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Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor

 

Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor

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"Cogent, honest, and hard-hitting-a must read for every investor." -Warren E. Buffett
Praise for Common Sense on Mutual Funds
"Invoking both Thomas Paine and Benjamin Graham, Jack Bogle outlines a supremely logical plan not only to better investors' returns, but to improve the whole fund industry. This isn't just the best book yet by Bogle, it may well be the best book ever on mutual funds." -DON PHILLIPS, President & CEO, Morningstar, Inc.
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  1. Justus Pendleton says:
    131 of 139 people found the following review helpful
    3.0 out of 5 stars
    good, biased, don’t read just this, June 5, 2001
    By 
    Justus Pendleton (Colorado Springs, CO United States) –
    (REAL NAME)
      

    I didn’t find the book nearly as repetitive as some other reviewers did. Yes, Bogle continues to point out that cost matters and that you can’t predict the winners in advance. But he HAS to keep repeating his point. If he didn’t, opponents of indexing would (and do) say, “But cost doesn’t matter as much in emerging markets because they are less efficient.” So Bogle is forced to remake his point over and over and over again to show the superiority of indexing in every asset class.
    Bogle has a few hidden gems in here that I haven’t come across in my other reading. For instance, he points out that owning S&P 500 companies DOES give you international exposure since almost 25% of the those companies’ revenues come from outside the United States. He also makes some very good points about the effectiveness of slice-and-dice efficient frontier asset allocation methodologies and how they tend to reflect the past more than the future.
    On the other hand, I feel that his dismissal of international investing shows an underlying bias that isn’t well founded. He points out that the EAFE failed to perform as well at the S&P 500 over the past 10 years. Yet that is a period he admits is extraordinarily favorable to US-based large-cap firms. Later he does admit that when measured from its inception in the 1960s the EAFE has almost the same returns as the S&P 500 but then dismisses the usefulness of this. Even though it provided the same returns if it has a low correlation to the S&P 500 it can be a good component in a portfolio. It is almost like he doesn’t understand the entire point of risk-adjusted returns.
    Another complaint is that I don’t think the book is very suitable as an introduction for novices. It isn’t that the material is difficult, I just don’t feel it is structured very well. For instance, he starts using standard deviation to mean risk. It isn’t until much later on that he mentions in passing the problems with using standard deviation as a proxy for risk. If you are a little bit familiar with investing then you’ll know all of this already, but I think a novice might be left floundering or possibly mislead.
    I couldn’t help shake the feeling that a lot of his arguments weren’t especially sound. Maybe it’s because he doesn’t present a lot of his data, but only his conclusions. Or maybe it’s because it feels too much like he’s reasoning towards a conclusion he arrived at long before the data was available. I feel that Berstein’s Intelligent Asset Allocator offers a much more rigorous and sound (if slightly different) argument in favor of indexing than presented here.
    Finally, I felt like the argument wasn’t especially coherent. I knew what point he was trying to make but at times I just felt like the editor hadn’t done a proper job of cleaning up the text. Swedroe’s What Wall Street Doesn’t Want You To Know has a much more coherent, straight forward structure while arguing in favor of indexing.
    Despite all of that, I still think this book has a valuable place in the investor’s education. If you can borrow a copy from a friend, or check it out from the library, you owe it to yourself to do so.

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  2. Jeffery Steele says:
    39 of 40 people found the following review helpful
    5.0 out of 5 stars
    Superb, even if a bit Repetitive, December 9, 2003
    By 
    Jeffery Steele (Taipei, Taiwan) –

    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.

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  3. Charles says:
    32 of 33 people found the following review helpful
    5.0 out of 5 stars
    The Best Mutual Fund Book Written, June 15, 2001
    By 
    Charles (Portland, Oregon) –

    Critics may say the book in only trying to sell index funds, a strong suit of Vanguard. Absolutely wrong! The book’s real value is explaining how the mututal fund industry works and, hence, how to follow the money. The industry extracts about one per cent each year of your money in excess expense ratios and keeps it, not to mention the hidden costs of turnover and load. That adds up over a lot of money in a life time. Read the book. Understand asset allocation, return, risk, and cost. Then, you’ll understand how the money works and how to pick a fund based on its expense ratio, load, and turnover.

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