“Common Sense Investing” by John Bogle is a classic guide to investing that has helped many people achieve their financial goals. The book is based on Bogle’s decades of experience in the investment industry and his insights have become fundamental principles of investing. In this review, I will review the book, highlighting its key themes and strengths.
Chapter 1: The Paradox
John Bogle introduces the paradox of investing: the more investors try to beat the market, the more difficult it becomes to achieve higher returns. He provides evidence that the average investor is unlikely to outperform the market, and warns against the dangers of trying to time the market or pick individual stocks.
Chapter 2: The Triumph of Indexing
Bogle describes the history of indexing and the benefits of investing in low-cost, passively managed index funds. He argues that index funds are a better choice than actively managed funds, which are more expensive and often underperform the market. Bogle also explains how the rise of indexing has transformed the investing landscape.
Chapter 3: Rational Exuberance
Bogle tackles the topic of market bubbles and emphasizes the importance of avoiding the temptation to jump on the bandwagon during times of irrational exuberance. He encourages investors to stay the course, even when others are chasing the latest hot stock or sector.
Chapter 4: Cast Your Lot with Business
Bogle reminds investors that investing in the stock market is ultimately about owning a piece of a business. He discusses the benefits of investing in a diversified portfolio of stocks and encourages investors to stay focused on the long-term goals of building wealth and achieving financial security.
Chapter 5: Focus on the Lowest-Cost Funds
Bogle stresses the importance of keeping investing costs low, as fees can have a significant impact on long-term returns. He advises investors to choose funds with low expense ratios and explains how fees can erode returns over time.
Chapter 6: Bond Funds: Keeping It Simple
Bogle explains the role of bonds in a diversified portfolio and provides guidance on how to select a bond fund. He emphasizes the importance of keeping things simple and encourages investors to focus on high-quality, low-cost bond funds.
Chapter 7: The Exchange-Traded Fund
Bogle discusses the rise of exchange-traded funds (ETFs) and explains how they differ from traditional mutual funds. He provides guidance on how to choose an ETF and advises investors to be wary of complex, niche ETFs that can be more difficult to understand and may carry more risk.
Chapter 8: The Grand Illusion
Bogle warns against the illusion of market timing and explains how attempting to time the market can lead to lower returns and higher costs. He encourages investors to stay disciplined and avoid making emotional decisions based on short-term market movements.
Chapter 9: Taxes Are Costs Too
Bogle provides guidance on how to minimize taxes on investment returns and explains how taxes can erode returns over time. He emphasizes the importance of understanding the tax implications of different investments and provides advice on how to optimize investment strategies to minimize tax liabilities.
Chapter 10: When the Good Times No Longer Roll
Bogle acknowledges that markets are inherently unpredictable, and advises investors to be prepared for periods of market volatility. He provides guidance on how to navigate market downturns and encourages investors to stay disciplined and avoid making emotional decisions based on short-term market movements.
Common Sense Investing is a comprehensive guide to investing that emphasizes the importance of keeping things simple and focusing on the long-term. Bogle’s advice is backed by decades of experience and research, and provides a valuable perspective for investors of all levels. While the book is geared towards index fund investing, Bogle’s insights are applicable to any investment strategy.
