Words of Wisdom from John Bogle

John Bogle, investment icon and founder of the Vanguard Group of Mutual Funds, wrote a fine op-ed piece in the January 8 Wall Street Journal titled ‘Six Lessons for Investors’. The opening line is a classic - “There is almost no limit to the ability of investors to ignore the lessons of the past.”

The six lessons are:

1. Beware of market forecasts, even by experts.
“Strategists aren't always wrong. But they have been consistent, betting year after year that the market will rise, usually by about 10%.”

2. Never underrate the importance of asset allocation.

3. Mutual funds with superior performance records often falter.
After listing several prominent funds which severely underperformed the market in 2008 – “Only time will tell whether the disappointing shortfalls experienced by these and other funds will be recovered in the future, whether the skills of their managers have atrophied, or whether their luck has run out. Whatever the case, chasing past performance is all too often a loser's game.”

4. Owning the market remains the strategy of choice.
“Indexing won in 2008 by an especially wide margin. Low-cost, low-turnover, no-load S&P 500 index funds outpaced nearly 70% of all equity funds, and (admittedly a fairer comparison) more than 60% of all funds focused on large-cap U.S. stocks.”

5. Look before you leap into alternative asset classes.

6. Beware of financial innovation.
“Our financial system is driven by a giant marketing machine in which the interests of sellers directly conflict with the interests of buyers. The sellers, having (as ever) the information advantage, nearly always win.”

I would go further with Bogle’s Lesson 1:

“Beware of market forecasts, especially by experts.”

We’ll look into proving the ‘wisdom’ of some market experts in future posts.