Fully Updated 10th Anniversary Edition - Common Sense on Mutual Funds

While this book should be required reading for the beginning mutual fund investor, those searching for superior returns will not be satisfied.
Mr. Bogle makes a host of important points about mutual funds:
1. There is no reason to buy mutual funds with front-loaded sales charges; they only hurt short and long term performance.
2. At least half of all mutual funds fail to beat the market even before expenses and other charges.
3. Mutual fund investors who do not have a tax-deferred vehicle, e.g. IRA or 401(k), are at a significant disadvantage because of the taxable gains passed thorough to them each year.
4. Small, successful funds eventually become large mediocre funds due to their inability to continue to buy or sell small growth stocks without affecting the price.
However, this book should carry a warning label: "This man founded the largest index fund in the country and he wants you to buy shares in it." At every turn, Mr. Bogle interprets his not insignificant quantitative analysis in a way that supports his pre-determined conclusion that mutual fund managers cannot beat the odds over the long run, and you can't tell who will be a winners and who will not.
The fly in the ointment is that Mr. Bogle assumes that all investors are buy and hold investors, sometimes for ridiculously long periods of time, e.g. 25 or 50 years. His strategy is perfectly suited only to Rip Van Winkle or to an unmanaged blind trust. Mr. Bogle demonstrates that funds in the top quartile of performance during the 1970s, underperformed the averages in the 1980s. This boggles (Bogles?) the mind. Who can compare the bull market of the Reagan years to the stagflation impeded market of the Nixon/Ford/Carter years? Apparently the possibility that different funds are appropriate for different market or economic conditions was not considered.
As an example of the book's subjective analysis of data, Mr. Bogle cites a study by Goetzmann and Ibbotson (p. 212) that looks at two year intervals and concludes "past top performers had a 60 percent chance of being winners over the two subsequent years." A good quant could make a lot of money playing those odds. However, Bogle simply goes on to say that "the chance of a fund's being better in four subsequent two year periods would have been about one in eight." To adhere to such an investing strategy is like betting on the Mets to repeat as World Series champs in each of the 8 years subsequent to 1986 regardless of their roster or the competiton. Market conditions change, successful fund managers move on (or retire) and investors must adapt.
No prudent investor would stick with the same mutual fund for 8 years regardless of whether the fund continues to be a top performer. In this age of internet bubbles, ignoring market trends and holdings for ten months, let alone ten years, would be foolish in the extreme. What investor wouldn't revert to the mean (at best) if he blindly pursued one style of investing through bull and bear markets, through the stagflation of the `70s, the low inflation, high growth, technology driven market of the 90s and the post millennium hangover and the superior performance of international funds since 2003?
Mr. Bogle clearly identifies the forest and tells you what kind of predators to look out for, but with the "Occams Razor" metaphor (Chapter Two) Bogle clearly signals his intention to ignore the trees, thus limiting his observations nd advice to broad generalizations. Little wonder then that he finds the average performance of an index fund so appealing. The prudent investor is well advised to review and re-balance his or her portfolio AT LEAST annually or to hire a qualified professional to do so. Once you've got the basics that Mr. Bogle offers, a much more interesting read is "The Research Driven Investor" by Timothy Hayes, which relates various styles of investing, e.g. small growth and large cyclicals, to market conditions such as early or late bear markets.

I was disappointed that John Bogel having connected historical earnings to market performance over the long term missed the historical relationship of P/E to inflation. He called P/E expansion "speculation" and P/E contraction the reversal of the same. Not true.

Market P/E's are connected directly by market forces to real returns in investment alternatives. Equities have averaged earnings growth close to 6.2%. (This is another miscalculation-better to look at the earnings channel and calculate the slope of this channel because earnings do have a wobble year-to-year. This is in contrast to Bogel's surprisingly simplistic approach of selecting a simple beginning point to end point analysis.) The P/E's of the 1955-1965 period were very close to 20 because rates were low and inflation was near 1-2% range. This changed as inflation began to creep into the market in 1965, read this as excessive government spending w/Great Society and Vietnam, and was sustained thru 1982 when Volcker took the steps to reverse it. The IBES Model that maps the 10yr Treasury yield vs the SP500 earnings yield explains the last 25yrs quite well. The SP500's P/E of less than 7 in 1982 is related to a market earnings yield of 15%-16% while the 10Yr Treas was at 15%. These yields fell closely together for the next 20yrs thus showing that the market P/E adjusted to a competitive environment. Only from 1995-2000 did the speculative excess eventually have the market 60% OVERVALUED.

Bogel is biased to selling his Vanguard Funds and his analysis stops well short of acceptable analysis.

Further, although the average manager does not do much for investors, there certainly are superior managers whose records are sustained over time. These managers represent the top 10% and they are not that hard to find once you start to look. Just recognize that markets have cycles that factor into near term manager investment returns. Don't buy at the top! Even the best manager will give you short-term disappointment if you buy at the top.

Tons of statistical data supporting the concept of low cost index funds. I am invested in the Vanguard S&P 500 Index as well as other index funds, but this is a bit too much. If you understand the concept of indexing, save some cash and skip this book.

Purchased as gift for beginning investor. Book was way too complex for a novice investor, and way to complex for even an experienced investor. Read a few sections, skimmed others and returned it. Probably a good book, but not for my needs.

Some people are larger than life in their fields and everyone would likely agree that Jack Bogle is such a figure in the mutual funds area. Bogle founded Vanguard in the 70's and has since helped ordinary people make more money than perhaps anyone else living or dead. At least he helped those who had the intelligence to listen to his advice. Which is pretty much to invest in really boring index funds for your entire life and then come back decades later and be astonished at how wealthy you are.

This book was originally written in 1999 right before the telecom/internet stock mania finally took its well-deserved step off the cliff. This edition supplements the original book with updated charts and commentary on what the last decade of volatility has wrought. Bogle's view, backed up by data, is that even the past 10 years hasn't altered his view of the correct strategy - if anything it has been strengthened. If you are not greedy and stick with boring stuff then you don't really have too much to worry about over the long haul.

Given Bogle's message of simplicity I am confused about a book that requires a whopping 600 pages to make the point. Much of what he says gets repeated over and over and over again, to the point where it leaves a far less crisp message than intended. If you are not convinced by page 50 or so that index funds are the way to go, the remaining 550 pages will probably not be all that much more persuasive. In the process he is also less than clear about Vanguard. Perhaps it is just a polite or "objective" writing style, but repeatedly saying things like "all mutual funds companies, with one exception...", when he really means Vanguard, makes little sense to me. Given his continuing involvement with Vanguard it would remove any hint of conflict if he just made things even clearer. Of course, if such a statement really references a company other than Vanguard it would be even more interesting to know that.

The book really is good and comprehensive but also made me wonder for whom it is written. The people who most need his advice are young, since they by definition have the longest investment horizon. But, somehow I doubt that a lot of 20-year olds will be using this tome to address issues in their lives that are 40 years in the future. It is really too bad because I believe the message needs to get out there. I wish that I had known of Bogle when I was 20 and had had the guts to stay with it through thick and thin.

Everyone should read some Bogle but some of his shorter books may be a better start.

This book is a good read, and Bogle substantiates his claims with a good balance of analysis and simplification. If you want to know the gory details of the math the journal articles are cited.

The only frustration I have with this writing is that the book beats to death the idea that low cost indexing is good. As a new saver, I read this book hoping to learn about: mutual funds, what to put into a portfolio, and why I should bother with equity backed savings.

Bogle reassured my common sense that playing the stock market is essentially a gamble. As a trained statistician and mathematician, believing that anyone can predict the future is holds no water with me (there are lies, damn lies, and statistics as the saying goes). Bogle presents a compelling argument that massive diversification should provide a positive return given sufficient time.

Bogle also presents reasonable arguments for what you should invest in (indexed stock and bond assets in the US), and also explains how he arrives at his conclusions. This is very helpful because I feel I can apply that same reasoning as my investments grow to determine for myself if I think the risks are worth the potential reward.

Where the book is flawed is the "beating to death" that low cost wins. Bogle convinced me of that within the first 200 pages of the book. Unfortunately, this point occupies pages and pages of the remainder of the book.

I still give the book 5 stars, because - I read the book to learn about mutual funds. I think the books target audience is perhaps people that already have a basic knowledge of funds, or investors coming from the angle of hold stocks.

I have not read his other book (a little book on common sense investing), but perhaps that one should be read first.

"The flaw" aside, this is a very good book, and I love that he references academic, peer reviewed journal articles as well as statements from top investors. If you read the book and disagree with Bogle, you should defend your stance using evidence. Reading an investment book that quantifies its viewpoints is refreshing, given the amount of bull sh$t that gets plastered on TV and radio.

Another exposition on the marketing of low cost funds. The passage i like best is in the Appendix, where Bogle admits that index funds are mindless lock-step portfolios with little or no risk management.

The word integrity and the name John Bogle are almost interchangeable as there is near universal agreement that Bogle represents the best of the best in terms of integrity and genuine honesty among those in the financial industry. Add in the fact that he created the index fund and formed one of the most prestigious investment corporations in the world and you have an author better equipped than perhaps anyone to speak on mutual funds.

Each chapter of this book could be a book on its own, not because of length but the quality and substance of each. There lies a profound message in each of the chapters backed by Bogle's message of simplicity and unmistakable logic. Bogle is a long term investor with a keen eye on history, yet is also humble enough to accept the uncertain future in his calculations. What you are left with is an an undeniably well grounded assessment of mutual fund investing.

As an extra bonus Bogle finishes the book by providing a history on why and how he came up with the index fund. He discusses in depth the principles that eventually led to the creation of Vanguard including many fine entrepreneurial insights. If you have an interest in the fund industry, I cannot think of a better book to put at the top of your list.

Mr. Bogle has written a number of books on passive investing techniques and this one is one of the best. It covers in detail why one should use the strategy promoted by this book. It contains a massive quantity of information supporting the claims made. Bogel is the founder of Vanguard funds that offers low cost index mutual funds to the large and small investor alike.

I also recommend a little book titled How to Make Money in the Stock Market-Buy 2,500 different stocks for $1000 - Pay no Commission. Easy to read packed with precise directions for success. A cookbook for the investor just follow directions. I enjoyed this book a great deal. It shows how indexing and diversification strategies work and why they are so important to investing success. Unlike many other books, this one is not only informative, but also useful. There should be no question as how to implement the author's strategy and measure your progress. He skillfully addresses asset allocation, and shows how to minimize tax consequences by assigning securities to tax deferred accounts. The author does not dwell on lengthy longwinded discussions but cuts to the quick with useful recommendation and directions for the novice and experienced investor as well. I recommend this book for all investors. How to Make Money in the Stock Market-Buy 2,500 Different Stocks-Pay no Commission

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.

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.

Jack Bogle has produced a real monster of a resource this time! This greatly expanded volume (some 650 pages in all!) has all the verve and audacity of a work you'd expect from industry rogue, Bogle, and is jampacked with new information and updated statistics that help to make his message seem more relevant now than ever before. In the Preface to the 10th Anniversary Edition, Bogle addresses the recent upheaval in the markets in the context of his time-tested formula for ensuring the integral, health of investors' portfolios and posting consistent gains over the long haul. Bogle's investment philosophy emphasizes the importance of maintaining a streamlined portfolio that relies on stock indexing and conservative, long-range predictions regarding growth.

Avoiding the kind of I-told-you-so rhetoric that many readers may find off-putting in these difficult times, Bogle diplomatically explains how recent trends in the markets confirm the advantages of owning a highly diversified portfolio managed according to certain intelligent investment principles, which he has termed the 12 Pillars of Wisdom. He gives hope to investors who may have made some wrong turns or were misled during the housing boom by offering them a practical plan for how to get their investments back on the right track.

Bogle's game has always been mutual funds--he's one of the originators and foremost experts in America on this unique investment type. In the ten years since the original publication of Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor and the 35 years since he founded the Vanguard Group, John C. Bogle has remained the one constant an industry where fortunes and reputations are made and lost practically overnight. This 10th Anniversary Edition explains why mutual funds continue to be effective financial instruments that work by leveraging the combined buying power of a large pool of investors and equitably distributing gains and losses among the ownership pool. Bolge points out which types of mutual funds to add to your portfolio and which to stay away from based on their proven track records of long-range durability. In an insightful final section titled "On Spirit," Bogle offers actionable solutions for dealing with a market that operates according to principles of instability that mirror those of human psychology. Bogle's investment philosophy is perfect for the risk-averse investor, which, let's face it, is pretty much everyone these days.

Another pertinent investment strategy book published this year, which captures the DIY spirit of the John C. Bogle's "Common Sense on Mutual Funds" is Thomas C. Scott's Fasten Your Financial Seatbelt: What A Fatal Plane Crash Taught Me About Retirement Planning. This guide articulates an investment game plan similar to Bogle's. It has the added advantage of being is a quick and easy read, especially when compared with Bogle's more ponderous tome.

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.

Bogle, Bob Brinker, and Jane Bryant Quinn sold me on the idea of index funds. There are some who believe you need to stick to actively managed funds to, as one money manager told me, "be there to steer the plane away from the mountain at the last minute." Hogwash, especially when you consider a lot of blend funds have 95 percent the same allocations as comparable index funds, only you pay the higher expense ratios.

I've done very well with index funds covering the S&P 500, as well as the European and Pacific markets. I'm just now breaking into the index fund's conceptual spawn, the ETF.

One complaint: the book is indeed repetitive. The major selling points (e.g., expense ratios, tax efficiency, market allocations, etc.) could have been stated as well with half the text. It's also a somewhat tedious read, but still worthwhile. (I'm a CFP in training.)

I read this updated edition because the first edition was so well written and I wanted more! In my opinion, if you had only one book to read about learning how to prudently invest in the stock market, this would be the book. I'm confident in saying that after I read this book, I learned more about investing than many people will ever know about the subject.

Thank you Jack Bogle for your numerous books, and speeches letting the small investor see, investing doesn't have to be a difficult process. You have inspired a legion of fans known as the, "Bogleheads," because you have given us the tools to make informed investing decisions, and have cared about giving, the small investor, "a fair shake."

This is one of the most beautiful business books I have ever read. At first glance of the title, it may seem that it is a technical manual about mutual fund investing. While Mr. Bogle does make a strong case for index fund investing (he is considered the father of the index fund), the book primarily serves as a capstone life achievement by Bogle to inspire aspiring business leaders. As the founder of the investment company, Vanguard, John Bogle is a giant in the mutual fund industry. Yet, rather than establishing himself as a "rock star" active fund manager, he developed a stalwart foundation based on values, team work, and the maximization of shareholder return above all other endeavors. Mr Bogle's career spans multiple decades, yet his vision remained singular. By way of his entrepreneurial spirit, he captained Vanguard through rough waters in the 70s and 80s and remained true to his belief that low-cost indexed investing almost always beats actively managed funds. Further, he asserts the notion that day trading and high turnover, actively managed funds, (while exciting), are barely a step up from casinos. He even says, "The greatest investor of our time, Warren Buffet, buys and holds, yet we ignore his sage advice." Despite Mr Bogle's warning against high cost, high turnover funds, the book exudes optimism and motivates people to invest simply for the highest returns. He argues that the two most basic fundamentals of mutual fund investing are:
1. Invest for the long term
2. Do not expect miracles from management
The utter humility Bogle demonstrates stems from his respect and regard for the human being. Quoting from Dean Howard. Johnson of MIT, Bogle has "come to believe that a deep sense of caring for the institution is requisite for its success." This includes the services provides, employees (which he calls "crew"), and shareholders. Vanguard has been able to survive multiple tumultuous decades because Bogle adhered to Abe Lincoln's notion that "Important principles must be inflexible." As mutual funds became more popular and increased fees began to pad the pockets of active fund managers, Bogle kept costs and risk low through the sure and steady index strategy. Despite no longer having an active role in the company, today, Bogle's legacy remains alive and well in Vanguard. Yes, this book is about mutual funds, but at its core, it is about a vision, an entrepreneur, and a leader. Go pick this exceptional work up today.

This entire book is one big advertisement for Vanguard and the index fund. It is very clear that Bogle wrote this in his own self interest and as a promotion of his S&P 500 index fund. It is incredibly biased as he only uses facts that serve his purpose and plainly omits facts such as how MANY mutual funds with long track histories have consistently outperformed his index for the past 10, 20, or even 30 years. Conceding the fact that many managed mutual funds are crummy he fails to acknowledge that there are also many that almost always outperform the index.

Build a diversified portfolio and have an index fund as part of it (if you so choose) but don't let the grandiose self promotion of Bogle brainwash you when reading this book. If you feel like being a sheep for Vanguard and the index fund then by all means read this book.

Mr. Bogle would like you to believe that history will repeat itself. He believes that the market performance is indeed repeatable. He also believes that the unmanaged index fund will continue to outperform the majority of its managed peers by a sound margin, which will compound over time. The outcome of next year's stock market performance, much like which baseball team will win the World Series, is certainly unpredictable, yet we still try to predict the outcome, even though we can not ask what will happen in many repetitions over the years. Next year's market performance, like the World Series winner, will happen only once under a unique set of conditions, most of which we may never see again, and even if we do, will not be present at the same time.

As an answer to the question of market performance next year, or for that matter, any other year, if probability measures what would happen if we did something many, many times, Mr. Bogle's position is neither a probability nor a certainty, though it is wrapped up in many impressive statistics. Probability is based on data about many repetitions of the same random phenomenon. Mr. Bogle is giving us something else when he makes the case for the index fund- his personal judgment. This is why I say that Mr. Bogle's book is a clever, yet deceptively effective advertisement.

While it is true that you are following and measuring the same number, total return, over time, the conditions used to generate this number are not the same, thus you can not use the rules of chance to determine what the total return will be going forward. You can not even use the rules of chance, which tell us what the likely outcomes would be under the same conditions done repeatedly, to tell you even what the average total return would be, nor could you use it to give you a reliable range of returns. However, you can use the tools and techniques of descriptive statistics to tell you the distribution of total returns in the past, but you could not use them to make inferences (that is, to draw conclusions) about the future. To do this, you would have to assume that the future will be like the past, and you have to assume that prevailing conditions today will also be the same tomorrow. Both assumptions are ridiculous. There were some conditions prevalent in the past that we will most likely never, ever see again, and do much to explain the impressive performance, expressed as annualized total return, of the stock and bond markets. Mr. Bogle's analysis considers only market performance. It does not consider the demographic, socio-economic and political trends underlying this market performance.

As an anwer to the question of relative performance between the index fund approach and the managed fund approach, first let me say that Mr. Bogle is not the first to point out that an unmanaged index outperforms its managed peers. Indeed, the first to point this out was a Mr. Cowles, who created the Cowles Commission sometime around the Great Depression. The Cowles Commission was devoted to looking at the nature of stock market returns among managed (then held by various banks, insurance companies and brokerages) funds versus the broader market. The work of the Cowles Commission was later absorbed by Standard and Poor's, and more than a few big name academics at the University of Chicago (Fama and Markowitz just to name a couple) got their start doing work with the Cowles Commission. It comes as no surprise to me, or for that matter, to market insiders, that most managed funds fail to beat a benchmark index (though over the years, the proportion that has failed to do so has steadily fallen).

Second, the indexing approach does have merits, but in my mind, it works best for bonds, simply because one requires a lot of cash (usually 100K) to get a piece of any one particular issue, otherwise trading costs are prohibitive, and good diversification at those amounts would run into the millions. Moreover, returns on bonds do have an upper bound, and when the bonds come due, the principal is all you get. This is especially true for corporate bonds, but less so for Treasuries. Fees (expenses and loads), combined with taxes and inflation do the most damage to bond funds, because the return is limited, so using a bond index to limit one's costs seems like an intelligent move to me, so long as one pays close attention to the credit rating of the issues in the fund and in the case of the bond index fund especially, the average number of years to maturity.

Third, the stock index approach works best for those who have better things to do than pick stocks, and look upon the activity as being about as fun as having a root canal without an anesthetic. While any individual electing to take the index approach will not ever get the highest possible return, those returns, in most periods will likely be better than those obtained by any managed fund.

You need a relatively strong background in mathematics, especially in the areas of statistics and elementary calculus, to understand this book. Mr. Bogle argues for low cost (and preferably indexed) funds in any style category or asset class and elaborates on their inherent superiority; after all, he operates several low cost index funds, so he should know, right? Basically, what you the investor need to know boils down to this: if you intend to 'play' the market, you might as well be the market, or at least the closest facsimile of it you can be. However, as Mr. Buffett has pointed out, by becoming the market, you get the good, as well as the bad, and if you can stand mediocrity, more power to you. Given that mediocrity tends to outperform sophisticated stockpicking over time, it may not be that bad, after all.

This book should be retitled as "The Case for the Index Fund".

Bogle makes compelling arguments about the advantages of index funds and the importance of the costs/loads and tax consequences of mutual funds. I've become a firm believer in these ideas. However, the book is quite repetitive. In chapter after chapter, he gives examples of how much mutual fund loads or taxes cost you over the long run. I ended up skimming much of the content as I went on. He also had a section of the book about how the mutual fund industry in general which I didn't find very interesting.

Bogle is the best at giving people the straight dope on what to do in simple investing. If you are not a whiz on the market or investing, no matter, he gives his main message clear enough; even though you will notice he doesn't dumb it down for the uneducated. Even if you think you understand the market to a large degree, make sure to read it too, for you will learn a thing or two. You won't get this valuable message any other place. You can "bank" on his advice.

Mr. Bogle, the founder of The Vanguard Group, does an excellent job explaining the value of indexing and shows historical and relative information that bases his knowledge on facts. A great book for any investor, both new and experienced, that will help make your investment strategy more intelligent and educated - especially if you believe that it's almost impossible to beat the market on your own. The book can be difficult to read at times, so make sure your energy level is high before you indulge.

The main message of the book is that most investors - both individual and institutional - should invest in a broadly diversified index fund that is passively managed and has low costs, e.g. a fund that simply tracks the S&P 500. A part of the portfolio can be invested in government bonds (or a low-cost diversified bond fund) to lower the short-term volatility of the stock-market. The advantage of doing this is argued convincingly using numerous statistics. It is a valuable lesson.

However, the book is a rambling mess of 600 pages filled with anecdotes, quotes and attempts at being witty. The book could easily be less than 200 pages and contain the same information.

PS: This review is of the 10th anniversay edition.

I must confess that I have always been both delighted by, and exasperated by, Bogle' books. Why? Well, as G. Laird's comments imply, logically if even 95% of all money managers underperform the indices - let's say the S&P 500 - that still leaves the remaining 5% who do outperform. Given the enormous number of funds available today that leaves a much greater array of choices than Bogle admits. Who are they, and why do they outperform over the long-term, albeit with usually periods of underperformance? Much, much, more importantly, why the incessant focus on the S&P 500 and not the broader market? Case in point, the period from 1998 to now, while encompassing a "long lost decade" was a phenomenal period for many multi-cap funds that were value oriented and especially for pure small cap and mid-cap value funds. The reason for the "lost decade" thesis is actually quite simple: by 1998 most big-caps were unbelievably historically overvalued, while the small and mid-caps were conversely super cheap. A great read on this topic is James O'Shaughnessy's "Predicting the Markets of Tomorrow". Although Bogle likes to come off as a super saintly figure, while lambasting both financial advisors and the broader load and managed mutual fund industry, try to find out why he didn't warn his investors in 1998, who made the Vanguard Index Fund the #1 selling fund that year-or much better yet close the fund altogether!

However, where I do find Bogle's books very valuable (especially the first edition of "Common Sense") is his analysis of the markets themselves, long term investment and valuation theory and strategies for diversification. Yet he dramatically fails to incorporate these factors into fund selection-for example, why asset allocation by class is far more valuable than cost, unless one looks out 15-20 years or more, something in my professional experience few investors are willing to do. For example, an investor who purchased even a mediocre performing, and "expensive" emerging market equity fund, or domestic small or mid-cap value fund, would likely have done dramatically better than an S&P Index Fund, for any of the 10 year periods, starting in 1998, by quarter.

If only Bogle weren't so pompous, paid attention to investor's behavior (see the Dalbar study for example) and especially his own shareholders' behavior patterns, he might really make a greater contribution to the mutual fund investor's plight, especially today. The real key may in fact be behavioral finance. A new book,"Thinking Fast and Slow", just published, written by one of the guru's of that discipline, Daniel Kahneman (he shared the Nobel prize with the late Amos Tversky for their work on rationality), should be a must read on that subject. Therefore I strongly recommend Bogle's books only to professional investors or to the extremely knowledgeable and sophisticated general public.