John Bogle, the founder and former CEO of the Vanguard Group, passed away this week aged 89. Bogle, born in Great Depression-era America is one of the giants of the mutual fund industry. With Vanguard, Bogle created the first index fund – a mutual fund that mimics the composition of a stock market index. Bogle has been a vocal proponent of index funds, favouring them as low-cost equity investments that create value for small investors. Here are five of Bogle’s thoughts on equity and long-term investment.
“Time is your friend; impulse is your enemy.”
Explained: Mature equity investors think long-term. They are not guided by impulse buying and selling. They have a plan and they stick to it rather than chopping and changing with every turn of the market. They are rewarded through compounded growth over time.
“Don’t look for the needle in the haystack. Just buy the haystack!”
Explained: Stock markets are unpredictable. It’s difficult for even seasoned stock investors to spot winners. It’d be an impossible task for the common man. Bogle’s advice is to avoid shooting in the dark and to buy a whole bouquet of stocks via a mutual fund created by experts.
“Rely on the ordinary virtues that intelligent, balanced human beings have relied on for centuries: common sense, thrift, realistic expectations, patience, and perseverance.”
Explained: This is a layered quote that talks about finding the right investment options, managing one’s own expectations, having to patience to let the investment provide you returns, and persevering through periodic market volatility. These are keys to equity investing as well as to life.
“The historical data support one conclusion with unusual force: To invest with success, you must be a long-term investor.”
Explained: Never get into the stock market if you aren’t prepared to wait for the returns. In India, for example, the Sensex has delivered 10 and 20-year returns of around 12% per year on average, overcoming periods of severe economic crises, war, and political uncertainty. These returns are well above those provided by traditional favourites such as PPF, endowment policies, and fixed deposits.
“The mistakes we make as investors is when the market’s going up, we think it’s going to go up forever. When the market goes down, we think it’s going to go down forever. Neither of those things actually happen. Doesn’t do anything forever. It’s by the moment.”
Explained: Don’t try and time the markets. Don’t buy when everyone’s buying. Don’t sell when everyone’s selling. Have a common sense financial plan that helps you make the best of any situation. Speak to an investment advisor if necessary.