John C. Bogle wrote this book back in 2017. He was the founder of Vanguard Mutual Fund Group, one of the world’s largest investment companies. He held the honour of creating the world’s first index fund, First Index Investment Trust which later becomes Vanguard 500 Index Fund. As you can guess it, he was a staunch proponent of index funds. This great disruptor of the investment field passed away in 2019.
Layout of The Little Book of Common Sense Investing
There is a total of 20 chapters in the book. Each chapter ends with a section of “Don’t Take My Word for It” with endorsement from other figures in the investment field.
The first four chapters talk about the basics of investing and what investment returns are made up of.
The next four chapters discusses the costs of mutual funds.
Chapter 9 to 13 are about the pitfalls of investing in the “best” mutual funds.
Chapter 14 to 16 give the author’s view on the bond funds, exchange-traded funds and the new breeds of indexing strategies.
Chapter 17 is about the endorsement of traditional index funds.
The following two chapters are regarding asset allocation. Some of the advice in these chapters may not be applicable in Malaysia.
The last chapter is the conclusion of this book.
Highlights
What to expect from a book written by the creator of index fund? Obviously, the awesomeness of index fund. Mr Bogle believed that investors should not aim to beat the market but should instead aim to capture the market return. According to him, trying to beat the market is a loser’s game. Index fund is created to fulfil the single purpose to capture the market return as closely as possible. He provided statistics and quoted support from others to validate his belief.
One thing to look out for when investing in mutual funds is the cost. The difference of a few basis points in fee can make a big difference when compounded over a very long period. He also advised against investing in the hottest fund/stock as chasing after these popular investments are more likely to lead to disappointment.
The author predicts a subdued return in the future (6% for the US market). This was predicted in 2017 and it is still too early to see if this is true or not.
Conclusion
In conclusion, Mr Bogle recommends low-cost traditional, plain-vanilla index fund for every investor. His arguments are very convincing and I do support his views. Nonetheless, there is no such index fund in Malaysia. The index funds that I know have costs that are like actively managed index funds. I am considering the possibility of investing in oversea index funds now.
Before I end this review, let me share some interesting quotes from the book.
“Successful investing is about owning businesses and reaping the huge rewards provided by the dividends and earnings growth of our nation’s – and, for that matter, the world’s – corporations.”
“The greatest Enemies of the Equity investor are Expenses and Emotions.”
“The stars produced in the mutual fund field are rarely stars; all too often they are comets.”
“After-the-fact popularity is a recipe for unsuccessful investing.”
“The greatest enemy of a good plan is the dream of a perfect plan.”
“The real money in investment will be made not out of buying and selling but of owning and holding securities.”
“We know that investing entails risk. But we also know that not investing dooms us to financial failure.”
Recommended book
If you are interested in The Little Book of Common Sense Investing, you may get the book from Kinokuniya Malaysia through the link below*.
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