Mr. Bogle’s newest book, The Little Book of Common Sense Investing, is now available.
As a way of thanking all of his eBlog readers, we’re posting the first chaper the book here.
I thoroughly enjoyed Mr. Bogleâ€™s new book. Itâ€™s a fine addition to his earlier works touting his ideas about minimizing investment costs. Itâ€™s no doubt; those costs are the most important variable we can control as investors.
However, Iâ€™m disappointed by the lack of care exercised in editing the book. Any book which touts the importance of arithmetic in making investments decisions should take great care with its arithmetic. I have not tested all the additions, subtractions and other arithmetic operations in the book, but, clearly, the average of $188,500 shown in Exhibit 10.2 (page 108) is incorrect. The average of the numbers listed is $88,537.
You’re absolutely correct. That error, unfortunately inserted by the compositor in the very final round of changes, was the single reason we posted the Little Book’s Errata (see here) on this site.
I thoroughly enjoyed the book which presents your timeless lessons very succinctly. It deserves a position of honor along with The Intelligent Investor by Benjamin Graham. As a follower of the teachings of Graham and his intellectual successors, I was really pleased that you devoted a full chapter to his thinking and how they relate to your work with indexing. Were he still alive, I too think he would have endorsed indexing as an intelligent way to invest one’s money. In fact, he described a “cross-section” approach meant for long pull holding for the defensive investor which sounds exactly like a low cost index fund held to eternity.
As a young physician embarking upon my medical career and investment career, I find the words in this small tome invaluable. It will hold an esteemed place on my bookshelf next to Mr. Graham’s “The Intelligent Investor” and Dr. Bernstein’s “The Intelligent Asset Allocator”.
I came here not just to sing praise although it is well deserved, but to point out two errors in the text. The first was commented on above long before I came across this book. The second is a wonderful Freudian slip found at the top of page 174 (in the ETF chapter). In italics, the word “trader” is used in place of the correct word “traitor”. Since many of the proof readers were assuredly financial people, I am amused (and not completely surprised), the the familiar word “trader” did not stand out as incorrect.
Kudos again on standing up with a singular voice against the powerful “wealth sucking machine” that is our Financial Services Empire. I am proud to say that I am and plan to always be 100% indexed and I STRIVE TO BE AVERAGE. So many others could only dream of as much.
Brian Applebaum, MD
Does someone please could answer this question concerning ETF’s funds?
I understand that the main reason why Mr. Bogle, in this excellent and very convincing book, doesn’t like ETF’s funds is the greater temptation of trade that it allows, plus the lack of diversification.
Vanguard, for instance, offers ETF’s funds for every sectors which compose the SP 500 Index. Wouldn’t be wise and sound to buy the sectors which have a lower P/E ratio and price/book value ratio compare to other sectors composing the SP500 Index and keep those funds “forever”? (Of course, this approach wouldn’t be good to put small contributions because of the $20 fees). Over time, the diversification would follow since the ratios of different sectors change periodically. For instance, now(summer 2008) the finance sector of the SP 500 has the lowest price earning ratio and the lowest price/book value while real esate, among others, remain pretty much higher. Wouldn’t be a good way to combine a “value investing” approach with the obvious advantages of Index funds to proceed that way, that is not to follow the “hot” and the “hip” sectors, but doing just the opposite?
Thank you very much in advance for your help (and please forgive the poor quality of my English)
Student in philosophy
Great information in this book! I’m 30, and looking for an investment vehicle to place $$ in for retirement besides my 401K and IRA (which I max out). I’m not the most savvy when it comes to investing….but I have 10K to invest right now and want to now invest in an index fund with a horizon of 20 years. My question is….in order to be diversified in index funds, I was thinking of investing it all in the Fidelity 4 in 1 index fund (FFNOX). It has exposure to S&P, Small-Mid, international, and bond indexes (hence, 4 in 1). This seems like a way to keep it very simple, and to not have to purchase 4 different funds. I know Mr. Bogle is obviously a fan of Vanguard funds……so I’m looking for any negatives on this fund (if any), and if anyone has any other recommendations.
Thanks for reading,