John Bogle: The Little Book of Common Sense Investing

This is not a book review, but rather from an article I read yesterday on SmartMoney.com.

The article, “John Bogle Says ETFs a Mistake for Many Investors,” cited Mr. Bogle, founder of Vanguard and pioneer of index mutual funds, as saying that with a flood of new ETF offerings, investors are “performance-chasing” by investing in ETFs that are lack of broad market coverage. In his previous comments on ETFs, Mr. Bogle said that “the newest ETFs have focused more and more on narrow segments of the markets rather than the stock and bond markets as a whole.” And these ETFs are “just disasters waiting to happen.”

The article also published some of Mr. Bogle’s remarks that touched on various issues from mutual fund industry to indexing to ETF investing. The following are excerpts from the article that I think carry Mr. Bogle’s word of wisdom:

Indexing

It is so clear that the more you speculate as a mutual fund investor the worse you do. It’s a mathematical certainty that long-term investing is better. Think about it this way: The market has half long-term investors and half short-term investors. The long-term investors don’t trade any of their stocks so they get the market return. The short-term investors trade back and forth. They will have to lose.

Target-date funds

The target-date fund is the single best alternative to indexing. But target-date funds are all over the lot in terms of the ways they do things. In no case do they fail to reduce equities as age goes on ….. (but) target funds with very aggressive managers are going to be anathema and funds with high costs are going to be anathema.

ETFs

the fees have been great for financial entrepreneurs like Barclays and PowerShares and WisdomTree. It’s great for brokers since there are a staggering amount of commissions. And it’s great for advisors because it allows them to do something with their clients’ portfolios. But is it too much to ask that these products be good for investors?

Mr. Bogle is having his sixth book, The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns, coming out tomorrow, March 5, 2007. According to the article, the book reserves a whole chapter for Mr. Blog’s harsh words on ETF. I just ordered a copy of the new book and can’t wait to see what Mr. Bogle has to say about ETF since I have invested quite heavily in ETFs, though I don’t do active trading. If you are interested in getting the book for your own reading, I found two places to pre-order the book [Affiliate links]:

  • Buy.com: $13.56 plus $3.30 shipping, total $16.86
  • Amazon.com: $13.57 plus $3.99 shipping (free shipping for $25 or more), total $17.56

Barnes & Nobel also has the book for $13.96. I usually buy from Overstock.com since their price is lower than what Amazon.com charges and shipping is always $1.40. But they don’t have the book at this moment.

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