The Little Book of Common Sense Investing

January 1st, 2015

The Little Book of Common Sense Investing front cover

“Don’t go looking for a needle in a haystack. Just buy the whole haystack.” This is the prevailing notion in this book by John C. Bogle, founder of Vanguard and father of the humble index fund back in the 1970s.

Where active fund managers try to justify their inflated fees by beating the market — something the vast majority of them are unable to do long-term — an index fund tracks the market and deliver returns close to those of its benchmark, providing diversification in a low-cost package while mitigating the risk.

Bogle attacks active funds head-on and presents eye-opening analyses of how much of returns, which should be headed into your and my pockets as investors, are in fact siphoned off by fund managers through fees. As Bogle puts it, “all investors as a group must necessarily earn precisely the market return, but only before the costs of investing are deducted.” It’s obvious when you think about it.

In fact, it’s so obvious that the book occasionally veers towards repetitiveness as Bogle employs the “relentless rules of humble arithmetic” to hammer through his point, using multiple calculations and industry terms that I admittedly didn’t always fully grasp. Not that I really feel the need to in order to understand and appreciate his strategy, because it’s so deliciously simple and effective that it should be shouted from the rooftops and into the ears of as many would-be investors as possible.

Bogle’s slow and steady strategy of buying and holding the entire stock market won’t appeal to investors looking for a quick payoff, but if you have the patience and dedication to weather the inevitable market-wide storms along the way, index investing is for you.

I recommend that every investor give this book a look.