Bogle on Investing

January 15, 2009
Special Feature

If you had been listening to John Bogle, the founder of Vanguard, before the bear market sent stock prices into the deep freeze, your portfolio might not be unscathed right now, but its wounds would most likely be fewer and less severe.

If you had been listening to John Bogle, the founder of Vanguard, before the bear market sent stock prices into the deep freeze, your portfolio might not be unscathed right now, but its wounds would most likely be fewer and less severe. Bogle has long been a spokesman for low-cost, simple investment strategies, principles that he put into practice with his groundbreaking Vanguard index funds and that are embodied in his Twelve Pillars of Wisdom (www.bogleheads.org/forum/viewtopic.php?t=6716&mrr=1191654996).

First published almost 15 years ago, the Twelve Pillars include some familiar advice. Diversification and asset allocation are mantras that most investors have heard countless times. Looking at your investments with an eye toward the long haul is another well-known investment axiom. Simplicity and attention to costs also aren’t unique to Bogle’s storehouse of investment counsel, but he places a lot of emphasis on them. According to Bogle, there may be better strategies than putting half your money in a low-cost stock index fund and half in a low-cost bond index fund and holding on for as long as you can, but there are an almost infinite number of strategies that are worse.

One of Bogle’s favorite principles, reversion to the mean, a concept that might have helped investors predict the current bear market, may be less familiar. The idea is as simple as the law of averages: when stocks soar, they must eventually plummet. The reverse is also true, which may provide some hope for beleaguered stock investors. And for those looking for a way out of the stock market malaise, Bogle adds some other words of caution: don’t try to figure out when the recovery will start. You rarely, if ever, know something that the market doesn’t already know.