behavioral finance problem more than any other. I wonder if small/value and REITs should be in this category.
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 » Tue Sep 11, 2007 6:43 pm

EmergDoc wrote:Guilty as charged. I worry that I fall prey to this behavioral finance problem more than any other. I wonder if small/value and REITs should be in this category.
Me too! My unified theory of Chickenheartedness prompted me to abandon my small allocations of SmCap Index and REIT index(Lifestrategy mod was the big dog) and get out of the decision/rebalancing business. Went Target Retirement.

Those silly old Vanguard computers don't think about pillar 10 - they just rebalance away. I feel better now that my great thinking/analysis days are over.

heh heh heh

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