Bogle-head

[pelagius]

Jay,

You asked what I thought of the "bogle-head" way in another thread. I am not sure a fully understand the bogle-head connotations other than it is a reference to John Bogle the founder of Vanguard. I assume two general principles apply to bogle-heads given Vanguard's mutual fund offerings and overal philosophy:

• Invest in a diversified portfolio
• Keep your costs low: it easier to lose money due to high costs than make money due to superior skill or informational advantage (mostly because very few people have either of those).

Both of those points are wonderful advice when it comes to investing, and
when family members ask me for advice (although I usually try to avoid giving financial advice) those are usually the first two things I tell them.

Are there other specific tenants of the "Bogle-head" religion?

[jay santos]

Originally Posted by pelagius

Jay,

You asked what I thought of the "bogle-head" way in another thread. I am not sure a fully understand the bogle-head connotations other than it is a reference to John Bogle the founder of Vanguard. I assume two general principles apply to bogle-heads given Vanguard's mutual fund offerings and overal philosophy:

• Invest in a diversified portfolio
• Keep your costs low: it easier to lose money due to high costs than make money due to superior skill or informational advantage (mostly because very few people have either of those).

Both of those points are wonderful advice when it comes to investing, and
when family members ask me for advice (although I usually try to avoid giving financial advice) those are usually the first two things I tell them.

Are there other specific tenants of the "Bogle-head" religion?

Yes, that's the strategy. And the tactical implementation is through index funds, especially Vanguard index funds.

The basic theory is that no (or very few--and it's probably the random few not the talented few) money managers will beat the average market return after costs long term.

[pelagius]

Originally Posted by jay santos

Yes, that's the strategy. And the tactical implementation is through index funds, especially Vanguard index funds.

Vanguard is a good choice; they have always done a good job of keeping both costs low and tracking error (how closely the fund tracks their benchmark) low. Actually, these days there are a lot more funds that do a nice job as well (particularly among ETFs).

Originally Posted by jay santos

The basic theory is that no (or very few--and it's probably the random few not the talented few) money managers will beat the average market return after costs long term.

This is largely consistent with the empirical evidence when looking at after cost mutual fund returns. There is some persistence in mutual fund performance, but it is almost entirely confined to an one year ahead horizon (Also, it is probably not a manifestation of stock picking skill but the well known historical pattern of mediun term continuation in returns). There tends to be more persistence if you track managers instead of funds, but overall you assesment of the mutual fund industry sounds about right.

[Detroitdad]

None of this stuff is a big secret, so it is hard for me to understand why the general public persists in chasing the cult of the incredible stock picker mutual fund manager, cult of personality. I guess marketing is a more powerful force to most than empirical data. And all this time I thought that empirical data was so captivating to the average Joe. Go figure.

[jay santos]

Originally Posted by Detroitdad

None of this stuff is a big secret, so it is hard for me to understand why the general public persists in chasing the cult of the incredible stock picker mutual fund manager, cult of personality. I guess marketing is a more powerful force to most than empirical data. And all this time I thought that empirical data was so captivating to the average Joe. Go figure.

I think it's fueled by greed. Someone's promising 15% returns and market avg all of a sudden seems low.