Often credited with creating the first index fund, John C. Bogle was one of the most influential investors since the Great Depression. His book Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor (1999) is a crucial read for anyone interested in investing.
Get some quick advice from the following quotes.
1. Ask yourself: Am I an investor, or am I a speculator? An investor is a person who owns business and holds it forever and enjoys the returns that U.S. businesses, and to some extent global businesses, have earned since the beginning of time. Speculation is betting on price. Speculation has no place in the portfolio or the kit of the typical investor.
John C. Bogle believed deeply that trying to earn short-term games from any investment was a bad idea. You might succeed, but the success comes from luck. It isn’t that different than winning the lottery. Real investing depends on finding a great company, putting your money into it, and growing alongside it.
2. The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.
Compounding returns can make practically any investment look like a great idea. Eventually, compounding costs will bring your expectations back to reality.
3. Rely on the ordinary virtues that intelligent, balanced human beings have relied on for centuries: common sense, thrift, realistic expectations, patience, and perseverance.
You do not have special insights that will let you game the market. Rely on the virtues that have always helped people succeed. It’s your best chance at growing wealth and a meaningful life.
4. Fund investors are confident that they can easily select superior fund managers. They are wrong.
No one, even the most experienced professional, knows how an investment will change over time.
5. I will create value for society, rather than extract it.
It’s tempting to make money from short-term investments. In the long-run, though, that approach harms the market and every involve. That includes you.
6. Learn every day, but especially from the experiences of others. It’s cheaper!
If you can learn from someone else’s mistakes and successes, you don’t have to take the same risks.
7. The mutual fund industry has been built, in a sense, on witchcraft.
While reason and research play significant roles in managing a successful mutual fund, some aspects of success seem like sorcery.
8. The greatest Enemies of the Equity investor are Expenses and Emotions.
Investing is not an emotional activity. If fear, greed, or joy guide your decisions, you set yourself up for failure.
9. The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course.
Individual stocks can make a lot of money, but they come with sizable risks. An index fund can let you invest in the market overall. While the market may have its ups and downs, it always gains value in the end. Invest broadly and don’t let market fluctuations affect you.
10. The greatest enemy of a good plan is the dream of a perfect plan. Stick to the good plan.
If you seek perfection, you will fail. Nothing is perfect. Plenty of good plans exist, though. Don’t look for the perfect plan for the perfect investment plan. Look for a good one with reasonable goals.
11. Where returns are concerned, time is your friend. But where costs are concerned, time is your enemy.
Given enough time, you will almost certainly see strong returns on your investment. If costs continue, though, they will undermine your returns.
12. Owning the stock market over the long term is a winner’s game, but attempting to beat the market is a loser’s game.
Think of the stock market as a casino. You know that “the house always wins” because the odds always favor it. Trying to “beat” the stock market is like believing you can beat the house day in and day out. Instead, put your money in strong, safe investments. Then, let the money and the market work for you over years and decades.
13. If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.
At some point in your life, the market will take a dip. Eventually, it will recover, but it could take quite a bit of time. If you can’t imagine that the market could fall by 20% or more, you’re not emotionally prepared for the stock market.
14. Speculation leads you the wrong way. It allows you to put your emotions first, whereas investment gets emotions out of the picture.
Emotions have no place in smart investing. They will only lead you astray by either making you feel overly confident or overly afraid. You need to separate your feelings from your strategic plan. Nothing is guaranteed, but taking this approach improves your chances of success.
15. Gunning for average is your best shot at finishing above average.
Extravagant investment goals will encourage you to put money into high-risk opportunities. Don’t try to surge ahead and build wealth quickly. Take a reasonable approach and expect reasonable results. You’ll probably do better than someone with unrealistic expectations.
16. Index funds eliminate the risks of individual stocks, market sectors, and manager selection. Only stock market risk remains.
Any company’s stock can falter. Index funds include so much diversity that they nearly eliminate risk. Don’t get greedy. Take the slow and steady route for the best results.
17. Don’t think that you know more than the market; no one does. And don’t act on insights that you think are your own but are usually shared by millions of others.
The market is unknowable. Never think you can outsmart it.
18. Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes.
Practically anyone can invest successfully as long as they’re willing to do two things: make smart decisions and avoid serious mistakes that can undermine those smart decisions.
19. In the long run, investing is not about markets at all. Investing is about enjoying the returns earned by businesses.
Some investors focus too much on markets. Market trends can help you make decisions, but they do not rule investments. That relies on the businesses trading stocks in the market. Pay more attention to how businesses make long-term decisions. Then, you can sit back and wait for their profits to earn you money.
20. The mistakes we make as investors is when the market’s going up, we think it’s going to go up forever. When the market goes down, we think it’s going to go down forever. Neither of those things actually happen. It doesn’t do anything forever. It’s by the moment.
The market is a fickle thing, so you cannot rely on a trend to continue forever. A lot of investors get so worked up by current trends that they forget this essential fact. During a bull market, they believe everything will always keep going up. During a bear market, they believe everything will keep going down. None of these beliefs are accurate. The only certainty is that the market will always change.
21. Your success in investing will depend in part on your character and guts, and in part on your ability to realize at the height of ebullience and the depth of despair alike that this too shall pass.
John Bogle encourages people to take a very Zen-like approach to investing. When you get too excited about success, you can make risky decisions. When you feel too upset about a failure, you can make decisions based on fear and too much risk-aversion. No matter where you are in your investing career, the moment will pass. Accept the ride as a series of moments and remember that you do not know the destination.
22. I would always advise young people to follow their star – not my star. They have to live their own life. If they decide they want to go into the investment business, do it, but make it a better business than it is today.
You have to remain true to your own ideals and beliefs. It makes sense to learn from others, but your actions ultimately rely on what you choose. Regardless of the direction you choose, keep the economy’s long-term health in mind. It doesn’t make sense to earn money today if the strategy you use sabotages the future.
23. When there are multiple solutions to a problem, choose the simplest one.
A smart investor can come up with unlimited ways to make money. The simplest approach almost always works better than complicated ones. Don’t make problem-solving harder than it needs to be.
24. The stock market is a giant distraction to the business of investing.
A lot of investment professionals want you to pay close attention to how the stock market moves from day to day. Really, though, these short-term movements are nothing more than distractions. They don’t mean anything regarding your long-term gains. For greater success, investors should stop paying so much attention to small moves and focus on long-term trends.
25. If you’re very talented and keep winning, you’ll do just fine. It may take a while. But the talent is hard to identify and talent is hard to tell from luck. There’s an awful lot of luck in this business. Past performance is not helpful in judging future performance.
Here, Bogle gets to the heart of investing: it’s very difficult – if not impossible – to tell whether a successful investor is talented or lucky. To some extent, talent involves making lucky choices. Because talent and luck have so much in common, you cannot base your future performance on your past successes. Any level of success or failure could change with one decision.
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