10 Principles of Investing from Jack Bogle

From Jack Bogle’s “The Clash of Cultures, Investment vs. Speculation”  below are 10 principles to follow when investing.  Cullen Roche at Pragmatic Capitalism wrote about this a while back and given the Brexit news it seems like a good time for a review.

Jack Bogle is the founder of Vanguard and the father of what is now known as “passive investing”.  Rather than paying high fees to a fund manager who tries to pick the best sub-set of stocks, Index Funds allow you to buy all stocks in any different category (e.g. small cap stocks , value stocks  etc) or in fact the entire stock market (VTI).

When Vanguard was started it managed well less than $100 million and today is managing over $3 trillion largely in the passive/indexing category.  Bogle’s words of wisdom are derived from his belief that no one can consistently outperform the market as an active stock picker, a view largely borne out in research on investing.

  1. Remember reversion to the mean.What’s hot today isn’t likely to be hot tomorrow. The stock market reverts to fundamental returns over the long run. Don’t follow the herd.
  2. Time is your friend, impulse is your enemy.Take advantage of compound interest and don’t be captivated by the siren song of the market. That only seduces you into buying after stocks have soared and selling after they plunge.
  3. Buy right and hold tight. Once you set your asset allocation, stick to it no matter how greedy or scared you become.
  4. Have realistic expectations. You are unlikely to get rich quickly. Bogle thinks a 7.5 percent annual return for stocks and a 3.5 percent annual return for bonds is reasonable in the long-run.
  5. Forget the needle, buy the haystack.Buy the whole market and you can eliminate stock risk, style risk, and manager risk. Your odds of finding the next Apple (AAPL) are low.
  6. Minimize the “croupier’s” take.Beating the stock market and the casino are both zero-sum games, before costs. You get what you don’t pay for.
  7. There’s no escaping risk. I’ve long searched for high returns without risk; despite the many claims that such investments exist, however, I haven’t found it. And a money market may be the ultimate risk because it will likely lag inflation.
  8. Beware of fighting the last war. What worked in the recent past is not likely to work going forward. Investments that worked well in the first market plunge of the century failed miserably in the second plunge.
  9. Hedgehog beats the fox.Foxes represent the financial institutions that charge far too much for their artful, complicated advice. The hedgehog, which when threatened simply curls up into an impregnable spiny ball, represents the index fund with its “price-less” concept.
  10. Stay the course. The secret to investing is there is no secret. When you own the entire stock market through a broad stock index fund with an appropriate allocation to an all bond-market index fund, you have the optimal investment strategy. Discipline is best summed up by staying the course.


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