Among the giants of finance, few have had an influence as far-reaching as John Bogle. While the Vanguard Group founder and indexing pioneer died in 2019, his influence lives on in the growth of passive investing. Many of Bogle’s best ideas were captured succinctly in his 2007 work, The Little Book of Common Sense Investing.
Calling John (‘Jack’) Bogle an innovator is an understatement. When he launched his first index fund back in the mid-1970s, it was written off in some quarters as “Bogle’s folly”. These days, the Vanguard Group that he founded is one of the world’s biggest money managers, with about $7 trillion in global assets under management.
But Bogle’s influence extends well beyond Vanguard. The other two index leviathans, BlackRock and State Street, base their low-cost, highly diversified, passive investment approaches on the concepts that Bogle, among a handful of others, first championed five decades ago when such ideas were seen in some quarters as un-American.
Long before the idea of stakeholder capitalism took off, Bogle was a champion of looking after the interests of all people. None other than Warren Buffett once declared that if a statue were ever erected to the person who did the most for investors, the hands-down choice should be Jack Bogle.
For those who are unfamiliar with the ideas first propounded by this great man and who are usually turned off by industry financial jargon, his The Little Book of Common Sense Investing is a great place to start on learning from him.
The book hinges on a handful of key ideas, the first of which is that active managed funds are expensive and often do less well than the market itself. That idea once seemed radical but has been borne out over the decades by study after study.
Bogle called these active funds and all the attendant intermediaries the “croupiers” of the financial markets, earning billions each year in sales loads, commissions, excessive fees and expenses resulting from hyperactive trading.
“This book should tell you why you should stop contributing to the croupiers. It will also tell you how easy it is to do that,” Bogle wrote. “Simply buy the entire stock market. Then once you have bought your stocks, get out of the casino and stay out.”
Advertised returns vs real returns
People also tend to overlook that the returns that active funds advertise and the returns they see in their pockets – once all the performance and portfolio fees are deducted – are two different things. The people who get rich off active trading are the brokers, intermediaries and managers, not the end investors, Bogle wrote.
An easier and much simpler solution is to invest your money in an index fund that tracks the entire market at a minute cost. By holding the market, you will earn the capital market rate of return without all the guesswork and costs involved in active investing.
Another of Bogle’s key concepts is the need to be wary of investment fads. There will always be a new fashion that one manager or another will claim “changes everything” and, by the way, here’s a new fund with substantially higher fees to exploit it.
“The grim irony of investing,” Bogle wrote, “is that we investors as a group not only don’t get what we pay for, we get precisely what we don’t pay for. So if we pay for nothing, we get everything.”
Focusing on the controllable
Central to this message is while there are many things we can’t control in investing — like the ups and downs of the market, sectoral trends, movements in interest rates and currencies, and geopolitical news — there are things we can control. And we should focus always on those.
“The two greatest enemies of the equity fund investor are expenses and emotions,” Bogle wrote. “Owning the stock market over the long term is a winner’s game, but attempting to beat the market is a loser’s game.”
Bogle was a believer in capitalism, but he wanted to warn people of the tendency of all the ticket clickers and other intermediaries to grow rich at the expense of ordinary folk who are bewitched by tales of people who struck it rich on a “sure bet”.
The answer, he said time and again, was to keep it simple. Buy the market. Keep your costs down. Exercise discipline. And be wary of those who claimed they had found some previously hidden key to short-term riches.
“The simple fact is that selecting a mutual fund that will outpace the stock market over the long term is, using Cervantes’ wonderful observation, like ‘looking for a needle in the haystack’. So I offer you Bogle’s corollary: ‘Don’t look for the needle in the haystack. Just buy the haystack!’”
That’s why it’s called “common sense investing”.
If you’re new to investing, TEBI founder Robin Powell and fellow financial blogger Ben Carlson have written a book that you really ought to read. It’s called Invest Your Way to Financial Freedom, and it’s published by Harriman House.
Primarily written for a UK audience, the book has no hidden sales agenda and is based on peer-reviewed academic evidence. It explains, in simple terms, how young investors can develop good habits, save a fortune in unnecessary fees, and achieve financial freedom many years earlier than they otherwise would.
You can either buy the book direct from the publisher or via Amazon:
For those in the UK,
Buy the paperback via Harriman House here
Buy the paperback via Amazon here
Buy an audio version on Audible here
For those outside the UK,
Buy the Kindle version via Amazon here
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