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  • Common Investor Mistakes and Other Investing Insights

    by Charles Rotblut, CFA and John C. Bogle

    John “Jack” Bogle founded the Vanguard Group of mutual funds. In this second of two excerpts of our conversation, we spoke about the common mistakes he’s seen investors make, high-frequency traders and his concerns about the ownership structure of most mutual fund companies. The first excerpt of our conversation appeared in the June 2014 AAII Journal (“Achieving Greater Long-Term Wealth Through Index Funds”).

    —Charles Rotblut

    Charles Rotblut (CR): I’m sure you’ve seen a lot of bad investor behavior over the years, a lot of emotional behavior. Could you comment on what you see as the most common mistakes, and give suggestions on how investors can now try to avoid repeating them in the future?

    John Bogle (JB): The biggest mistake investors make is looking backward at performance and thinking it’ll recur in the future. I mentioned earlier the concept of reversion to the mean (in “Achieving Greater Long-Term Wealth Through Index Funds,” AAII Journal, June 2014); it happens, it’s documented decade after decade. The winners in decade one tend to be the big losers in decade two, and the losers may be the bigger winners. This isn’t true in every instance, but it happens often enough to have a very distinctive pattern. So don’t pay that much attention to the past, don’t invest based on past performance, don’t listen to a salesman out there, or an adviser, who says: “You think the index is any good? Well, here’s a fund that did better.” Today there are probably 100 funds or 200 or maybe even 1,000 funds that have done better over some period in the last year, the last five years, the last 10 years, etc.

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    Charles Rotblut, CFA is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at twitter.com/CharlesRAAII.
    John C. Bogle is the founder of the Vanguard Group of mutual funds and president of its Bogle Financial Markets Research Center.


    John Read from IL posted over 2 years ago:

    Egoism is the impelling cause of all? There are so many people telling us we can do better than average with their advice (government regulated to help make it even more expensive?)and we are lead to the slaughter?

    No wonder the wealthy get richer and the poor poorer?

    R Stacey from WI posted over 2 years ago:

    It's hard to be humble says the old song, yet after all the nonsense, it appears the passive investor, who has created his asset allocation, can ignore Wall St. and get on with his life. He needs only to rebalance once a year, and ignore the noise.
    Will he be a top performer? Probably not, but he will garner his fair portion of the market at a low cost.
    Works for me. I'll not be renewing my AAII subscription, but it was fun.

    Edward Collins from CT posted over 2 years ago:

    Hi John Bogle is the best of the best for the small investor. He is a beloved man with rather smart common sense given freely to us all. Of course his rule one "Remember reversion to the mean" What in the dickens is he talking about??? I tell ya, I didn't know John was a Greek PHD??? "reversion to the mean" really is something else. But I still love you as a brother.

    Ed Collins

    James Edwards from VA posted over 2 years ago:

    If you've read John Bogle's "Common Sense on Mutual Funds" and Benjamin Graham's " The Intelligent Investor", you don't need to read anything else.

    Charles Rotblut from IL posted over 2 years ago:


    Reversion to the mean is the tendency for a trend to revert back towards the average. In the case of mutual fund performance, it implies a fund with a very good year will likely incur bad years ahead. In other words, over the long-term, the hot fund will end up with returns that are about average.


    Leroy Siewert from CO posted over 2 years ago:

    bogle is right, for most people buy an hold is best.

    Todd Mclellan from OK posted over 2 years ago:

    Fidelity is a privately held company. Would you classify them as a company having to serve 2 masters?

    Vernon Lewis from CA posted over 2 years ago:

    I keep re-arranging the deck chairs because I keep thinking it will make me smarter. Thank you Mr. Bogle for your wisdom.

    Steven Duncan from NY posted over 2 years ago:

    #3 from the above list: "Buy Right and Hold Tight."

    The great speculator Jesse Livermore many years ago said "Buy right, sit tight."
    He further added,"Men who can both be right and sit tight are uncommon."

    David Thinel from FL posted over 2 years ago:

    Mr Bogle certainly has a wealth of information and it is refreshing to have someone like him looking to assist the average investor. I would like to hear his answer to holding portfolios that are created and managed using stock screens or AAII's stock portfolio. This would seem to fit his advice about keeping costs low and emotion out of the decision making process.

    Ludwig Chincarini from CA posted over 2 years ago:

    Some great advice. Check out "The Crisis of Crowding." www.ludwigbc.com

    William Mc Avoy from MD posted over 2 years ago:

    I own Janus Venture Fund, on which Morningstar has an overall rating of 5 stars. The 10 year annual return, according to Morningstar is 11.19% and according to Janus is 10.39%. The difference is attributed to a timing. The expense ratio is 0.94%. My understanding is that the returns are net of expenses. The Vanguard Explorer offering of the same category-small growth has a 10 year return of 8.92%, net of an expense ratio of 0.52%. Since the returns are net of cost, explain to me why I would choice the inferior fund just so I can feel good about a lower expenses. To me, the superior return clearly offsets the higher cost and I am, therefore happy to pay for the actively managed fund.

    Uttam Roy from IL posted over 2 years ago:

    I wish I could hold Janus Venture Fund, 10 years back.

    I also wish I could hold Brown Capital Mgmt Small Co Inv (BCSIX). It has little more fee, but the result is better than Janus Venture Fund.

    Do you regret for not holding Brown Capital Mgmt Small Co Inv (BCSIX) ?

    If you see in the past you will find many other better funds for a specific time period as mentioned in above discussion. But nobody knows about the future performance.

    Harry Quillian from FL posted over 2 years ago:

    Calling someone who actively trades in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic.

    --Warren Buffett

    Donald Myers from AZ posted about 1 month ago:

    I would urge all mutual fund shareholders to vote "no" on all board nominees, all the time. If more shareholders did this it would surely get their attention.

    David Gausman from OH posted about 1 month ago:

    What more can be said or should be said. I've been a fan of John Bogle's for years; or is it decades.

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