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Book Review: The Little Book Of Common Sense Investing

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Intro

On my daily walks, I often stop at the local Goodwill thrift store to shop for used books. I do own a kindle, but there's something about turning actual pages and having one less screen to stare at that is appealing to me.

The Book

The Little Book Of Common Sense Investing by John C. Bogle

About The Author

John C. Bogle was the founder of Vanguard Group, and the original inventor of the index fund. He passed away in 2019

About The Book

This book was published in 2007, and revised in 2017. This is often what you get when you shop for books at Goodwill, but for 3 bucks instead of 17, I'll take it. If Bogle decided to do a revised edition, you can be relatively confident his original premise from the original book will be supported by more recent data. What is that premise you ask?

Premise Of The Book

  • Buy passively managed index funds with the lowest costs and hold the majority of your wealth in them
  • Avoid actively managed mutual funds.

My Thoughts

There's little arguing with the hard data in the book that investing in actively managed funds is a losers game. The costs of running an actively managed fund eats away at potential earnings. The intense pressure upon active managers to over-trade, and the lack of agility actively managed funds have to make moves adds to their less than stellar performance over the long run. In the best of circumstances, actively managed funds try to string together a few successful years for which they can market that success and attract investors. Often, the manager and company will then milk management fees until the funds ultimate demise. Failed funds have their assets rolled over into newer high flying funds, and the cycle starts all over again.

Relevance To Today

In the investment world, we are constantly hit with the disclaimer "previous results are not indicative of future performance", yet we can have an entire book explaining how indexing is the way to go since it has outperformed active management for 63 years (in the case of the S&P 500).[src] To this I have more questions than answers. In the current economic environment, do we expect the next 63 years to exhibit the same patterns? Will markets even be the same at all? What about tokenization, quantitative easing, hyperinflation, the debt spiral, global unrest, and other unprecedented events? Should I expect to put 80% of my wealth into an S&P 500 index fund and expect it to preserve anything at all? Stock market prices aside, how safe from seizure or compromise will the vehicles themselves be, such as IRAs, 401Ks, and brokerage accounts?

Indexes And Survivor Bias

Markets, mutual funds, and indexes themselves suffer from survivor bias. Whether it's failed funds merged into existing funds, backtesting 63 years of index data, or the components of the actual index changing as companies get removed, we are always looking in reverse for signs of what's to come in the future. With the emergence of digital assets, unrest and uncertainty for the future, I'm just not so sure the index fund narrative is going to hold up over my lifetime. That being said, I still keep some percentage of my investments in them, but is the 80% we are often touted just too much given the huge shift we are in the midst of?

In Conclusion

Despite being biased towards the index fund concept he invented, I feel that Bogle was correct in his assessment that the vast majority of active managers can't consistently beat a passively managed index, which has been proven based upon backtested data. With that, he makes the assumption in his book that what has been, will always be, which I feel is a dangerous one to make. We continue to experience uncertain times. I hope that investing in passive indexes can be accomplished using un-censorable tokens on a blockchain, rather than held by permissioned custodial services, so that Bogle's strategy can be followed in a true Web 3.0 world.

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