Top 3 takeaways from “The Little Book of Common Sense Investing”
By John C. Bogle, found of Vanguard Group.
Wasn’t expecting to learn much from this book, considering it’s on the topic of index investing, and its small physical size. As they say, don’t judge a book by its cover, and I was proven wrong.
Here are my top 3 takeaways:
- Wealthy Gotrocks family
- An interesting story was used to explain the total returns from corporate America, helpers convinced family members to try and get a larger share of the returns, and how the family wealth ultimately grew slower due to helpers taking a cut of the returns.
- A simple way of explaining how total market returns are achieved by the companies. Fund managers are unable to increase the total market returns, they are only trying to outdo each other, which on average is not possible, and how they are helping themselves to a portion of investor’s returns.
2. Total stock returns consists of 2 main portions:
- Investment returns consisting of dividends and earning growth
- Speculative returns consisting of emotions and expectations
- One of the simplest and most accurate way of explaining total stock returns, investment returns contributed by the companies, and speculative returns contributed by the investors.
3. Time weighted returns vs Dollar weighted returns
- Fund investors does not actually earn 100% of the returns reported by the fund.
- As fund managers report time weighted returns, while investors earn dollar weighted returns.
- Have been using dollar weighted returns for more accurate tracking, did not expect the alternative tracking can be used to give the illusion of returns.
Interesting how simple it is to achieve market returns, and how much effort has been put in to beat the market without success.
The wisdoms from John are eye opening, I believe they will play a major role in the latter part of my investment journey, when portfolio size is significant , and above average returns are no longer worth putting in the time and energy for.
This book is highly recommended for anyone wanting to achieve market returns without putting in much time and energy.
