March 20, 2007

News & Opinion: John C. Bogle is the Man

By: 800-CEO-READ @ 4:24 PM – Filed under: Management & Workplace Culture

While this blog rarely covers personal finance books, I think that any time Jack Bogle puts pen to paper folks should take notice. His new book, The Little Book of Common Sense Investing, is another dose of refreshing common sense from the guy who created index funds as we know them today. Not to spoil anything, but there’s simply no great secrets revealed in this book. For years Bogle has been preaching a very simple and very powerful point. In today’s market the individual investor faces insurmountable odds over the long haul, after you factor in the transaction costs and the powerful incentives driving fund managers. Therefore buy low-cost index funds. End of story. The charm of the book rests in Bogle’s sharp wit and spicy writing. Here’s a passage I particularly enjoyed:
As investors, all of us as a group earn the stock market’s return. As a group—I hope you’re sitting down for this astonishing revelation—we are average. Each extra return that one of us earns means that another of our fellow investors suffers a return shortfall of precisely the same dimension. Before the deduction of the costs of investing, beating the stock market is a zero-sum game. But the costs of playing the investment game both reduce the gains of the winners and increases the losses of the losers. So who wins? You know who wins. The man in the middle (actually, the men and women in the middle, the brokers, the investment bankers, the money managers, the marketers, the lawyers, the accountants, the operations departments of our financial system) is the only sure winner in the game of investing. Our financial croupiers always win. In the casino, the house always wins. In horse racing, the track always wins. Investing is no different. After the deduction of the costs of investing, beating the stock market is a loser’s game.
Jonathan Clements, a Wall Street Journal personal finance writer with tremendous common sense, just touted Bogle’s new book in a piece, saying, "It's an easy read that will, I suspect, quickly join Burton Malkiel's 'A Random Walk Down Wall Street' and Charles Ellis's 'Winning the Loser's Game' as one of the indexing crowd's favorite books."