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The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns – John C. Bogle

30th August 2019
The Little Book of Common Sense Investing book cover

Introduction

The Little Book of Common Sense Investing is about mutual funds, specifically index funds. Essentially, the author is making a case for index fund.



Author

John C. Bogle is the founder of the Vanguard Mutual Fund Group. He created the world’s first index fund, First Index Investment Trust (precursor to the Vanguard 500 Index Fund) and the rest is history. He passed away on 19 January 2019.



Content

The Little Book of Common Sense Investing has 20 chapters in total, with an introduction to this 10th anniversary edition at the front. As this is a Little Book, all the chapters are short and succinct. At the end of each chapter, there is a “Don’t Take My Word for It” section where the author quotes some luminaries in the investment field who support his ideas.

The 20 chapters are 1) A Parable, 2) Two Rational Exuberance, 3) Cast Your Lot with Business, 4) How Most Investors Turn a Winner’s Game into a Loser’s Game, 5) Focus on the Lowest-Cost Funds, 6) Dividends Are the Investor’s (Best?) Friend, 7) The Grand Illusion, 8) Taxes Are Costs, Too, 9) When the Good Times No Longer Roll, 10) Selecting Long-Term Winners, 11) “Reversion to the Mean”, 12) Seeking Advice to Select Funds?, 13) Profit from the Majesty of Simplicity and Parsimony, 14) Bond Funds, 15) The Exchange-Traded Fund, 16) Index Funds That Promise to Beat the Market, 17) What Would Benjamin Graham Have Thought about Indexing, 18) Asset Allocation I: Stocks and Bonds, 19) Asset Allocation II and 20) Investment Advice That Meets the Test of Time.



Review

The major theme of this book, as you can guess it, is the brilliance of index fund. As the creator of the world’s first index fund, the author still holds fast to its principles which are diversification and rational long-term expectations. The author also mentions about the relentless rules of humble arithmetic which means that costs matter a lot in determining the investment returns.

To earn a good return in the stock market, as well as the bond market, the author advises us to employ a buy and hold strategy, reduce the frequency of transactions, get rid of intermediaries (or at least reduce their cut on our profits) and reduce our tax liabilities. In short, all these can be achieved through low-cost index funds.

The author predicts that the extraordinary returns in the stock market and bond market are unlikely to recur in the coming decades. Thus, he is projecting an annual investment return of 6% for the US market.

Chapter 19 may not be applicable in Malaysia due to the difference in the retirement savings system. Nonetheless, it may serve as a guide to how we utilize our Employees Provident Fund after retirement.

In conclusion, the author claims that index fund is the best bet for investment. Beating the stock market is a loser’s game as the odds are against the investors. I find his advice, as the title of the book says, a common sense, but that is not so common nowadays. However, there is no low-cost index fund in Malaysia. Thus, I am not too sure of how to implement his strategy here. Perhaps I should find a way to invest in some oversea index funds.



Quotes

  1. 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.
  2. Common sense tells us that we’re facing an era of subdued returns in the stock market.
  3. In fund performance, the past is rarely prologue.
  4. The two greatest enemies of equity fund investor are expenses and emotions.
  5. We know that investing entails risk. But we also know that not investing dooms us to financial failure.


Rating

3 out of 3 stars



Interested in The Little Book of Common Sense Investing?

You may get the book from Kinokuniya Malaysia through the link below*.

Get the book here

*Disclosure: The above link is Involve Asia affiliate link. Thus, I may earn a small commission when you purchase the book through this link.

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