The Little Book of Common Sense Investing

John C. Bogle is the founder and retired CEO of Vanguard and Vanguard Mutual fund group. This book is the third volume of “little book series”. Which tells about the best specific investing policies. And we also says that, this is the bogle philosophy. Which is that the smartest investment for most stock market investors is the broad low-fee index fund. Let’s take a short review of this book and know what BOGLE should write under the red cover. This book is based on eighteen chapters, and each chapter should be contain ten to twenty pages. This purpose of this book is that one should invest in low cost index fund.

The short review of this chapter is which is suffice to defined that many chapter is focus on the retelling on Warner Buffet classic tale of gotrocks and helpers. Simply put, the individuals who need to pay to help choose wisely investing is that they actually take away money away from you rather than earn more money. The moral is, in Buffett’s words, that for investors as a whole, returns decrease as motion increases. An effective investor invest through middle, where the middle man charge minimum for their services.

From the fable of Gotrocks in Chapter 1, Bogle tries to apply the lesson of the story to the stock. In the long term, he compares the return on investment of the company with the return on equity investment, and judges that the correlation is very strict. What do you mean? In the long run, the investment in the stock of the business is consistent with the success of the business itself. There may be short-term twists and turns in the emotions of investors, but when you purchase inventory over the long term, you are buying into the basic business. Therefore, short-term stock market investment is a game quite different from long-term investment and we acknowledge that we do not understand the investor's emotions necessary to play a short-term game.

Here, Bogle draws Ockham's razor (law of parsimony). Basically speaking that all things are equal. The simplest solution is the best trend. From that point he talks about the general investment strategy of investing in a very broad stock (exemplifying S&P 500) that matches the overall success of the long-term stock market. After that, we compare S&P 500 with the major companies' funds, and found out that S & P 500 outperformed the average large funds of other companies in 26 years out of the past 35 years. Why is this?

Bogle effectively answers in the next chapter of this chapter by stating that the stock market is a zero sum game. For all stocks that exceed the market, there are stocks that will not beat the market. Adding them together matches the market. For the average investor in the market, half of the shares his / her chooses breach the market, half not exceeding the market, averaging to market value. But this is before the commission. If you add a fee, the average investor will not defeat the market. Return on investment is lower than the market, which is practically lower when fee is high. If the market returns 8% and pays 2.5% of the fee, your return is actually only 5.5%. You may have money in your savings account.

This chapter goes in a new direction, and emotions often indicate that it is the cause of further weakness in investor returns. Investors tend to buy into the stock market as the stock market gets upward, we exclude most of the profits. Here is an example. Let's say the stock market is 10,000 at the beginning of 2010. In early 2011, the stock market is up to 11,000, 10% profit. People will decide to buy after watching the stock market rise and will continue to rise and attract new investors. In 2013 the market peaked at 13,000, reaching 11,500 in early 2014. The average people who were sitting quietly and quietly averaged about 4% per year on average, while those who only bought one year later earn only 2% each year.

Another challenge to equity investors is the taxes covered in Chapter 6. In a word, aggressively managed mutual funds occupy a percentage of realized capital gains and dividend income annually in the law, which is terrible from the tax point of view - because it is necessary to pay dividends on a regular basis it is. This is an aggressively managed fund that means selling a lot of shares throughout the year and making substantial profits and paying 90% of the profits to the holders of the fund. Since index funds have very little active management in most cases they will pay little to the distribution, so taxes rarely occur. Therefore, compared to aggressively managed mutual funds, index funds are much better than tax.

Here, in this document, as we mentioned at the beginning of the chapter in most cases, we are watching that such a time is widely considered, we see that the return period is short. In these periods, the actual return of managed mutual funds will reach 0% much faster than the intentions of Index Funds. In other words, intentions with long-term period index funds that lose money with managed funds. It is easy to find when Index Fund loses money and when a particular managed fund made a profit, but it is a huge anomaly due to factors riding on it.

This chapter mainly shows the performance of managed mutual funds for 35 years. In these 35 years, less than 1% of the fund actually broke the market more than 2% per year, and survived investor growth along with it. Over the next 35 years these funds can repeat business results due to changes in fund manager sales and market trends. In other words, long-term managed funds rarely defeat almost all stock markets.

Clearly, some funds should use boom time in certain areas rather than other funds. For example, some funds did a wonderful job of dominating the market in 1998 and 1999 using the dot com boom in the late 1990s. What happened to the fund? Almost universally, they saw an incredibly huge collapse from 2000 to 2002, far exceeding the overall market downturn. Even if it is averaged, we get much worse results than the market itself. If you are interested in making a short dance, you can earn money in this way, but investing in certain areas is not a healthy long-term situation.

This chapter mainly shows, should spent money on investment advisor or not. And the chapter says, “No”. In fact, most advisors are far worse than the market since the fee was calculated. Instead, please invest directly in the index fund with cash. Do not worry about it. For me, this is already what I am doing and I could not be happier about it.

Starting here, I'm talking about how you can choose your own funds, but there is a huge amount of funds and it's quite a big job. How do I remove funds? The first thing you should do is to remove all funds with a high fee. As it came (chapters 8-10 lesson), we ignore performance at the moment, but the cost lasts forever. In order to prove how important this is, Bogle collects all kinds of funds in large quantities, groups them into four groups based on the price, and in the long term the lowest rate group will do its best.

As we focused on low-cost funds, the next step recommended by Bogle is to invest in funds covering the entire market, such as S&P 500 or Wilshire 2000 index. Since these funds have a base in all sectors, you can gain boost as certain sectors go up, but you will not die if certain sectors go down. The conclusion here is that your first mutual fund investment, especially what you are working on in the long term, will enter an index fund representing a broad market.

The premise of this chapter is simple. Money market funds and bond funds follow the same trend as equity funds obey. In other words, if you purchase a mutual fund that invests in shares other than shares, you need to purchase a low-cost extensive index fund. In this chapter we show some examples of how this is true.

What about Index Funds being advertised to defeat the market? These funds use some statistical methods to select parts of the market and simply follow the results of their statistical methods. However, it is trust that you put in this statistical method, and trust is not strong, as it really comes down. These methods are based on historical data, and it has been proved many times that past achievements do not indicate future results. Similarly, by using the "filtering" method, this is not really an index fund, but a fund that is actively managed using a very simple strategy. Bogle advises you to use the basic investment ideas. In many cases, you can see that the price is high or does not cover the market widely.

Here we are talking about exchange trading funds and mutual funds traded on the stock market like ordinary shares. For the long term, Bogle believes that these ETFs are the same as the mutual funds they intend to represent, but the same rules apply: looking for something that represents a broad market and very I will search for those that can be owned at low cost. Then keep them. These aggressive transactions are no different from active trading of common stock. Fees and taxes live you.

In this chapter, this book will cease. Bogle supports the idea of ​​investing in index funds with various quotes from Benjamin Graham (father of value investment) and Warren Buffett (Warren Buffett).

This chapter is basically a continuation of the previous chapter. Bogle cites a lot of investors who fully agree with the investment philosophy written in this book. Again, there are few meat, but the point of this book is very well organized.

But Bogle is trying to write a book, as individual investors reveal what to do with the information contained in the book. Obviously, he is a fan who invests extensive index funds with a slight fee, but he suggests that you have a small amount of your portfolio (about 5%) with interesting money you can play I will. That money should be in something like individual stocks, actively managed funds, goods like ETF, gold. In this way, most of the portfolio can float on the market, but there is the ability to guess a bit.