I recently read John (Jack) Bogle’s critically acclaimed book, Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor. I had previously heard about John Bogle and his creation of the first index mutual fund and also his founding of The Vanguard Group, Inc., the world’s largest mutual funds company managing approximately $3.6 trillion.

Reading this book gave me a deeper insight into market returns, the simplicity of index investing, and the futility of chasing alpha returns through expensive actively managed funds. By writing this book, Jack knocks the complexity out of investing and lays bare a simple approach to investing that opens the door to low-cost Do-It-Yourself (DIY) investing like never before. I consider the book a must read for anyone who invests in mutual funds.

The book is divided into 5 major parts:

1. Investment strategy: Here, Bogle talks about the need for long term focus in investing, the nature of returns, and the important role that asset allocation plays in investors’ portfolios.

2. Investment choices: Here, he covers mutual funds, investment styles, global investing, risk and much more.

3. Investment performance: Here, Bogle reminds the investor of challenging investment realities, returns and reversion to the mean or long-term norms, short and long term returns and tax inefficiences.

4. Fund management: Here, he hammers the investment industry on moving from their traditional role of management to marketing and not adequately serving the interests of fund shareholders.

5. Spirit: Bogle discusses his personal experiences in the establishment of a major, but uniquely different, mutual fund.

Now and again, in Common Sense on Mutual Funds, Bogle reminds us that “common sense and simplicity are the keys to financial success…”

A couple of quotes I highlighted while reading this book include:

To earn the highest of returns that are realistically possible, you should invest with simplicity.

Lower costs are the handmaiden of higher returns.

Cost matters.

The mutual fund industry has been built, in a sense, on witchcraft.
The index fund is a most unlikely hero for the typical investor. It is no more (nor less) than a broadly diversified portfolio, typically run at rock-bottom costs, without the putative benefit of a brilliant, resourceful, and highly skilled portfolio manager. The index fund simply buys and holds the securities in a particular index, in proportion to their weight in the index. The concept is simplicity writ large.

Unlike many other books from Wall Street, in this one, it appears that Mr. Bogle has actually given something beneficial to the common man on Main Street. You can get the original edition (2000) or the 10th anniversary edition (2009) here.