The Hindu Business Line : Investment Nuggets

John C. Bogle, Founder of The Vanguard Group and President of the Bogle Financial Markets Research Centre, is popularly called the father of index fund investing. The Vanguard Group is one of the two largest mutual fund organisations in the world. Headquartered in Malvern, Pennsylvania, US, Vanguard comprises more than 120 mutual funds with current assets totalling $1 trillion. Vanguard 500 Index Fund, the first index-based fund and the largest managed by the group, was founded by Mr Bogle in 1975. He has authored several best-selling books such as Bogle on Mutual Funds: New Perspectives for the Intelligent Investor (1993) and Battle for the Soul of Capitalism (2006).

"Think long term, and don't allow transitory changes in stock prices to alter your investment programme. There is a lot of noise in the daily volatility of the stock market, which too often is `a tale told by an idiot, full of sound and fury, signifying nothing'. Stocks may remain overvalued, or undervalued, for years. Impulse is your enemy. Time is your friend."

"The resemblance of the stock market to the casino is not far-fetched. Yes, the stock market is a positive-sum game and the gambling casino is a zero-sum game... but only before the costs of playing each game are deducted. After the heavy costs of financial intermediaries are deducted, beating the stock market is inevitably a loser's game. Just as, after the croupiers' wide rake descends, beating the casino is inevitably a loser's game. All investors as a group must earn the market's return before costs, and lose to the market after costs, and by the exact amount of those costs. Your greatest chance of earning the market's return, therefore, is to reduce the croupiers' take to the bare-bones minimum."

"The Greek philosopher Archilochus tells us, `the fox knows many things, but the hedgehog knows one great thing.' The fox — artful, sly, and astute — represents the financial institution that knows many things about complex markets and sophisticated marketing. The hedgehog — whose sharp spines give it almost impregnable armour when it curls into a ball — is the financial institution that knows only one great thing: The wily foxes of the financial world justify their existence by propagating the notion that an investor can survive only with the benefit of their artful knowledge and expertise. Such assistance, alas, does not come cheap, and the costs it entails tend to consume more value-added performance than even the most cunning of foxes can provide. Result: The annual returns earned for investors by financial intermediaries such as mutual funds have averaged less than 80 per cent of the stock market's annual return. The hedgehog, on the other hand, knows that the truly great investment strategy succeeds because of its simplicity and low cost. The hedgehog diversifies broadly, buys and holds, and keeps expenses to the bare-bones minimum. The ultimate hedgehog: The all-market index fund, operated at minimal cost and with minimal portfolio turnover, virtually guarantees nearly 100 per cent of the market's return to the investor. In the field of investment management, foxes come and go, but hedgehogs are forever."

More Stories on : Investments | Stock Markets | Young Investor

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page