Common Sense On Mutual Funds: New Imperatives For The Intelligent Investor

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Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor
Article · January 1999
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By John C. Bogle
the reading room John Wiley & Sons
common sense on mutual funds 468 pages
new imperatives for the review rating

intelligent investor
John Bogle is one of the founding fathers of the US mutual done it, the reader could do worse than start reading this book
fund industry. His achievements are of titanic proportions, at page 400. There, Bogles sets out his admiration for Walter
both in terms of the development of philosophy in funds L. Morgan, also of Princeton, who, at the age of 31 in 1928
management (ie, the indexing model) and the quantum of his founded the Wellington Fund – Wellington Asset Management
success – the funds under management of Vanguard, the is today a leading global fund management company, with
company he founded, now challenge those of Fidelity, the distribution in Australia through Goldman Sachs J B Were.
worlds largest fund manager (circa 1999 they were over
US$400 billion). He is a man of uncompromising integrity and Bogle graduated from Princeton in 1951 after having
of deep faith in what he is doing. completed a thesis on the funds management industry. He
sent a copy of his thesis to Morgan, and started at Wellington
I first read this book in 2000 (Bogle’s preface is dated immediately after graduation. Bogle shot up the ranks in
February 1999), and on a recent refresher skim, it proved to Wellington and was appointed heir-apparent at the age of 35.
be a timeless work, as relevant today as it was four years Then he merged Wellington with another company and ended
ago. Indeed, many of the critical issues he raises in relation up being fired – which was a real lesson in entrepreneurship.
to the seamier side of funds management, and the conflicts of He rescued part of the old Wellington fund from these ashes,
interests that abound (eg, as outlined in Parts Four and Five and built a new structure for his “idea”, and Vanguard was
of the book) seem incredibly prescient today – in the born. That idea broadly constitutes all that is Vanguard today:
aftermath of Elliot Spitzer’s pursuit of malefactors in the US. low fees, no/low sales loads, fund investment objectives must
be stated explicitly, the fund should avoid creating the
Before one even gets to the Forward by Peter Bernstein, a list expectation of miracles, and the principle function of the
of plaudits come from a veritable who’s who of the investment manager should be sound asset management … and so on.
universe: starting with Warren Buffett, to Paul Samuelson,
Jeremy Siegel, Burton Malkiel (see his book this web site), The rest is history, and Bogle painfully and fearlessly recounts
Michael Bloomberg and David Gardner of Motley Fool fame – that history, both in terms of the growth and success of
hardly anyone is missed out! Vanguard, and as to the woeful conduct of many US mutual
funds. Goodness knows what he would have to say today
This reviewer is not dumb-struck in awe of these plaudits, but about the activities unearthed by Spitzer in New York and
neither does he ignore their weight and genuineness. Warren elsewhere.
Buffett does not have to give book commendations. As
pointed out by Bernstein in his Froward, this is truly an The fundamentals of common sense investing
exceptional book, as – notwithstanding the title – it is as much This book is brim full of the sensible fundamentals of
an indictment of the funds management industry as anything investment, and the fact that it is four years out of date, only
else; although it does give the reader a good deal of practical goes to corroborate how valuable it is. If Bogle’s principles
advice on the basic principles of investment and in fund had been followed by investors from 1999 through 2004, they
selection. It is not simply a barefaced argument for would have survived in reasonable shape in any market.
indexation. Bernstein makes the point that Bogle has written
a book unlike one he has ever encountered, “because he His chapter titles are redolent of the wisdom and common
discusses sensitive matters that other authors ignore. I sense that they contain. In Part One, there is: On Long-Term
hesitate to speculate on why these topics receive such short Investing – chance and the garden; On the Nature of Returns
shrift elsewhere, but I suspect that other experts have – Occam’s razor; On Asset Allocation – the riddle of
Copyright © Winston Private 2002 All Rights Reserved

horizons that are more limited than Bogle’s, or they have less performance attribution; and On Simplicity – how to come
concern for their reader’s best interests. … Despite all the down to where you ought to be. These chapters are full of
high-minded talk we hear from the corporate spin-masters, practical rules and foundation blocks that no private investor
conflict of interest between seller and buyer is inherent in our can ignore.
economic system. Jack Bogle’s goal was to build a business
whose primary objective was to make money for his In Part Two he moves to indexing, equity management styles,
customers by minimising elements of that conflict of interest, bonds and global investing. The latter being quite different
but at the same time to be so successful …” from the US perspective than it is from our modest shores.
And finally, to selection of superior funds, where the evidence
The person then was overwhelming, and is a fortiori today, that chasing
To really appreciate what Bogle has done, and why he has good active funds is very tricky indeed.
the reading room www.winstonprivate.com.au

WP
By John C. Bogle
the reading room John Wiley & Sons
common sense on mutual funds 468 pages
new imperatives for the review rating

intelligent investor
In Part Three he analyses some of the more technical aspects

of funds management (eg, tax) but does so in a way that most
readers will easily understand. After having written a
research paper for the Securities Institute masters program,
your reviewer was interested to recount Bogle’s views on how
some funds can be incredibly tax inefficient, and in this
regard, passive fund managers (eg, Vanguard and
Dimensional) have been leading the field in
research/solutions by a large margin in recent years. These
chapters contain very interesting historical data, and highly
persuasive arguments for reversion to the mean – it is as if
Bogle could foresee or at least sense what was blowing in the
wind for March 2000. In fact, in Appendix 1, he provided
some prescient “Thoughts about the Current Stock Market as
1999 begins” – not exactly as firm and foreboding as Robert
Shiller (of Irrational Exuberance fame); but hardly head in the
sand either – one senses he saw it coming.
The remaining two parts deal with Bogle’s principled critique

of the entire funds management industry, which does contain
pointers for the unwary to awake to certain activity in
Australia. The ending is more visionary and theological, and
in some respects reflects his citation of Thomas Paine in his
Preface on page XV: “These are the times that try men’s
souls … Tis the business of little minds to shrink; but he
whose heart is firm, and whose conscience approves his
conduct, will pursue his principles unto death … Tyranny, like
hell, is not easily conquered, yet the harder the conflict, the
more glorious the triumph.”
Yes, Jack Bogle is in a class of his own, as is this work.
MARTIN EARP
July 04
Copyright © Winston Private 2002 All Rights Reserved
the reading room www.winstonprivate.com.au

WP
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See discussions, stats, and author profiles for this publication at: https://www.researchgate.

Article · January 1999

The user has requested enhancement of the downloaded file.

new imperatives for the review rating

Copyright © Winston Private 2002 All Rights Reserved

the reading room www.winstonprivate.com.au

new imperatives for the review rating

In Part Three he analyses some of the more technical aspects

The remaining two parts deal with Bogle’s principled critique

Yes, Jack Bogle is in a class of his own, as is this work.

Copyright © Winston Private 2002 All Rights Reserved

the reading room www.winstonprivate.com.au

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