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Don't Count on It!: Reflections on Investment Illusions, Capitalism, "Mutual" Funds, Indexing, Entrepreneurship, Idealism, and Heroes Hardcover – November 2, 2010
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“Don’t Count on It! is a wise book. As most traders and investors remain convinced that they can beat the market, it’s always sobering to hear a compelling voice from the other side.” (Seeking Alpha)
"If Bogle writes it, it’s worth reading. His latest, Don’t Count On It, is a collection of 35 essays, every one of them filled with wisdom and insight. . . While I have read Bogle’s views on these issues many times, I’m always impressed with the quality of his writing (Where else can you read quotations from Adam Smith to Winston Churchill to Cato?), the wit and humility he shows and his passion to help investors. The book is a compelling read, one that in effect tells the story and mission of a great man. We’re lucky and privileged to have him fighting on our side. As Bogle noted in his book, Machiavelli “described the accumulation of worldly ‘glory’ as the motivating principle that drives leaders to undertake ‘great enterprises’ and do ‘great things’ on behalf of their fellow citizens and not just themselves.” Hard to find a better description of Bogle himself." (MarketWatch)
“Mr Bogle’s prescription for a better system is relatively simple: to demand proper fiduciary management from money managers. They must prioritise client interests, act as responsible corporate citizens, charge reasonable fees and eliminate conflicts of interest. Amen to that. It may sound like nostalgia from an old-timer, or idealism from a visionary. But without such changes, investors and society will continue to be short-changed as the financial community carries on regardless.” (Financial Times)
“In Don’t Count on It! Reflections on Investment Illusions, Capitalism, “Mutual” Funds, Indexing, Entrepreneurship, Idealism, and Heroes, Bogle hammers at what he labels the cost matters hypothesis: Whether markets are efficient or inefficient, investors as a group must fall short of the market return by precisely the amount of the aggregate costs they incur. It is the central fact of investing. Not surprisingly, the book deals extensively with the low-cost innovation for which Vanguard is best known: the stock index mutual fund. When the company first made indexing available to small investors in 1975, critics derided the notion as “Bogle’s folly.” To Bogle, however, the benefits to investors were irrefutable. . . The impact of indexing has been so great that a second, hugely important contribution by Vanguard has been overshadowed. Vanguard originated the now standard segmentation of bond funds into short-, intermediate-, and long-term varieties. Bogle was enshrined in the Fixed Income Analysts Society Hall of Fame for this innovation. The author of Don’t Count on It! does not dwell on such honors, which include being named one of the world’s 100 most powerful and influential people by Time magazine. In fact, Bogle devotes the final section of his book to tributes to four of his own heroes: Walter Morgan, economist Paul Samuelson, investment guru Peter Bernstein, and Dr. Bernard Lown, a Nobel laureate whom he credits with keeping him alive in defiance of a mystifying heart ailment. Bogle also shows modesty in sharing credit for his contributions to the field and in downplaying his own theoretical expertise. His unashamed display of such old-fashioned virtues, as well as his heretical view that running a business is not entirely about maximizing the wealth of the owners, has earned him the nickname ‘St. Jack.’” (Financial Analysts Journal)
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Without divulging too much detail about the book, here's a relatively short guide to Bogle's topics. The seven parts of the book address:
1. Investment illusions. For example, as Bogle makes clear mutual funds taken as a whole simply cannot earn the markets' returns--because mutual funds have their own expenses. Indeed, Bogle's simple formula--net returns to investors = gross returns on assets minus the costs of operating the financial system--is pretty obvious, but one that investors tend to forget. Another illusion cited by Bogle is that mutual fund investors actually earn the returns of their funds. That is, if the XYZ mutual fund earns an average annual return of 8% over a 10-year period, chances are that XYZ's shareholders didn't achieve that 8% annual return, due to the well-documented tendency of investors to add to their investments when they feel optimistic (and markets are high) and reduce their investments when they feel pessimistic (and markets are low). Simply put, buying high and selling low reduces one's return.
2. The failure of capitalism. Bogle is actually a champion of capitalism, not some anti-capitalist critic. However, Bogle maintains that self interest and free markets alone won't necessarily guide an economy effectively. Rather, he says, there is a need for a broad fiduciary standard applicable to market participants, so that corporate managers, brokers, etc. put the interests of their shareholders and clients before themselves. (Some would argue that sufficient fiduciary standards already exist, but Bogle doesn't buy that argument.)
3. What's wrong with "mutual" funds? For starters, Bogle observes that "mutual" typically refers to an entity that's owned by its participants. In that case, only the Vanguard Group of mutual funds, Bogle maintains, is truly "mutual." Surprise, surprise--Bogle helped found the Vanguard Group.
4. What's right with indexing? Traditional indexing has taken a lot of flack in recent years, so Bogle (who helped start the indexing movement) fights back. He says the intellectual theory of indexing is not dependent on the notion of "efficient" markets, but rather on the concepts of low cost, diversification and tax efficiency. I admire Bogle as an honest and passionate advocate for investors, but I should note that not everyone will agree about the importance of the efficiency argument to the concept of indexing.
5. Entrepreneurship and innovation. I am taking more of your time than I planned, so I'll become briefer. In this part of the book, expect yet more of Bogle's characteristic idealism concerning the determinants of innovation.
6. Idealism and the new generation. Here we go again. More of Bogle's passionate arguments.
7. Heroes and mentors. We all owe a lot to those who have inspired and guided us, and here Bogle describes four men who were influential to him: Walter Morgan, Paul Samuelson, Peter Bernstein and Bernard Lown.
In conclusion, if you are an investor who is concerned about the economic and investing environment in which you participant, and if you are not already familiar with John Bogle's thoughtful commentaries on a host of relevant topics, then this book would be well worth your careful consideration.