Common Investor Mistakes and Other Investing Insights
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 (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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John C. Bogle is the founder of the Vanguard Group of mutual funds and president of its Bogle Financial Markets Research Center.