The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns

By John C. Bogle

Book Overview

"There are a few investment managers, of course, who are very good - though in the short run, it's difficult to determine whether a great record is due to luck or talent. Most advisors, however, are far better at generating high fees than they are at generating high returns. In truth, their core competence is salesmanship. Rather than listen to their siren songs, investors - large and small - should instead read Jack Bogle's The Little Book of Common Sense Investing ." - Warren Buffett, Chairman of Berkshire Hathaway, 2014 Annual Shareholder Letter. Investing is all about common sense. Owning a diversified portfolio of stocks and holding it for the long term is a winner's game. Trying to beat the stock market is theoretically a zero-sum game (for every winner, there must be a loser), but after the substantial costs of investing are deducted, it becomes a loser's game. Common sense tells us--and history confirms--that the simplest and most efficient investment strategy is to buy and hold all of the nation's publicly held businesses at very low cost. The classic index fund that owns this market portfolio is the only investment that guarantees you with your fair share of stock market returns. To learn how to make index investing work for you, there's no better mentor than legendary mutual fund industry veteran John C. Bogle. Over the course of his long career, Bogle--founder of the Vanguard Group and creator of the world's first index mutual fund--has relied primarily on index investing to help Vanguard's clients build substantial wealth. Now, with The Little Book of Common Sense Investing, he wants to help you do the same. Filled with in-depth insights and practical advice, The Little Book of Common Sense Investing will show you how to incorporate this proven investment strategy into your portfolio. It will also change the very way you think about investing. Successful investing is not easy. (It requires discipline and patience.) But it is simple. For it's all about common sense. With The Little Book of Common Sense Investing as your guide, you'll discover how to make investing a winner's game: Why business reality--dividend yields and earnings growth--is more important than market expectations How to overcome the powerful impact of investment costs, taxes, and inflation How the magic of compounding returns is overwhelmed by the tyranny of compounding costs What expert investors and brilliant academics--from Warren Buffett and Benjamin Graham to Paul Samuelson and Burton Malkiel--have to say about index investing And much more You'll also find warnings about investment fads and fashions, including the recent stampede into exchange traded funds and the rise of indexing gimmickry. The real formula for investment success is to own the entire market, while significantly minimizing the costs of financial intermediation. That's what index investing is all about. And that's what this book is all about.

• Format: Hardcover
• Language: English
• ISBN: 0470102101
• ISBN13: 9780470102107
• Release Date: March 2007
• Publisher: John Wiley & Sons
• Length: 216 Pages
• Weight: 0.65 lbs.
• Dimensions: 0.9" x 5.2" x 7.3"

Customer Reviews

Is just about common sense

As a young and recent investor, this has been the best book I’ve read regarding about investment life changing decisions explained with simplicity and accessibility for investing.

An aptly titled book

As a professional portfolio manager since the 1960's [now retired] I most highly recommend this book. I have purchased copies for my adult children, as well as for some for-profit and non-profit boards on which I serve. I am telling all that this easy, one-day read has the potential to be a financial life-enhancing event, if they agree with the basic premise. And that there is no reason not to agree with the premise. I very much like that Bogle includes supporting data at the end of every section. A true five-star book.

The Best Advice Ever

The Facts Are In The Numbers There is a repetitive theme in this book, not redundance. And it's supported by expert analysis, portfolio comparisons, and the numbers: "humble arithmetic." Over time Index Funds out-perform most managed mutual funds. The longer the amount of time, the more detrimental the damage - if - you own managed funds. "Where returns are concerned, time is your friend. But where costs are concerned, time is your enemy." Bogle notes (like so many others) how fund advertisements mislead and outright lie by stating that "X fund has an annual average return of 12% per yer," but omits the costs: portfolio transaction costs, Load charges, 12-1bs, and taxes accrued on realized gains. (And inflation must always be factored.) The S & P 500 rose by an average of 12 percent for twenty years, but most managed mutual funds got far, far, lower returns than that. The 4 E's: Enemies of Equity investors are Expenses and Emotions, according to Warren Buffet. Financial Intermediation has created enormous fortunes for those n the fields of managing other people's money. One example: Merrill Lynch is the largest brokerage firm in the world. One of its biggest marketing and profitable successes also created one of the biggest losses for investors. At the height of the bubble in 2000, Lynch launched two new funds: the "Focus Twenty" and the "Internet Strategies" Fund. Like clockwork, at the height of the bubble frenzy the consumers were drawn in. The best time to sell a fund is the worst time for consumers to buy it. $2 billion dollars poured into Merrill Lynch. "Internet Strategies" sank almost immediately and lost 86 percent, while the "Focus Twenty" (which comprised the top 20 favorite stock picks of Merrill Lynch managers) lost 28% in 2000, 70% in 2001, and 39% in 2002 (p. 106). Ouch. A lot of funds declined in this three-year period, but not nearly as much. Funds chosen by managers earn 40 percent less than index funds, in general (source, NY TIMES). But it's not just John Bogle that states this. Bogle hits home with his "Don't take it from me" passages throughout the book, quoting and sourcing what other financial minds say about managed vs. index funds, and organizational and individual investment psychology. There are tons of exhibits and tables with comparisons. Sources are provided throughout. Relation to 401K and IRAs: IMO, regular non-IRA (non tax deferred) index funds can be a vehicle that supersedes endangered Defined Pension Benefit Plans for those wanting to add more than the limits, or simply supplement the IRA and 401K limits to retirement accounts. Or, add more diversification and control over one's portfolio. Indexing can also be useful for those that don't have the two tax-deferred options available to them and is another choice because of low taxation and low expense costs. Including indexing another but related topic, company pensions can inhibit and limit the worker. They often a

Common Sense Isn't So Common

What's in the book is just what the title says - obvious common sense. This book is for people that want to move up their financial goals by using techniques so simple, my son Kevin implemented them last year when he was in second grade. Don't confuse simplicity with stupidity, Bogle notes. If these techniques are really so simple, why doesn't Wall Street "get it?' Because they are paid a small fortune not to understand it. In fact, it's critical that the grand illusion continue. The book is a battle pitting the Wall Street machine, glitz, and emotion against only the relentless rules of simple arithmetic. Even Wall Street, however, doesn't have the might to overcome simple arithmetic. It's a bloody battle where most that try to disprove mathematics, end up being the casualties. You may be thinking this book merely says to buy index funds or exchange traded funds. Actually, Bogle notes that many index funds and most exchange traded funds are the wrong thing for investors. Yes, Wall Street took his indexing concept and morphed it into vehicles that would make them rich, at the cost of the investor. These are known as "enhanced" or "specialized" funds that are far closer to active investing than many disciplined investment funds - like Berkshire Hathaway. Bogle explains what investors should do to capture the returns of capitalism. You may be surprised to learn that he goes beyond saying only own the broad index funds. In fact he says individual stocks and active mutual funds are okay, under certain conditions. It's okay to have a little fun, he says. If you are absolutely convinced that you or your advisor will beat the market, then don't read this book - it will only make you sick to your stomach with irrefutable logic. This book is only for those wanting to guarantee your fair share of stock market returns.

Great concise investing guide!

This latest book from Vanguard founder John Bogle is a gem. For those of us who are investment junkies, his past works have been superb, but a little overwhelming for regular readers who need their guidance in smaller and more direct terms. The Little Book of Common Sense Investing fills that void. For Bogle fans, this is a summary of what we already know and you will not find a lot that is dramatically new or different. For readers who need a stern lecture on what is right and what is wrong, this is a perfect guide. One nice touch in this new book are a variety of quotes Bogle uses that say "If you don't believe me" or "Don't take my word for it". He quotes Warren Buffet, Benjamin Graham and other major figures that confirm the advice he gives is right. With all the large confusing investment books on the market today, this one provides a small friendly guide that allows the reader to focus on the behaviors that lead to success in investing. This is the finest new book on investing in 2007 and a must read for all investors who need to cut through the noise to find the truth. Thank you Mr. Bogle! Mike Kavanagh, CFP ® Atlanta, GA

Presents great, low-maintenance investment advice

"The Little Book of Common Sense Investing" is the third book in the Little Book series from Wiley. I reviewed the previous two, "The Little Book that Beats the Market" and "The Little Book of Value Investing". The first book (Beats the Market) really captured my attention. In fact, after reading it last year I went out and invested in some of the stocks the author recommended on his site (more on that in a moment). I quickly realized that if I truly wanted to follow the "Beats the Market" approach I was going to have to spend more time on investment research than I originally planned. That's where "The Little Book of Common Sense Investing" really shines. Bogle's book is all about index funds and why they're the smart alternative for just about any type of investor. Rather than trying to beat the market, and risk coming up short, why not just match the market's results with a good, low-fee index fund? I won't try to go into all the details in this short review, but the author also predicts weaker stock and mutual fund performance in the coming years. Although nobody can predict the future, of course, his logic is hard to refute. It also makes index fund investing look like a very smart choice. As I mentioned earlier, I invested in 7 different stocks shortly after reading "The Little Book that Beats the Market". Those stocks, along with their performance to date are as follows: ASPV (down 18%), CECO (up 41%), BVF (up 44%), OVTI (down 11%), WON (down 2%), ALDA (up 20%) and GIB (up 27%). Those mixed results clearly highlight the importance of a diversified portfolio! Speaking of a balanced portfolio, after reading "The Little Book of Value Investing" I wound up putting a good portion of the rest of my money in an index fund, VBINX, which is up 4% since I invested. All those investments are up a total of 8.4% to date...not bad, given that I only bought all these about 6-7 months ago. Now that I know I don't have the time to keep rolling things over and figuring out what new stocks to pick, I think I'm going to liquidate all the stocks shortly and go with the Vanguard 500 Index, VFINX. Could I make more money by playing the buy-and-flip game? Maybe, but I'm in this for the long haul and am perfectly content to follow Bogle's advice on index funds.