Customer Reviews

Common Sense on Mutual Funds (Wiley Audio)

5 star:		(50)
4 star:		(12)
3 star:		(9)
2 star:		(2)
1 star:		(2)

 

 

I didn't find the book nearly as repetitive as some other reviewers did. Yes, Bogle continues to point out that cost matters and that you can't predict the winners in advance. But he HAS to keep repeating his point. If he didn't, opponents of indexing would (and do) say, "But cost doesn't matter as much in emerging markets because they are less efficient." So Bogle is forced to remake his point over and over and over again to show the superiority of indexing in every asset class.

Bogle has a few hidden gems in here that I haven't come across in my other reading. For instance, he points out that owning S&P 500 companies DOES give you international exposure since almost 25% of the those companies' revenues come from outside the United States. He also makes some very good points about the effectiveness of slice-and-dice efficient frontier asset allocation methodologies and how they tend to reflect the past more than the future.

On the other hand, I feel that his dismissal of international investing shows an underlying bias that isn't well founded. He points out that the EAFE failed to perform as well at the S&P 500 over the past 10 years. Yet that is a period he admits is extraordinarily favorable to US-based large-cap firms. Later he does admit that when measured from its inception in the 1960s the EAFE has almost the same returns as the S&P 500 but then dismisses the usefulness of this. Even though it provided the same returns if it has a low correlation to the S&P 500 it can be a good component in a portfolio. It is almost like he doesn't understand the entire point of risk-adjusted returns.

Another complaint is that I don't think the book is very suitable as an introduction for novices. It isn't that the material is difficult, I just don't feel it is structured very well. For instance, he starts using standard deviation to mean risk. It isn't until much later on that he mentions in passing the problems with using standard deviation as a proxy for risk. If you are a little bit familiar with investing then you'll know all of this already, but I think a novice might be left floundering or possibly mislead.

I couldn't help shake the feeling that a lot of his arguments weren't especially sound. Maybe it's because he doesn't present a lot of his data, but only his conclusions. Or maybe it's because it feels too much like he's reasoning towards a conclusion he arrived at long before the data was available. I feel that Berstein's Intelligent Asset Allocator offers a much more rigorous and sound (if slightly different) argument in favor of indexing than presented here.

Finally, I felt like the argument wasn't especially coherent. I knew what point he was trying to make but at times I just felt like the editor hadn't done a proper job of cleaning up the text. Swedroe's What Wall Street Doesn't Want You To Know has a much more coherent, straight forward structure while arguing in favor of indexing.

Despite all of that, I still think this book has a valuable place in the investor's education. If you can borrow a copy from a friend, or check it out from the library, you owe it to yourself to do so.

Despite the prosaic title of the book, and the conservative investment philosophy of its author, "Common Sense on Mutual Funds" has a revolutionary aim. Vanguard founder John Bogle believes the mutual fund industry must make major changes in order to faithfully serve its customers and, by explaining his investment philosophy, he shows both why radical change is necessary for the industry and helps to precipitate it by encouraging individual investors to follow his investment advice.

Bogle thinks too many mutual fund investors are being scammed by professional managers of funds who reward their companies instead of their investors' portfolios. High fees, outrageous expenses, rapid turnover, unneeded "products", marketing costs -- all are used by countless mutual fund companies to inflate their bottom lines to the detriment of their investors' needs.

Several reviewers here have noted that Bogle repeats several key points throughout the book, especially the importance of keeping costs as low as possible. This is true. But important lessons need to be stressed, especially with so much evidence that the average investor still doesn't understand them. Perhaps Bogle feels it's a lesson that can't be said enough. After all, why would you pay more for less, unless you simply don't understand what is being done to you?

This book was somewhat prescient. Published near the end of the long bull market of the 1980 and 90s, "Common Sense on Mutual Funds" called out -- in its own quiet and understated way -- for reform of the mutual fund industry before it became fashionable to do so. While Bogle's book doesn't have an angry tone, its recommendations are essentially more radical than anything now being considered by New York's attorney general in his drive to reform the industry.

Critics may say the book in only trying to sell index funds, a strong suit of Vanguard. Absolutely wrong! The book's real value is explaining how the mututal fund industry works and, hence, how to follow the money. The industry extracts about one per cent each year of your money in excess expense ratios and keeps it, not to mention the hidden costs of turnover and load. That adds up over a lot of money in a life time. Read the book. Understand asset allocation, return, risk, and cost. Then, you'll understand how the money works and how to pick a fund based on its expense ratio, load, and turnover.

John Bogle, founder of the Vanguard Group which is the known for its low cost index funds as well as simply being one of the two largest mutual fund organizations, makes his simple but undeniable arguement.

1. The administrative costs of a mutual fund makes a huge impact on returns. For example, a 1% administrative fee eats away at least 10% of the fund's yearly return if it earns 10%.

2. Index funds have consistantly outperformed other managed funds.

3. Given #1, the managment fees for managed funds are a double burden because they reduce returns that are already typically below what a low cost index fund can offer.

Bogle also touches other topics on the mutual fund industry. I found that he hammered the same points home again several different ways. This made some parts of the book drag, but I suppose it is useful for those who may be skeptical about index funds to see the evidence presented in several formats. Bogle also touches upon the (mis?)-management of mutual funds. Fees have gone up despite the proven inability of funds to beat the market despite the supposed skill of their managers, funds turnover their securities rapidly leaving the unprepared owner (invester) with capital gains nightmares as well as lost returns due to trading costs.

Also interesting, Bogle reviews his life in the mutual fund industry. I feel Bogle hits us with a little too much data and not enough of the drama of the industry. For example, does Bogle's fellow fund managers believe they have the skill to beat the market or do they know they are ripping people off by creating and marketing funds with excessive fees and unproductive churning of assets? How can what is supposed to be one of the most free and efficient of all markets experience increasing prices (fees) coupled with products that have lower quality (i.e. lower returns and/or higher risk)?

Despite these minor flaws, I have to recommend Bogle for everyone who has an interest in securing an excellent retirement (or at least a decent one). As we enjoy longer lifespans, we are discovering that our retirement is also expanding. This, coupled with the gradual shrinking of social security/medicare benefits means that everyone must take on more responsibility for their final years. If you just read the advertising material given to you by your broker or your 401K administrator, you are going to be losing some of your returns on excessive fees and poorly managed funds.

This book has some basic, common-sense and powerfull principles. It is full of technical detail that is sometimes hard to follow for the layman but nevertheless is explained simply enough to have the ring of truth about it.

It's basic principle is that for your investments to provide wealth in the long-term you must abandon the current casino-style gambing on the latest mutual fund fad and invest in solid, low-cost, no-load funds.

This book is not for the total beginner since it probably has too much detailed technical data for the few pearls of wisdom -- albeit priceless pearls. However, given the huge mutual fund industry that mostly disagree with John Bogle, the amount of technical information is probably necessary.

Unlike the four "Common Sense" pamphlets written by Thomas Paine to inspire the regular citizen to reject British imperialistic rule, this book is too technical to spark a popular uprising against the over-priced mutual fund industry of today. However the fact that Bogle practices what he preaches and has built a company 'Vanguard' on his beliefs gives his book an authority missing in much writing.

For the beginner, a book I read that really did change my life is "Personal Finance for Dummies" by Eric Tyson.

This book provides a good argument for buying low cost, index funds for the average investor. Each chapter provides evidence on why index funds should be a major part of one's portfolio. The book details how cost is a large factor in reducing returns. He presents the data very well, however each chapter is just another detailed argument on why one should buy low cost, index funds. After the first few chapters this gets a bit tiresome. Mr. Bogle's first book was much more informative on how to design a well rounded portfolio.

It took me years to finally figure out that "passive" investing in mutual funds is the absolute best way to build a retirement fund. Mr. Bogle has an intimate relationship with index funds because he, via Vanguard, blazed the path when all others doubted indexing. As a CPA and MBA and CFP to boot I have spent a fair amount of time and effort trying to "beat the market" only to learn that matching the market is the best strategy for the long haul. Had I simply invested according to his precepts I would have parlayed a lot more money with a lot less effort. It IS a hard book to read for those not used to technical terms. But "stay the course" as John would say, and you (and your money) will be amply rewarded.

Bogle has some very compelling points to make that would greatly simplify investment decisions and lower the stress levels of many investors. His main point--buy and hold a low-cost, tax-efficient, no-load, broadly-based U.S. market index fund for the long haul (hint: consider Vanguard)--could have been stated once or twice prominently instead of boringly dozens of times with endless charts and statistics. I also found his references to the stock market and inflation rates dating back to the 1800's to be largely irrelevant given the changes in the nature of the markets and economy since then. While Bogle makes a particularly good point about how management fees really eat into bond fund returns, he doesn't really acknowledge the long-term advantages to holding bonds outright over holding them in mutual funds at all. You can glean Bogle's key points of wisdom with a quick skim of the book; if you need to be convinced over and over and over again from different angles--and many of the same ones--then by all means consider this as good bedtime reading.

Bogle's book is a classic. It eloquently discusses mutual fund fundamentals and makes a strong argument for indexing. If this topic is important to you, try also "The Great Mutual Fund Trap", "The Intelligent Asset Allocator" (emphasis on asset allocation and indexing), and the free material at ABetterWayToInvest and ETFResources.

John C. Bogle founded Vanguard, the premier indexed mutual fund company. If you invest in mutual funds, especially if you invest in managed mutual funds, you must read this book. He reveals his intensely compelling case for passive management of funds (ie indexing) versus active management (ie stock-picking, market-timing, hot-manager style) funds.

Most people these days hold the bulk of their investment assets in pension funds, IRAs or 401Ks usually consisting of mutual funds, and this audience will gain significant insight from Bogle's advice. Bogle also campaigns to save the mutual fund trader from herself, relentlessly presenting the mutual fund as a buy-and-hold investment vehicle.

Those who have read a few other books on investing may find Bogle's single-mindedness and thoroughness a bit tedious. I found myself skimming for content throughout the book and especially after the first 14 chapters, finding the later material more visionary and less relevant to my investing. A good editor could probably reduce the bulk of the text by a half or two-thirds and retain the central ideas.

By the way, you can get much of this material (for example, the chapter on bond funds) from the Vanguard web site under the "Bogle Lectures." All the ideas are there - they're what the company is based on. Save a few bucks - reduce your investing costs - "costs matter" as Bogle will tell you again and again.