JOHN BOGLE ON INVESTING

John C. Bogle …has the mind of an economist and the personality of a preacher.
Washington Post

One of the revolutionary investors in American financial history, John C. Bogle is an extra-ordinary human being. Founder and former chairman of The Vanguard Group is a savvy investor who helps millions of people to realize their financial dreams. I just completed his book “JOHN BOGLE ON INVESTING”. It’s really very interesting and insightful for investors who are serious about investments.
Fortune magazine clearly stated that, “Bogle is rattling the status quo among the mutual fund titans”. Yes, we should be thankful to him for he shows the world that mutual funds are not the all important in creating wealth instead they are wealth destroyers in the long run. Due to their short term pressures they wanted to show instant results and because of that they used to take short term investment dicisions which are clearly not in favour of investors. I am going to discuss some of the useful insights which will be helpful not only investors but also to become better human beings.
At Vanguard, the three main objectives of the business are:
1. Treating investors as part owners.
2. To operate on the lowest possible operating cost structure.
3. To create wealth in the long run.
It is surprising that in our present days where financial frauds and cheating are the order of the day, Bogle run his financial firm on honesty and succeeded like anything.
His personality is such that you cannot pass on unimpressed if you come across. His character is like a magnet which instantly attracts anybody nearing him.
William T. Allen while writing introduction to this book said that, “Virtue is a word that tends to embarrass us today. John Bogle’s life reflects such a deep commitment to the concept of duty, honor, candor, diligence, and service to others that the most complete summarization of the man is to say that he is a man of high virtue”. He further said that, “the value of life is measured by how one affects the lives of others, not by either celebrity or by balance sheet”. He further observed that, “the world is noticeably better place because of his efforts. The public was the principal beneficiary of his vision”. Absolutely stunning observation on a greatest role model of our times.
His investment philosophy is that the most effective means of building wealth is simply to emulate the annual returns provided by the financial markets, and reap the benefit of long-term compounding and minimizing the cost of investing.
His ideal investment program includes four elements:
1. Simplicity: Matching, not beating the markets; asset allocation that is strategic, not tactical.
2. Focus: Maximizing the productive economics of investing; minimizing the counterproductive emotions of investing.
3. Efficiency: Economical operations: minimization of frictional costs of fees and commissions and taxes.
4. Stewardship: Placing the interest of the clients first: unyielding emphasis on human beings and eternal values-integrity, honesty and candor.
He called the above program as “The majesty of simplicity in an empire of parsimony”. He said that ‘low costs, simply put, are better than high costs.’ He made investing simple and said that, ‘the one great secret of investing is that there is no secret.’ He further stated that, ‘reward is the first and most important dimension of investing. But don’t ignore risk, the second dimension of investing. But time moderates risk. The third dimension is cost. Time magnifies the impact of cost.’ He emphasized capital allocation in these words.
Own Stocks, the Course to Stay;
Hold Bonds, for They Will Pay;
Keep Cash Reserves for a Rainy Day.
He said that ‘there is a critical difference between designing a product that sells, and creating an investment that serves.’
The element of cost plays vital role in investment success. Bogle is highly cost conscious. He gives the reasons;
1. that companies having the smallest expense will have the ultimate advantage.
2. that companies having this advantage are the most desirous of correcting present abuses.
3. that companies which cannot long survive the present condition of affairs are determined to nullify every effort for reform.
It is clear from his observation that we must reduce expenses to thrive in the business. Simple investment ideas and basic human values are the foundation of his philosophy.