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Gem-"Little Book of Common Sense Investing"
Taylor Larimore 03-01-2007, 2:33 PM | Post #196005 | 
Hi Bogleheads:
Last night I read Jack Bogle's latest book, "The Little Book of Common Sense Investing."

Warren Buffet's endorsement says it best:

"A low-cost index fund is the most sensible equity investment for the great majority of investors. My mentor, Ben Graham, took this position many years ago, and everything I have seen since convinces me of its truth. In this book, Jack Bogle tells you why."

This is a small sample of Mr. Bogle's "Investment Gems":

"Index funds eliminate the risks of individual stocks, market sectors, and manager selection. Only stock market risk remains."

"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."

"Each doller initially invested in 1900 at an investment return of 9.5% grew by the close of 2005 to $15,062."

"Academic studies suggest that if you are a typical investor in individual stocks, your returns have probably lagged the market by about 2.5% per year."

"The classic index fund that owns this market portfolio is the only investment that guarantees you your fair share of stock market returns."

"The brokers, the investment bankers, the money managers, the marketers, the lawyers, the accountants, the operations departments of our financial system are the only sure winners in the game of investing."

"Croupiers of the financial markets take in something like $400 billion each year from you and your fellow investors."

"The lower the costs that investors as a group incur, the higher rewards that they reap."

"Fund investors are confident that they can easily select superior fund managers. They are wrong."

"It is dangerous to apply to the future inductive argument based on past experience."

"Occam's Razor: When there are multiple solutions to a problem, choose the simplest one."

"The beauty of a cap-weighted index is that it automatically adjusts to changing stock prices and never has to buy and sell stocks for that reason."

"Common sense tells us the obvious; while owning the stock market over the long term is a winner's game, beating the stock market is a loser's game."

"The gross return in the stock market, minus intermediation costs, equals the net return earned by investors as a group. If the data do not prove that indexing wins, well, the data is wrong."

"We investors as a group get precisely what we don't pay for. So if we pay nothing, we get everything."

"It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it."

"By and large, fund managers are smart, well-educated, experienced, knowledgeable, and honest. But they are competing with each other. There is no net gain to fund shareholders as a group."

"The miracle of compounding returns is overwhelmed by the tyranny of compounding costs."

"Most managed mutual funds are astonishingly tax-inefficient."

"Investment of $10,000, 1980-2005:

Index Fund....Managed Fund
$179,200.......$179,200.......Gross Return
$170,800.........$98,200.......Pre-Tax Return
$149,000.........$61,700.......After-Tax Return
$65,000...........$23,100.......After Inflation Return"

"Don't look for the needle--buy the haystack"

"The average fund portfolio manager lasts just five years."

"Of the 355 equity funds in 1970, fully 233 of those funds--almost two thirds--have gone out of business. Only 24 outpaced the market by more than one percentage point a year--one out of every 14. Let's face it: These are terrible odds!."

"In fund performance, the past is rarely prologue."

"Every single firm in the fund industry acknowledges my conclusion that past fund performance is of no help in projecting the future returns of mutual funds."

"Studies show that 95 percent of all investor dollars flow to funds rated four or five stars by Morningstar."

"A mutual fund portfolio continuously adjusted to hold only Morningstar's five-star funds earned an annual return of just 6.9% between 1994 and 2004, nearly 40 percent below the 11.0% return of the Total Stock Market Index."

"On average, the 10 top funds in the 1997-1999 bull market were outperformed by 95% of their peers in the 2000-2002 bear market that followed."

"In a study prepared for Fidelity Investments covering the 10-year period 1994 to 2003 inclusive, broker-managed funds had the lowest ratings relative to their peers of any group of funds."

"Merrill Lynch funds were 18 percentage points below the fund industry average."

"Of the 35 newsletters (tracked by Hulbert) that existed in 1980, only 13 are still in business today. Only 3 outperformed the market."

"Index funds endure, while most advisers and funds do not."

"I can recall no large fund organizatin making the immediate conversion from a load to a no-load distribution system since Vanguard took that drastic and unprecidented step 30 years ago."

"Rule of thumb: Turnover costs equal 1% of the turnover rate."

"Funds in the low-turnover quartile have

Originally posted in thread: 57865
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