Last updated on March 31st, 2021

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How To Invest Like John Bogle?

There's apparently no way anyone is going to mention the legendary investors of all time and not mention John Bogle. This is a man that revolutionized mutual funds investments and has earned solid reputations, awards, and global recognition.

John Bogle's investment strategy is like a manuscript for new investors that wish to invest in mutual funds.

John Bogle, also known as “Jack,” introduced “Index investing,” a mutual funds investment platform that allows investors to own mutual funds that track the vast market. Index investing was intended to simplify things for average investors.

In this article, we are looking at how John Bogle succeeded with his investment strategy and how it is helping this day investors.

His Investment Approach

While other notable investors such as Benjamin Graham and George Soros focused on value investment and speculative investment, respectively, Bogle focused on mutual funds.

On this quick note, a new investor would need to define a prospect (an investment style), and then follow the principles of successful investors that followed the same path.

John Bogle is one of those investors that did not see tangible benefits of short-term investments. In his words, “your emotions will defeat you totally,” if you attempt trading in and out of markets.

He also hinted that short-term investments, which means betting or speculation, is not the best style of investment.

Bogle also believes that making smart investments is “all about common sense;” this he said in one of his books, “The Little Book of Common Sense Investing.”

According to John Bogle, common sense tells us that it is best to own the nation's publicly held businesses at a very low cost.

He went on to back up this saying, quoting that history has proven over and again that this style of investment is the “simplest and most efficient investment strategy.”

Hence, John Bogle recommends investing in low-cost (broadly diversified) index funds. He also recommends that investors own many securities at a very low cost. Bogle says that such investments are the only investments that guarantee you'd get the fair share of stock market returns.

Key Takeaway: John Bogle was keen on low-cost investment in mutual funds. He practically followed a “Passive investment strategy.”

Understanding Bogle's Passive Investment Strategy

Actually, John Bogle studied mutual funds at Princeton University. He later founded a mutual fund company, Vanguard Group, in 1975. Bogle's Vanguard Group utilizes a passively managed index-sampling strategy.

This strategy helps the company to benchmark indexes based on a fund's asset type. In a literal sense, Vanguard manages index funds for clients and charge a management fee for their service(s).

In the next year (after founding the Vanguard Group), in 1976, Bogle launched a new fund, the Vanguard 500 fund. This new fund tracks the returns of the S&P 500 and it is made available to retail investors. Vanguard 500 Fund was the first index fund availed to retail investors.

John Bogle, being a smart and intelligent investor/founder, adopted a novel ownership structure for his company, Vanguard, and also made Vanguard 500 fund it a friendly platform that provides no-load mutual funds, which means that clients are not charged commissions on investment purchases.

Bogle's Vanguard 500 fund, as of October 2020 manages $557 billion in assets.

John Bogle will forever be remembered for his significant contributions that made index investing popular in the market.

Index Investing means that a fun maintains a blend of investments that track a major market's index.

His philosophy of average investors finding it uneasy, or even impossible, to beat the market made him prioritize unique techniques that helped reduce expenses associated with mutual funds investments – this was the backbone for Bogle's no-load funds.

As easy as it may seem to some investors, passive investing is just the opposite of active investing. In passive investing, investment managers play a hands-on role with the intention to outperform the market.

Generally, Bogle’s philosophy on passive investing centers on his assumption that the expenses of chasing high market returns typically cancels out most, and sometimes all, gains an investor would have achieved following a passive strategy.

Key takeaway: Passive investment strategy is more of replicating, instead of betting/speculating, the performance of specific benchmark indexes like the Nasdaq 100 or S&P 500.

Passive investment is the laid-down strategy for index funds because they are based on the assets listed on a particular index.

Thus, investors who buy or trade shares in index funds stand the chance to benefit from the diversity of all the assets listed on an index. This also protects the investor against certain risks in the market.

Index funds require fewer trades to keep their portfolios than funds with active management schemes; thus, providing higher tax-efficient returns.

Tips From The Legendary John Bogle

These are actually the maxims of John Bogle, which are actually helping newer investors that choose to follow Bogle's way.

1. The True Investor

Bogle's maxim, “The true investor will do better if he forgets about the stock market and pays attention to his dividend returns and the operating results of his companies.”

This maxim admonishes investors to embrace long-term investments instead of speculating or betting on market price curves. That is to say, as an investor who bought shares of a company, Bogle encourages that you follow fundamental investing principles – focusing and keeping up with the company’s progress, market share, growth record, profit margins, etc.

Some investors play the opposite of this Bogle’s advice, whereby they jump in and out of the market without having solid knowledge regarding some promising underlying companies.

2. Balance Your Expenses and Checkmate Your Emotions

Bogle’s maxim, “The two greatest enemies of the equity fund investor are expenses and emotions.”

According to John Bogle, an investor that pays more attention to his emotions would have little or nothing to show as results.

Thinking about significant market drops and other market crises would only force you to make what is seemingly the wrong decision due to panic. Instead, an investor should see market drops as a situation that exposes greater opportunities for long-term investments.

Also, following Bogle’s footsteps, before investing in mutual funds, you should always take time to study the annual fees charged by the funds – some of them charge up to 1.5% or even more, annually. Expenses are also part of the things that affect investors’ profits.

To back up this technique/approach, here's what Warren Buffet, another legendary investor has to say, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

3. Don’t Consider The Loss

Bogle’s maxim, “If you have trouble imagining a 20% loss in the stock market, you shouldn't be in stocks.”

John Bogle's philosophy centers on not paying attention to market drop up to about 20%. Doing it the Bogle way, you should understand that the stock market is likely to drop by about 20% or even more, annually.

However, as seen in most cases, after such significant drops, the market is likely to recover and go up to new highs. Regardless, sometimes, the time between the crash and recovery might be a few months or years (in some cases). Apparently, this is part of the reasons why Bogle adopts long-term investments – up to five (5) years or more.

4. Don’t Buy Funds Solely Based On Previous Performance

Bogle’s maxim, “Buying funds based purely on their past performance is one of the stupidest things an investor can do.”

The previous performance of a fund is not enough reason to invest in it; this applies to both mutual fund investors and stock investors. Because a mutual fund soared above 50% in the previous year is not enough reason to jump in, having the expectation to gain up to 50% too.

Any fund can have a great year pending various factors – it could be any fund. However, typically, when a fund goes ahead of others, it is likely to fall back in a matter of time. As a fund investor, Bogle admonishes that you focus on long-term results rather than annual results.

This also means to study what the future of a company would look like, instead of considering its past performances.

5. Long-term Investing Is The Winners’ Game

John Bogle’s maxim, “Owning the stock market over the long term is a winner's game, but attempting to beat the market is a loser's game.”

Let’s consider this maxim with the following situation. Sometime in the 2nd and 3rd quarters of 2019, the S&P 500 index of most big-name companies in America, about 500 of them, outperformed large-cap stock mutual funds' performance over the past 15 years, with up fully 90% value. The report was share by Standard & Poor.

Now, considering what’s said above, it was just about 10% of funds managed by experts that carefully make decisions to buy & sell, and when & who to focus on large companies could deliver above-average results.

Well, this was as a result of the fees charged. It is no big deal to find actively managed stock mutual funds charge around 1% yearly, while index funds charge 0.20% or less, even though they track the S&P 500.

6. Own The Market Through Index Funds

John Bogle's maxim, “The winning formula for success in investing is owning the entire stock market through an index fund and then doing nothing. Just stay the course.”

As an index investor, Bogle advises that you stick to a plan and pay less attention to distractions. He also admonishes consistent investment in a market for many years, without conceding to doubt or thought of exiting.

What More To Know?

Among everything you need to know about John Bogle, you should know that he changed how ordinary people invest in mutual funds and the stock market – he'd be forever remembered for this purpose.

His investment strategy may not apply to all investors (in general), but, specifically, to mutual funds investors.

“The mutual fund industry has been built, in a sense, on witchcraft,” John C. Bogle.

Most of Bogle’s philosophies and principles are hidden in his books. He was able to write a good number of books before he died in 2019.

His Popular Quotes

These sayings of Jack Bogle may trigger your spirit to up your game in mutual funds investments.

  • “If you hold the stock market, you will grow with America,” Bogle made this statement in 2018 at CNBC’s “Power Lunch.”
  • “Stay the course. Don’t let these changes in the market, even the big one [like the financial crisis] … change your mind and never, never, never be in or out of the market. Always be in at a certain level.”
  • “If you have trouble imagining a 20% loss in the stock market, you shouldn't be in stocks.”
  • “Owning a diversified portfolio of stocks and holding it for the long term is a winner’s game.”

Summary:

In summary, this article tries to explain the various principles and strategies utilized by John C. Bogle to achieve enviable success in various investments.

However, there are other great billionaire investors you may want to read and study their strategies. One of them is George Soros, the man that made many nations panic after he made over $1 billion in a day from short-selling the British ponds.

Benjamin Graham is yet another person to look up to, and Warren Buffet is also a living legend when you talk about the world's best investors. Conclusively, John Bogle's investment strategy is still relevant for mutual fund investors.

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