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

Name: Common Sense on Mutual Funds: Fully Updated 10th Anniversary Edition
ISBN: 9780470138137

by John C. Bogle, David F. Swensen

December 2009

Beginner

656 pages

15h 39m

English

Wiley

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Copyright
Foreword for the 10th Anniversary Edition
Foreword for the Original Edition
Preface to the 10th Anniversary Edition
Preface to the Original Edition
"Common Sense" DefinedA Five-Part ApproachCommon Sense ReduxPrinciples and Practices
Acknowledgments for the 10th Anniversary Edition
Acknowledgments for the Original Edition
About the Author
I. ON INVESTMENT STRATEGY
1. On Long-Term Investing: Chance and the Garden
1.1. Chance, the Garden, and Long-Term Investing1.2. How Has Our Garden Grown?1.3. Stock Market Returns1.3.1. Stock Market Risk1.4. Bond Market Returns1.4.1. Bond Market Risk1.5. Planting Seeds for Growth1.6. The Financial Markets Are Not for Sale1.6.1. The Pie Theory1.7. Practice Departs from Principle1.7.1. Market Timing in the Press—"The Death of Equities"1.7.2. Market Timing by Mutual Fund Investors1.7.3. Fund Shareholders Become Short-Term Investors . . .1.7.4. . . . Following the Example of Fund Managers1.7.5. Understanding the Economics of Investing1.8. Simple Principles for Long-Term Success

2. On the Nature of Returns: Occam's Razor
2.1. Occam's Razor and the Stock Market2.1.1. Enter Occam's Razor2.1.2. Investment and Speculation2.1.3. The Fruits of Knowledge2.1.4. From the Past to the Future2.1.5. Honing the Razor2.1.6. Occam in Action2.1.7. The Envelope, Please2.1.8. What Happened after 1994?2.2. Occam's Razor and the Bond Market2.3. Precision and Perversity2.3.1. Stock Returns in the Coming Decade2.3.2. Bond Returns in the Coming Decade2.3.3. Back to the Future2.4. How Important Is It to Forecast Future Returns?
3. On Asset Allocation: The Riddle of Performance Attribution
3.1. From the Talmud to Modern Portfolio Theory3.2. Risk to the Fore3.2.1. Risk through the Seasons3.3. Benefiting from Balance3.3.1. Striking Your Own Balance3.3.2. Fine-Tuning Your Balance3.4. A Third Dimension3.4.1. Financial Scripture3.4.2. How Costs Change the Perspective3.4.3. Low Costs Magnify Fund Returns3.5. Three Perspectives on the Impact of Cost3.5.1. And a Fourth Perspective3.5.2. Asset Allocation and Cost3.6. Is It Cost or Asset Allocation?
4. On Simplicity: How to Come Down to Where You Ought to Be
4.1. When All Else Fails, Fall Back on Simplicity4.2. Simplicity in Your Stock Portfolio4.2.1. If You Decide Not to Index . . .4.3. Rule 1: Select Low-Cost Funds4.4. Rule 2: Consider Carefully the Added Costs of Advice4.5. Rule 3: Do Not Overrate Past Fund Performance4.6. Rule 4: Use Past Performance to Determine Consistency and Risk4.7. Rule 5: Beware of Stars4.8. Rule 6: Beware of Asset Size4.9. Rule 7: Don't Own Too Many Funds4.10. Rule 8: Buy Your Fund Portfolio—and Hold It4.11. The Paradigm of Simplicity
II. ON INVESTMENT CHOICES
5. On Indexing: The Triumph of Experience over Hope
5.1. Indexing Is a Long-Term Strategy5.2. The S&P 500 Index Is Not the Market5.3. Indexing Wins Largely Because of Cost5.4. The Index Fund Is Much Better Than It Appears5.4.1. Sales Charges5.4.2. Survivor Bias5.4.3. Tax Efficiency5.5. The Thorny Issue of Risk5.6. All Index Funds Are Not Created Equal5.7. Indexing Works in All Markets5.8. The Triumph of Indexing
6. On Equity Styles: Tick-Tack-Toe
6.1. Enter Tick-Tack-Toe6.2. Comparing Apples to Apples6.3. Equity Funds—Risks, Returns, and Costs6.3.1. Index Funds—Risks, Returns, and Costs6.4. God, Pascal, and War Games
7. On Bonds: Treadmill to Oblivion?
7.1. Misery Loves Company7.2. A Flagrant Example7.3. How Much Does Cost Matter?7.3.1. Long-Term Municipal Bonds7.3.2. Short-Term U.S. Government Bond Funds7.3.3. Intermediate-Term U.S. Government and GNMA Funds7.3.4. Intermediate-Term Corporate Bond Funds7.4. What about Management Skill?7.5. Sales Charges Exacerbate the Cost Issue7.5.1. Fee Dollars Are Real Money7.6. How to Avoid Excessive Costs
8. On Global Investing: Acres of Diamonds
8.1. The Global Portfolio Extreme8.2. Currency Risk—and Returns8.3. The Global Efficient Frontier8.4. International Economies and Financial Markets8.5. The Record of Global Investors8.6. Constructing Your Own Global Portfolio8.7. Indexing in International Markets—A Better Way?8.7.1. Yes, No, and Maybe8.8. The Accidental Tourist8.9. "Acres of Diamonds" Revisited
9. On Selecting Superior Funds: The Search for the Holy Grail
9.1. The Equity Fund Record9.2. Enter the Index Fund9.3. The Index Fund Elicits a New Industry Mantra9.4. Selecting Winning Funds—An Academic Activity9.4.1. The Sharpe Study9.4.2. The Carhart Study9.4.3. The Goetzmann-Ibbotson Study9.5. Funds That Have Beaten the Market—The Disappointing Reality9.6. The Investment Advisers Who Select Funds—Another Disappointment9.7. Returns of Funds of Funds—Yet Another Disappointment9.7.1. A Caveat9.8. No Holy Grail Here—Academic or Pragmatic
III. ON INVESTMENT PERFORMANCE
10. On Reversion to the Mean: Sir Isaac Newton's Revenge on Wall Street
10.1. Mutual Fund Champions Come Down to Earth10.2. Gravity and Stock Market Sectors10.2.1. Growth Stocks versus Value Stocks10.2.2. High-Grade Stocks versus Low-Priced Stocks10.2.3. Large-Cap Stocks versus Small-Cap Stocks10.2.4. U.S. Stocks versus International Stocks10.2.5. Back to Sir Isaac Newton10.3. Common Stocks Return to Earth, Too10.3.1. Lord Keynes Redux10.3.2. A New, Higher Mean?10.4. Investing to Cope with the Force of Gravity10.5. The Crown Jewels
11. On Investment Relativism: Happiness or Misery?
11.1. A Powerful Bogey11.2. The Rise of Closet Indexing11.3. The Index Fund: Villain of the Piece?11.4. We're All Quants Now11.5. Measuring Managers—Where Does Your Manager Stand?11.6. "If You Can't Beat 'Em, Join 'Em"11.6.1. Dickens Returns
12. On Asset Size: Nothing Fails Like Success
12.1. Isn't Bigger Better?12.2. Size and Fund Investment Returns12.3. Real Size, Real Problems12.3.1. Measuring a Fund's Real Size12.4. What's Size Got to Do with It?12.4.1. A Shrinking Universe12.4.2. Higher Transaction Costs12.4.3. The Triumph of Process over Judgment12.5. Nothing Does Succeed Like Success—for Fund Managers12.6. To Dream the Impossible Dream12.7. You Can Make the Dream a Reality
13. On Taxes: The Message of the Parallax
13.1. Taxes—The Industry's Black Sheep13.1.1. The Remarkable Value of Tax Deferral13.2. Alpha Takes Another Hit ... from Taxes13.3. Fund Portfolio Turnover Soars13.4. Fund Manager Turnover Doesn't Help13.5. A Good Solution: The Index Fund13.5.1. Results Confirmed13.6. A Better Solution: The Tax-Managed Fund13.7. A New Idea, Sixty Years Old13.7.1. Nothing New under the Sun13.8. Tax Strategies13.9. The Parallax View
14. On Time: The Fourth Dimension—Magic or Tyranny?
14.1. Reward—The First Dimension14.2. Risk—The Second Dimension14.3. Cost—The Third Dimension14.4. Time—The Fourth Dimension14.4.1. Time and Reward—The Magic of Compounding14.4.2. Time and Risk—The Moderation of Compounding14.4.3. Time and Cost—The Tyranny of Compounding14.5. The Dimensional Imperative
IV. ON FUND MANAGEMENT
15. On Principles: Important Principles Must Be Inflexible
15.1. Distribution Drives the Industry15.2. Management versus Distribution15.3. Information That Can Make a Difference in Your Fund Investments15.3.1. Cost Information15.3.2. Fee Waiver Information15.3.3. Performance Information15.3.4. Proxy Voting Information15.3.5. Information about Alternative Investment Strategies15.3.6. Investment Guidance Information15.4. Esperanto-Type Cranks
16. On Marketing: The Message Is the Medium
16.1. Your Money Is No Object16.1.1. Pandora's Box Is Opened16.1.2. The Croupier's Take16.2. 12b-1 Fees—Full Disclosure16.3. Hawking Products, Hiding Risk16.4. Owners versus Customers?16.4.1. An Investment Firm or a Marketing Firm?16.5. The True Business—Gathering Assets
17. On Technology: To What Avail?
17.1. Investment Technology—Bigger, Quicker, and More Complex17.2. Information Technology—Information versus Wisdom17.3. Transaction Technology—Switch When the Iron Is Hot17.4. The Report Card17.5. The Pervasive Impact of Technology
18. On Directors: Serving Two Masters
18.1. The Levers of Control18.2. The Consequences of Control18.3. What the Law Says18.4. An Alternative Structure18.5. Legal Action Coming?18.6. Congress and the SEC18.7. Summing Up
19. On Structure: The Strategic Imperative
19.1. Contrasting Ownership Structures19.2. History in the Making19.3. Strategy Follows Structure19.3.1. Profit Strategy19.3.2. Pricing Strategy19.3.3. Service Strategy19.3.4. Risk Management Strategy19.3.5. Product Strategy19.3.6. Indexing Strategy19.3.7. Marketing Strategy19.4. Looking to the Future19.5. The Information Age to the Rescue19.6. Revision or Restructuring?19.6.1. Enhancing Economic Value
V. ON SPIRIT
20. On Entrepreneurship: The Joy of Creating
20.1. I Meet a True Entrepreneur20.2. A Merger, a Firing, an Idea20.3. Steps and Stumbles20.4. Schumpeter Describes the Entrepreneur20.5. A Slice of the World in Context
21. On Leadership: A Sense of Purpose
21.1. The Majesty of Simplicity21.2. A Fortuitous History21.3. Readiness and Foresight, Purpose and Passion21.4. Servant Leadership21.5. Failure and Determination21.6. Patience and Courage21.7. Fate Takes a Hand
22. On Human Beings: Clients and Crew
22.1. The Investor as Human Being22.2. Shareholders Respond22.3. The Vanguard Crew22.4. The Award for Excellence: Even One Person Can Make a Difference22.5. Partnership: Sharing the Fruits of Our Labors22.6. The Golden Rule
Afterword
I. Some Thoughts about the Current Stock Market as 2010 Begins
I.1. Looking AheadI.2. Future Investment ReturnI.3. Future Speculative ReturnI.4. Compared to What?
II. Some Thoughts about the Current Stock Market as 1999 Begins
II.1. Fairly Valued at 100 Times Earnings?II.2. Glassman-Hassett, Siegel, and Occam
Notes
Chapter 1Chapter 2Chapter 3Chapter 4Chapter 7Chapter 8Chapter 9Chapter 10Chapter 11Chapter 12Chapter 13Chapter 14Chapter 15Chapter 16Chapter 17Chapter 18Chapter 19Chapter 20Chapter 21Appendix IAppendix II

Content preview from Common Sense on Mutual Funds: Fully Updated 10th Anniversary Edition

Notes

Chapter 1

Chapter 2

Chapter 3

Chapter 4

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Chapter 7

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Chapter 8

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Chapter 9

Chapter 10

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Chapter 11

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Chapter 12

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Chapter 13

Chapter 14

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Chapter 15

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Chapter 16

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Chapter 17

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Chapter 18

Chapter 19

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Chapter 20

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Chapter 21

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Appendix I

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Appendix II

^[48]Jerzy Kosinski, Being There (New York: Harcourt Brace Jovanovich, 1970), 54–55.

^[49]Jeremy J. Siegel, Stocks for the Long Run, 2nd ed. (New York: McGraw-Hill, 1998), 11. Reproduced with permission.

^[50]Ibid., 5.

^[51]Peter L. Bernstein, "Off the Average, or the Hole in the Doughnut," Economics and Portfolio Strategy (September 1, 1997).

^[52]Kosinski, Being There, 66–67.

^[53]John C. Bogle, "Investing in the 1990s: Remembrance of Things Past, and Things Yet to Come," Journal of Portfolio Management (Spring 1991): 5–14.

^[54]John C. Bogle, "Investing in the 1990s: Occam's Razor Revisited," Journal of Portfolio Management (Fall 1991): 88–91.

^[55]John C. Bogle, "The 1990s at the Halfway Mark," Journal of Portfolio Management (Summer 1995): 21–31.

^[56]"Look at All Those Beautiful Scantily Clad Girls Out There," Forbes, November 1, 1974.

^[57]Peter L. Bernstein and Robert Arnott, "Bull Market? Bear Market? Should You Really Care?" Journal of Portfolio Management (Fall 1997): 26–29.

^[58]Kenneth L. Fisher and Meir Statman, "Investment Advice from Mutual Fund ...

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