John Bogle on Investing: The First 50 Years

9

THE THIRD MUTUAL FUND INDUSTRY

WHY INVESTORS SHOULD OWN BOND FUNDSFIVE RULES FOR BOND FUND SELECTIONFIVE WARNINGS TO BOND FUND INVESTORS

Keynote AddressAmerican Association of Individual InvestorsChicago, IllinoisJune 12, 1992

RARELY A WEEK goes by without a major story about equity mutual funds and their portfolio managers surfacing in the news. We could hardly avoid knowing, for example, when Peter Lynch and, more recently, Morris Smith retired, both having done a superb job in managing Magellan Fund. Newspapers and magazines print extensive stories about equity managers who often praise their own prescience, comment on their favorite stocks, and come close to forecasting the stock market (no mean task!).

At least each quarter, Business Week, The Wall Street Journal, and Barron's lionize the managers of the “top performing” equity funds (at least for the previous quarter, but sometimes, in fairness, for a full year or longer). Money, a monthly publication, does so every month. And nearly every financial publication provides an annual performance overview. (Interesting enough, the focus is almost always on the winners, almost never on the losers.)

Since equity funds began it all back in 1924, I suppose that we can call this asset class the first mutual fund industry. Money market funds as the industry's largest component with $575 billion of assets, are doubt-less perceived as the second mutual fund industry. These funds, which arrived on the scene in the mid-1970s, expanded ...