The Little Book of Common Sense Investing

Book Review

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

Author: John C. Bogle

Date Published (Updated and revised edition): 2017 

Rating: 8.5/10

  

The Little Book of Common Sense Investing : Background

To help put this book into perspective, I thought it would be useful to have a few life facts about John Bogle, one of my personal investment heroes.

Some key facts follow:

• Born: May 8, 1929
• Passed: Jan 16, 2019
• Birthplace: Montclair, New Jersey
• Nickname: Saint Jack
• Zodiac Sign: Taurus
• Occupation: investor, business magnate, and philanthropist.
• Net worth: $US180 million (2019)
• Known for: Founding and leading The Vanguard Group.

John was founder and former chairman of the Vanguard Group of mutual funds and President of its Bogle Financial Markets Research Center. After creating Vanguard in 1974, he served as chairman and chief executive officer until 1996 and senior chairman until 2000. He is the author of ten books, including Enough: True Measures of Money, Business, and Life, The Little Book of Common Sense Investing, and Clash of the Cultures: Investment vs. Speculation.

 

The Little Book of Common Sense Investing – Book Theme

This book is an easy to read guide to getting smart about investing in the stock market. John Bogle reveals his key to getting more out of investing: low-cost index funds. Bogle describes the simplest and most effective investment strategy for building wealth over the long term: buy and hold, at very low cost, a mutual fund that tracks a broad stock market Index such as the S&P 500.

The index fund is simply a basket (portfolio) that holds many, many eggs (stocks) designed to mimic the overall performance of the U.S. stock market (or any financial market or market sector). Buying via the index eliminates to a very large extent, the risk of picking individual stocks, trying to choose particular winning sectors and picking a good long term investment manager.

In the words of Warren Buffet (Oracle of Omaha and one of the world’s most successful investors), “Rather than listen to the siren songs from investment managers, investors–large and small–should instead read Jack Bogle’s The Little Book of Common Sense Investing”.

Pros

• An easy read for someone new to investing
• Provides an investment strategy that is simple to implement and reduces the overall risk for the average investor
• Reinforces the importance of dividends in contributing to the overall investment return
• Highlights the importance of ‘time in the market’ as opposed to trying to ‘time the market’
• Reinforces the miracle of compounding investment returns
• Reveals the significant impact on overall performance attributable to ongoing costs relevant to many other investment strategies.

Cons

• There is a reasonable amount of repetition in the book
• As the original founder of Vanguard, one could argue that there would be bias present
• Under emphasis on the value of dollar cost averaging – that is investing a regular sum into the market over a longer period of time rather than a lump sum and thus taking advantage of when the market does have its lows
• No clear steps for implementing the strategy, albeit the approach is a rather straightforward one.

 

The Little Book of Common Sense Investing – Direct quotes from the book

“First , get diversified . Come up with a portfolio that covers a lot of asset classes . Second , you want to keep your fees low . That means avoiding the most hyped but expensive funds , in favor of low – cost index funds . And finally , invest for the long term . [ Investors ] should simply have index funds to keep their fees low and their taxes down . No doubt about it “ 

“HOW DO YOU CAST your lot with business ? Simply by buying a portfolio that owns shares of every business in the United States and then holding it forever . This simple concept guarantees you will win the investment game played by most other investors who — as a group — are guaranteed to lose” 

“In fact , since 1926 ( the first year for which we have comprehensive data on the S & P 500 Index ) , dividends have contributed an average annual return of 4.2 percent , accounting for fully 42 percent of the stock market’s annual return of 10.0 percent for the period” 

Consider the words of Warren Buffett in his 2013 letter to Berkshire Hathaway shareholders as he describes the instructions in his will for managing his wife’s trust. “Rather than selecting an actively managed mutual fund with a superior record , he directed the trustees to invest 90 percent of the assets in the trust in a “ very low – cost S & P 500 index fund ( I suggest Vanguard’s)” 

“Not investing is a surefire way to fail to accumulate the wealth necessary to ensure a sound financial future . Compound interest is a miracle . Time is your friend . Give yourself all the time that you possibly can”.

 

If you found this book review interesting, please read my review of : “The Richest Man in Babylon“.

 

Read, learn, enjoy, be persistent and take action!