John Bogle

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The Power of Passive Investing: More Wealth With Less Work by Richard A. Ferri

Alan Greenspan, asset allocation, backtesting, Benchmark Capital, Bernie Madoff, book value, buy and hold, capital asset pricing model, cognitive dissonance, correlation coefficient, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, endowment effect, estate planning, Eugene Fama: efficient market hypothesis, fixed income, implied volatility, index fund, intangible asset, John Bogle, junk bonds, Long Term Capital Management, money market fund, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, Ponzi scheme, prediction markets, proprietary trading, prudent man rule, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Sharpe ratio, survivorship bias, Tax Reform Act of 1986, too big to fail, transaction costs, Vanguard fund, yield curve, zero-sum game

French, “Multifactor Explanations of Asset Pricing Anomalies,” The Journal of Finance 51 (1996). 16. Mark M. Carhart, “On Persistence in Mutual Fund Performance,” The Journal of Finance 52, no. 1 (March 1997): 80. Chapter 5: Passive Choices Expand 1. John C. Bogle, “The First Index Mutual Fund: A History of Vanguard Index Trust and the Vanguard Index Strategy,” John C. Bogle Research Center, 1996, www.vanguard.com/bogle_site/lib/sp19970401.html. 2. John C. Bogle, 1996. 3. Christopher R. Blake, Edwin J. Elton, and Martin J. Gruber, “The Performance of Bond Mutual Funds” Journal of Business 66, no. 3 (July 1993): 371–403. 4. Marlena Lee, “Is There Skill among Bond Managers?”

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yield-to-maturity The rate of return an investor would receive if the securities held in his or her portfolio were held until their maturity dates. Notes Preface 1. John C. Bogle, “The Chief Cornerstone,” (speech, Superbowl of Indexing conference, Phoenix, Arizona, December 7, 2005). 2. Charles Ellis, “The Loser’s Game,” Financial Analysts Journal 31, no. 4 (1975): 19–26. 3. Burton Malkiel, interview by Geoff Colvin, Wall Street Week with Fortune, PBS, June 20, 2003, www.pbs.org/wsw/tvprogram/20030620.html. Chapter 1: Framing the Debate 1. Wellington Fund, Prospectus, April 14, 1950, 2. 2. John C. Bogle, “The Economic Role of the Investment Company” (undergraduate thesis, Princeton University Department of Economics and Social Institution, April 21, 1951), 27.

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The paper points to a Wellington Fund sales brochure as the source for information, “Cost vs. Value,” p. 3, n.d. 3. Bogle, 1951, 15, with further reference to Trusts and Estates, LXXXVIII (August 1949), 495. 4. Burton Malkiel, A Random Walk Down Wall Street (New York: W. W. Norton, 1973), 226. 5. John C. Bogle, “The First Index Mutual Fund: A History of Vanguard Index Trust and the Vanguard Index Strategy,” John C. Bogle Research Center, 1996, www.vanguard.com/bogle_site/lib/sp19970401.html. 6. William F. Sharpe, “Indexed Investing: A Prosaic Way to Beat the Average Investor” (speech, Spring President’s Forum, Monterey Institute of International Studies, May 1, 2002). 7.

Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School by Andrew Hallam

Albert Einstein, asset allocation, Bernie Madoff, buy and hold, diversified portfolio, financial independence, George Gilder, index fund, John Bogle, junk bonds, Long Term Capital Management, low interest rates, Mary Meeker, new economy, passive investing, Paul Samuelson, Ponzi scheme, pre–internet, price stability, random walk, risk tolerance, Silicon Valley, South China Sea, stocks for the long run, survivorship bias, transaction costs, Vanguard fund, yield curve

Swensen, Unconventional Success, a Fundamental Approach to Personal Investment, 217. 16. Ibid., 266. 17. Ibid. 18. John C. Bogle, Common Sense on Mutual Funds (Hoboken, New Jersey: John Wiley & Sons, 2010), 376. 19. Ibid., 384. 20. John C. Bogle, The Little Book of Common Sense Investing, 61. 21. John C. Bogle, Common Sense on Mutual Funds, 376. 22. Ibid. 23. Dilbert Comics, Reprinted with permission, Order Receipt #1591582. 24. John C. Bogle, The Little Book of Common Sense Investing, 90. 25. John C. Bogle, Don’t Count On It! (Hoboken, New Jersey: John Wiley & Sons, 2011), 382. 26. Burton Malkiel, The Random Walk Guide to Investing (New York: Norton, 2003), 130. 27.

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By building a responsible portfolio of stock and bond indexes, you’ll create more stability in your account while providing opportunities to take advantage of stock market silliness. The next chapter will show you in detail how to achieve this in the simplest, possible way. Notes 1. John C. Bogle, The Little Book of Common Sense Investing (Hoboken, New Jersey: John Wiley & Sons, 2007), 51. 2. Ibid. 3. John C. Bogle, Common Sense on Mutual Funds (Hoboken, New Jersey: John Wiley & Sons, 2010), 28. 4. Jeremy Siegel, Stocks for the Long Run (New York: McGraw-Hill, 2002), 217–218. 5. Ken Fisher, The Only Three Questions That Count (Hoboken, New Jersey: John Wiley & Sons, 2007), 279. 6.

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If an adviser had decided to purchase Morningstar’s five-star rated funds for you in 1994, and if he sold them as the funds slipped in the rankings (replacing them with the newly selected five-star funds), how do you think the investor would have performed from 1994 to 2004 compared with a broad-based U.S. stock market index fund? Thanks to Hulbert’s Financial Digest, an investment newsletter that rates the performance predictions of other newsletters, we have the answer which is emphasized in Figure 3.2. Figure 3.2 Five-Star Funds vs. Total Stock Market Index (1994–2004) Source: John C. Bogle, The Little Book of Common Sense Investing One hundred dollars invested and continually adjusted to only hold the highest rated Morningstar funds from 1994 to 2004 would have turned into roughly $194, averaging 6.9 percent annually. One hundred dollars invested in a broad-based U.S. stock market index from 1994 to 2004 would have turned into roughly $283, averaging 11 percent annually.24 If you add further taxable liabilities, the results for the Morningstar superfunds would look even worse.

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John C. Bogle

asset allocation, backtesting, buy and hold, creative destruction, currency risk, diversification, diversified portfolio, financial intermediation, fixed income, index fund, invention of the wheel, Isaac Newton, John Bogle, junk bonds, low interest rates, new economy, passive investing, Paul Samuelson, random walk, risk tolerance, risk-adjusted returns, Sharpe ratio, stocks for the long run, survivorship bias, transaction costs, Upton Sinclair, Vanguard fund, William of Occam, yield management, zero-sum game

Speculation —Foreword by Arthur Levitt 2017 The Little Book of Common Sense Investing: 10th Anniversary Edition | Updated & Revised THE LITTLE BOOK OF COMMON SENSE INVESTING The Only Way to Guarantee Your Fair Share of Stock Market Returns 10th Anniversary Edition | Updated & Revised JOHN C. BOGLE Cover design: Wiley Copyright © 2017 by John C. Bogle. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. First edition published 2007 by John Wiley & Sons, Inc. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com.

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Covel The Little Book of Alternative Investments by Ben Stein and Phil DeMuth The Little Book of Valuation by Aswath Damodaran The Little Book of Bull’s Eye Investing by John Mauldin The Little Book of Emerging Markets by Mark Mobius The Little Book of Hedge Funds by Anthony Scaramucci The Little Book of the Shrinking Dollar  by Addison Wiggin Books by John C. Bogle 1994 Bogle on Mutual Funds: New Perspectives for the Intelligent Investor —Foreword by Paul A. Samuelson 1999 Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor —Foreword by Peter L. Bernstein 2001 John Bogle on Investing: The First 50 Years —Foreword by Paul A. Volcker, Introduction by Chancellor William T. Allen 2002 Character Counts: The Creation and Building of the Vanguard Group 2005 The Battle for the Soul of Capitalism —Foreword by Peter G.

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Each book offers a unique perspective on investing, allowing the reader to pick and choose from the very best in investment advice today. Books in the Little Book Big Profits series include: The Little Book That Still Beats the Market by Joel Greenblatt The Little Book of Value Investing by Christopher Browne The Little Book of Common Sense Investing by John C. Bogle The Little Book That Makes You Rich by Louis Navellier The Little Book That Builds Wealth by Pat Dorsey The Little Book That Saves Your Assets by David M. Darst The Little Book of Bull Moves by Peter D. Schiff The Little Book of Main Street Money by Jonathan Clements The Little Book of Safe Money by Jason Zweig The Little Book of Behavioral Investing by James Montier The Little Book of Big Dividends by Charles B.

The Smartest Investment Book You'll Ever Read: The Simple, Stress-Free Way to Reach Your Investment Goals by Daniel R. Solin

Alan Greenspan, asset allocation, buy and hold, corporate governance, diversification, diversified portfolio, index fund, John Bogle, market fundamentalism, money market fund, Myron Scholes, PalmPilot, passive investing, prediction markets, prudent man rule, random walk, risk tolerance, risk-adjusted returns, risk/return, transaction costs, Vanguard fund, zero-sum game

They attempt to find a "hot" fund that will beat the markets, and suffer the inevitable costly consequences. Smart Investors don't chase "hot" funds. Chapter 14 Nobody Can Time the Market But you know as well as I that theres simply no evidence that fonds have been successfol at market timing. - Remarks by John C. Bogle, founder, the Vanguard Group, president. Bogle Financial Markets Research Center, to the Bullseye 2000 Conference, Toronto, Canada, December 4, 2000. Reported at: h ttp://www.vanguard.com/boglc_site/ december042000.hrm1 If anyone could consistently time the market, you would think it would be the amhors of markcHiming newsletters.

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Chapter 36 Step 3: Select Your Investments Surprisingly, one-third ofall index funds carry either front-end or asset-based sales charges. Why an investor would opt to pay a commission on an index fond when a substantially identical fimd is available without a commission remains a mystery. -John C. Bogle, Common Sense on Mutual Funds This step is the easy part. All we know about the srock and bond markets is that over time both will go up in value. As I have explained, no one can predict which stock or which bond will increase in value, or when it will increase. And no one wi ll know when or by how much the entire market will increase in value.

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But those of us who advise our clients to become Smart Investors have been abdicating our responsibility to advise the millions of Hyperactive Investors. Perhaps it is because we have no financial incentive to provide this advice since, as I have said, most Smart Investors do not need our services to reach their financial goals. The Vanguard Group, and especially the company's founder, John Bogle, is a notable exception to this rule. It was Bogle and Vanguard that created the opportunity for all investors to invest for market returns, by establishing index funds with low initial investments (as little as US$2500), low annual expenses and a coherent set of marketing materials. Unfortunately, regulations enacted by the Ontario Securities Commission and provincial securities regulators make it difficult, if not impossible, for Canadian investors to purchase these funds Of, for that matter, to access other lower cost index funds available to U .S. residents.

Smarter Investing by Tim Hale

Albert Einstein, asset allocation, buy and hold, buy low sell high, capital asset pricing model, classic study, collapse of Lehman Brothers, corporate governance, credit crunch, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, eurozone crisis, fiat currency, financial engineering, financial independence, financial innovation, fixed income, full employment, Future Shock, implied volatility, index fund, information asymmetry, Isaac Newton, John Bogle, John Meriwether, Long Term Capital Management, low interest rates, managed futures, Northern Rock, passive investing, Ponzi scheme, purchasing power parity, quantitative easing, random walk, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, South Sea Bubble, technology bubble, the rule of 72, time value of money, transaction costs, Vanguard fund, women in the workforce, zero-sum game

This is an excellent book that I read in 1994, and wished I had done sooner. It is Charles Ellis’ insight into the ‘losing-the-fewest points’ strategy that underpins the philosophy that we developed – an easy and entertaining read. The Little Book of Common Sense Investing, John C. Bogle, John Wiley & Sons, 2010 (ISBN 978–0–470–10210–7). John Bogle is the grandfather of sensible, low cost investing. He has written several key books on investing and the state of both the investment industry and capitalism in general. This short book contains the essence of his thinking and makes a very compelling case for a ‘losing the fewest points’ approach.

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market capitalisation emerging markets market efficiency market returns market risk, 2nd equities, 2nd market timing, 2nd, 3rd, 4th, 5th and DIY investors winning points from market-based returns market-beating strategies see active management/managers markets falling trying and failing to beat the market, 2nd, 3rd, 4th Marshall, Ray maturity (interest rate) risk, 2nd Meriwether, John Modern Portfolio Theory (MPT), 2nd money-weighted returns Morningstar, 2nd MPT (Modern Portfolio Theory) MSCI Emerging Markets Index MSCI World Index mutual funds, 2nd, 3rd MVO (means-variance optimisation) software Myners Report National Savings Certificates nest eggs noise and confusion reducing, 2nd Northern Rock Norway OEICs (open-ended investment companies), 2nd, 3rd, 4th lifestyle, risk-managed product choices off-menu assets, 2nd commodity futures gold hedge funds, 2nd, 3rd private equity, 2nd structured products, 2nd on-menu assets, 2nd, 3rd bonds commercial property defensive asset classes developed global equity markets emerging markets Return Engine asset classes smaller companies value equities online brokerage accounts, 2nd, 3rd, 4th, 5th administration optimisation software passive investors, 2nd fund costs index lifestyle/risk-managed funds product choices passive index fund providers vs active investors, 2nd, 3rd Paulson, John pensions active funds, 2nd contribution rates investing for retirement, 2nd estimating how much to save misselling target date funds tax on performance active managers and performance over time short-term, 2nd see also risk and return philanthropic works philosophy-free investing Piattelli-Palmarini, Massimo pitfalls for investors portfolio choices, 2nd financial capacity for losses financial need to take risk and gold risk profile/emotional tolerance for losses six Smarter portfolios summary matrix portfolio construction, 2nd, 3rd 90/10 portfolios approach to blended, 2nd bonds, 2nd, 3rd Defensive Mix diversification, 2nd, 3rd, 4th, 5th global, 2nd, 3rd, 4th, 5th, 6th and DIY investors emerging markets, 2nd, 3rd, 4th, 5th, 6th equity market diversifiers, 2nd growth-oriented Return Engine, 2nd long-term investors Modern Portfolio Theory (MPT), 2nd non-GBP currency exposure, 2nd past and future events smaller and value companies, 2nd, 3rd see also asset mix portfolios and DIY investors implementation, 2nd, 3rd maintenance, 2nd obsessive monitoring of rebalancing, 2nd, 3rd smarter and the stockbroking model taking an income from in retirement see also asset mix private equity, 2nd probability problems product choices, 2nd building-block benchmark choices choosing your market benchmark/proxy exchange-traded funds (ETFs) global home bias index-fund investing investment trusts lifestyle/risk-managed OEICs, 2nd mapping funds to passive products target date funds unit trusts/OEICs, 2nd product engineering psychometric testing, 2nd, 3rd rational thinking, 2nd, 3rd avoiding irrational behaviour REITs (global real estate), 2nd, 3rd, 4th, 5th return and risk characteristics, 2nd residual risk retirement, investing for, 2nd estimating how much to save return capture Return Engine asset classes developed global equity markets performance portfolio construction, 2nd returns and the average investor bonds conventional inflation-linked commodity futures developed global equity markets emerging markets on equities, and industry costs estimating future gold hedge funds improving on investment policy returns market returns and market timing market-based money-weighted REITs (global real estate), 2nd return history of building blocks time-weighted value equities see also risk and return risk, 2nd, 3rd, 4th bonds, 2nd choices of asset classes currency risk defensive assets equity risk, 2nd, 3rd five key investment risk factors and global diversification handling and hazards limited choices market risk, 2nd and portfolio choices REITs, 2nd residual risk-free assets smaller companies value equities, 2nd risk profiling, 2nd, 3rd psychometric testing risk and return, 2nd bonds conventional inflation-linked commodity futures defensive assets developed global equity markets emerging markets gold hedge funds and portfolio construction private equity REITs, 2nd Return Engine asset classes, 2nd smaller companies, 2nd structured products value equities, 2nd, 3rd risk tolerance and portfolio choices, 2nd risk-managed OEICs ROF (rip off factor) Samsung Electronics saving for retirement versus smarter investing, 2nd school fees Schwab, Charles Schwed, Fred, 2nd securities selection of, 2nd and active managers transfers to online accounts Selftrade Sharpe, William, 2nd, 3rd Shiller, Robert Siegel, Laurence Sinquefield, Rex Sippdeal Sipps smaller companies portfolio construction, 2nd, 3rd product choices, 2nd, 3rd benchmarks return and risk characteristics, 2nd size risk, 2nd the small-cap premium, 2nd, 3rd Spain Standard Chartered Bank stock market crashes stockbroking model strategic asset allocation structural risk on bonds structured products, 2nd and dividends principal protection risk and return Swensen, David, 2nd, 3rd, 4th, 5th on hedge funds on private equity tactical asset allocation see market timing Tanous, Peter target date funds taxes, 2nd, 3rd DIY investors, 2nd, 3rd, 4th personal allowances TER (total expense ratio) time-weighted returns Tobin, James Separation Theorem, 2nd ‘too good to be true’ investments, 2nd top-down approach total equity market total-expense ratios tracker funds see index funds tracking error fees and costs contributing to management experience effect on replication methods affecting size contributing to turnover contributing to Trump, Donald Tversky, Amos, 2nd unit trusts, 2nd, 3rd, 4th United Kingdom active funds, research on performance, 2nd equity funds and diversification industry costs of product choices underperforming the market FTSE 100 Index, 2nd, 3rd, 4th FTSE All-Share Index, 2nd, 3rd, 4th, 5th FTSE Index-linked gilts gilts, 2nd, 3rd, 4th, 5th, 6th and global equity markets index-linked investor behaviour and portfolio construction, global diversification tax breaks United States behaviour of average investors CGM Focus Fund equity fund performance index tracker funds private equity research on active management Russell 1000 Index treasuries Wilshire 5000 university fees value companies, 2nd, 3rd dividends outperformance of growth stocks portfolio construction, 2nd, 3rd product choices, 2nd benchmarks return and risk characteristics, 2nd, 3rd past returns Vanguard, 2nd, 3rd research on UK actively managed funds, 2nd venture capital, 2nd Vinik, Jeff Vodafone volatility bonds equity markets wealth creation ‘get rich, slow’ process wealth-destroying behaviour, 2nd, 3rd zero-sum game and hedge funds and investment philosophy, 2nd ‘A book of investment wisdom and common sense for the ages. Investors who follow his simple advice will be richly rewarded.’ John C. Bogle, Founder, Vanguard ‘Delightfully clear thinking and direct advice on how investors can get better results with simpler decisions.’ Charles D. Ellis, Founder, Greenwich Associates ‘An excellent step-by-step guide to the basics, as well as the complexities, of personal investment. This book gives you what you need to plan your investment strategy with confidence and sleep easy at night.’

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It probably makes sense to have a material allocation to other developed and emerging markets too. Equities, while expected to deliver higher returns than bonds, deliver no certainty that they will do so, although the odds increase over time. Diversifying away from equities and holding other assets such as bonds makes sense. As John Bogle, founder of Vanguard, a leading, global investment firm, says: ‘Asset allocation [the mix of your investments] is not a panacea. It is a reasoned – if imperfect – approach to the inevitable uncertainty of the financial markets.’ Mental tick box 4: Is your portfolio well diversified at all levels?

The Clash of the Cultures by John C. Bogle

Alan Greenspan, asset allocation, buy and hold, collateralized debt obligation, commoditize, compensation consultant, corporate governance, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, estate planning, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, Glass-Steagall Act, Hyman Minsky, income inequality, index fund, interest rate swap, invention of the wheel, John Bogle, junk bonds, low interest rates, market bubble, market clearing, military-industrial complex, money market fund, mortgage debt, new economy, Occupy movement, passive investing, Paul Samuelson, Paul Volcker talking about ATMs, Ponzi scheme, post-work, principal–agent problem, profit motive, proprietary trading, prudent man rule, random walk, rent-seeking, risk tolerance, risk-adjusted returns, Robert Shiller, seminal paper, shareholder value, short selling, South Sea Bubble, statistical arbitrage, stock buybacks, survivorship bias, The Wealth of Nations by Adam Smith, transaction costs, two and twenty, Vanguard fund, William of Occam, zero-sum game

Chapter 8: The Rise, the Fall, and the Renaissance of Wellington Fund Introduction Part I Part II Part III Part IV Chapter 9: Ten Simple Rules for Investors and a Warning for Speculators Summing Up Buy Broad Market Index Funds Wellington Fund and the Index Fund Reversion to the Mean (RTM) is a Virtual Certainty Ten Simple Rules for Investment Success Appendix I: Performance Ranking of Major Mutual Fund Managers–March 2012 Appendix II: Annual Performance of Common Stock Funds versus S&P 500, 1945–1975 Appendix III: Growth in Index Funds—Number and Assets, 1976–2012 Appendix IV: Wellington Fund Record, 1929–2012 Appendix V: Wellington Fund Equity Ratio and Risk Exposure (Beta), 1929–2012 Appendix VI: Wellington Fund Performance versus Average Balanced Fund, 1929–2012 Appendix VII: Wellington Fund Expense Ratios, 1966–2011 Index BOOKS BY JOHN C. BOGLE 1994 Bogle on Mutual Funds: New Perspectives for the Intelligent Investor —Foreword by Paul A. Samuelson 1999 Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor —Foreword by Peter L. Bernstein 2001 John Bogle on Investing: The First 50 Years —Foreword by Paul A. Volcker, Introduction by Chancellor William T. Allen 2002 Character Counts: The Creation and Building of The Vanguard Group 2005 The Battle for the Soul of Capitalism —Foreword by Peter G.

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True Measures of Money, Business, and Life —Foreword by William Jefferson Clinton, Prologue by Tom Peters 2010 Common Sense on Mutual Funds: Fully Updated 10th Anniversary Edition —Foreword by David F. Swensen 2011 Don’t Count on It! Reflections on Investment Illusions, Capitalism, “Mutual” Funds, Indexing, Entrepreneurship, Idealism, and Heroes —Foreword by Alan S. Blinder 2012 The Clash of the Cultures: Investment vs. Speculation —Foreword by Arthur Levitt Copyright © 2012 by John C. Bogle. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com.

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To that criticism, I can only respond that I have been as objective as is humanly possible. The data are the data! More broadly, I hardly need apologize for the investment strategies and human values on which I founded Vanguard, for these strategies and values have met the test of time. Please enjoy the book and let me know what you think. Read my blog at www.johncbogle.com. John C. Bogle Valley Forge, Pennsylvania June, 2012 About This Book In 1951, when I began my career, long-term investing was the mantra of the investment community. In 1974, when I founded Vanguard, that tenet still remained intact. But over the past several decades, the very nature of our nation’s financial sector has changed—and not for the better.

In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest by Andrew W. Lo, Stephen R. Foerster

Alan Greenspan, Albert Einstein, AOL-Time Warner, asset allocation, backtesting, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, Charles Babbage, Charles Lindbergh, compound rate of return, corporate governance, COVID-19, credit crunch, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, Edward Glaeser, equity premium, equity risk premium, estate planning, Eugene Fama: efficient market hypothesis, fake news, family office, fear index, fiat currency, financial engineering, financial innovation, financial intermediation, fixed income, hiring and firing, Hyman Minsky, implied volatility, index fund, interest rate swap, Internet Archive, invention of the wheel, Isaac Newton, Jim Simons, John Bogle, John Meriwether, John von Neumann, joint-stock company, junk bonds, Kenneth Arrow, linear programming, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, managed futures, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, new economy, New Journalism, Own Your Own Home, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, prediction markets, price stability, profit maximization, quantitative trading / quantitative finance, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, selection bias, seminal paper, shareholder value, Sharpe ratio, short selling, South Sea Bubble, stochastic process, stocks for the long run, survivorship bias, tail risk, Thales and the olive presses, Thales of Miletus, The Myth of the Rational Market, The Wisdom of Crowds, Thomas Bayes, time value of money, transaction costs, transfer pricing, tulip mania, Vanguard fund, yield curve, zero-coupon bond, zero-sum game

New York: Free Press. ________. 2007. Capital Ideas Evolving. Hoboken, NJ: Wiley. Bernstein, William J. 2004. The Birth of Plenty: How the Prosperity of the Modern World Was Created. New York: McGraw-Hill. Best, Richard. 2016. “Where Does John C. Bogle Keep His Money?” Investopedia, January 27, https://www.investopedia.com/articles/financial-advisors/012716/where-does-john-c-bogle-keep-his-money.asp. “Big Money in Boston.” 1949. Fortune, December, 116–21, 189–90, 194, 196. Black, Fischer. 1989a. “How We Came Up with the Option Formula.” Journal of Portfolio Management 15, no. 2: 4–8. ________. 1989b. “Universal Hedging: Optimizing Currency Risk and Reward in International Equity Portfolios.”

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The higher expected returns on stocks comes about with a large amount of risk.”89 So, the bottom line for Fama’s Perfect Portfolio begins with a fund that tracks a broad market such as the S&P 500 index and then, if you decide to do so, tilts away a bit toward a style you prefer, such as value or small cap, while recognizing that higher expected returns only come with additional risk. 5 John Bogle and the Vanguard Portfolio INVESTING IN LOW-COST index funds is common these days, an approach advocated by William Sharpe, Eugene Fama, and many of our other luminaries. In fact, trillions of dollars are invested in U.S. index funds alone. Yet it all started with a pioneer—John C. Bogle, or Jack, as he preferred—who in late 1975 started the world’s first index mutual fund, the First Index Investment Trust, which started with $11 million in assets.

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University of Chicago Booth School of Business, http://www.crsp.org/files/SpringMagazine_IndexFund.pdf. Anson, Mark, Edward Baker, John Bogle, Ronald Kahn, and Meir Statman. 2006. “Putting the Shareholder First: A Lifetime Ideal; A Conversation with John Bogle.” Journal of Investment Consulting 8, no. 1: 8–22. Anson, Mark, Edward Baker, Martin Leibowitz, Margaret Towle, and Meir Statman. 2011. “Creating Solutions from a Lifetime of Learning Experiences: Talking Investments with Martin L. Leibowitz, PhD.” Journal of Investment Consulting 12, no. 2: 6–15. Armstrong, John [John Bogle]. 1960. “The Case for Mutual Fund Management.” Financial Analysts Journal 16, no. 3: 33–38.

The Bogleheads' Guide to Investing by Taylor Larimore, Michael Leboeuf, Mel Lindauer

asset allocation, behavioural economics, book value, buy and hold, buy low sell high, corporate governance, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, endowment effect, estate planning, financial engineering, financial independence, financial innovation, high net worth, index fund, John Bogle, junk bonds, late fees, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, margin call, market bubble, mental accounting, money market fund, passive investing, Paul Samuelson, random walk, risk tolerance, risk/return, Sharpe ratio, statistical model, stocks for the long run, survivorship bias, the rule of 72, transaction costs, Vanguard fund, yield curve, zero-sum game

"From beginning investors to those in retirement, The Bogleheads' Guide To Investing is packed with simple and sophisticated investment advice, offering an abundance of resources for a winning investment strategy. It is written with wit, clarity, and wisdom, and is sure to become a treasured resource for long-term investors." -Bill Schultheis, Author, The Coffeehouse Investor Bogleheads' Guide to Investing Contents ACKNOWLEDGMENTS XI FOREWORD BY JOHN C. BOGLE XIII INTRODUCTION XXI PART I ESSENTIALS OF SUCCESSFUL INVESTING CHAPTER 1 CHOOSE A SOUND FINANCIAL LIFESTYLE 3 CHAPTER 2 START EARLY AND INVEST REGULARLY 13 CHAPTER 3 KNOW WHAT YOU'RE BUYING: PART ONE 25 CHAPTER 4 KNOW WHAT YOU'RE BUYING: PART TWO 39 CHAPTER 5 PRESERVE YOUR BUYING POWER WITH INFLATION-PROTECTED BONDS 49 CHAPTER 6 HOW MUCH Do YOU NEED TO SAVE?

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If, in the history I have recounted today, I have allowed my own pride to peep out and show itself, I assure you that it is with great humility that I accept the honor that this association of Bogleheads have paid to this particular Bogle by their choice of name, by their enthusiastic endorsement of my principles and values, and by their dedication in this wonderful book. Take heed of its guidance, and you will enjoy investment success. John C. Bogle Valley Forge, Pennsylvania September 1, 2005 Introduction Do not value money for any more nor any less than its worth; it is a good servant but a bad master. -Alexander Dumas fits, Camille, 1852 Contrary to what you may believe, a Boglehead is not one of those funny little dolls you occasionally see bouncing in the back window of a car in front of you.

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In investing, if you spend lots of time and effort studying the market, or pay someone to manage your investments, you have less than a 20 percent chance of being an A investor. However, if you know nothing about investing, spend minimal time on your investments, and buy index funds, you have a 100 percent chance of being a B investor. In a world where most investors get a D or worse, B is beautiful. John C. Bogle, founder and former chairman, The Vanguard Group: "If you go back to 1970, there were only 355 equity funds. Only 169 of them survive today, so right away you are dramatically skewing the numbers by not counting the losers. Of those 169 survivors, only nine beat the S&P 500 through 1999. Three by 1 percent to 2 percent per year, four by 2 percent to 3 percent, and only two by more than that.

What They Do With Your Money: How the Financial System Fails Us, and How to Fix It by Stephen Davis, Jon Lukomnik, David Pitt-Watson

activist fund / activist shareholder / activist investor, Admiral Zheng, banking crisis, Basel III, Bear Stearns, behavioural economics, Bernie Madoff, Black Swan, buy and hold, Carl Icahn, centralized clearinghouse, clean water, compensation consultant, computerized trading, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crowdsourcing, David Brooks, Dissolution of the Soviet Union, diversification, diversified portfolio, en.wikipedia.org, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, Glass-Steagall Act, income inequality, index fund, information asymmetry, invisible hand, John Bogle, Kenneth Arrow, Kickstarter, light touch regulation, London Whale, Long Term Capital Management, moral hazard, Myron Scholes, Northern Rock, passive investing, Paul Volcker talking about ATMs, payment for order flow, performance metric, Ponzi scheme, post-work, principal–agent problem, rent-seeking, Ronald Coase, seminal paper, shareholder value, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, Steve Jobs, the market place, The Wealth of Nations by Adam Smith, transaction costs, Upton Sinclair, value at risk, WikiLeaks

Research has found that some mutual funds, apparently unchecked by their boards, often place “important business interests … in asset gathering ahead of their fiduciary duties” to savers.12 Some fund companies make investment decisions designed to help gain and retain corporate clients, even at a substantial financial penalty to the savers whose interests they are there to serve.13 Vanguard founder John C. Bogle has calculated the titanic costs to investors when investment funds with permissive boards tolerate excessive buying and selling of securities with attendant fees and sales loads.14 Over twenty-five years ending in 2005, he suggests, fund companies reaped $500 billion in fees from overly complex products, while delivering returns to clients less than one third of the figure investors would have made had they put savings into a simple low-cost alternative.

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Statutes designed to safeguard retirement savings were written long before the advent of today’s complex market, where intermediaries with many functions touch on the value of savers’ assets. Yet these middlemen normally do not fall under fiduciary duty standards and have no obligation to act in beneficiaries’ ultimate interests. Vanguard founder John C. Bogle has long called for a fiduciary duty “establishing the basic principle that money managers are there to serve … those whose money they manage.”22 In Britain, the Kay Review urged extension of fiduciary duty to intermediaries. Prompted by the Obama White House, the US Department of Labor proposed extending aspects of fiduciary duty to financial advisors and brokers.

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Jennifer Taub, “Able but Not Willing: The Failure of Mutual Fund Advisors to Advocate for Shareholders’ Rights,” SSRN (March 31, 2009), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1066831##. 13. Lauren Cohen and Breno Schmidt, “Attracting Flows by Attracting Big Clients: Conflicts of Interest and Mutual Fund Portfolio Choice” (2007), http://www.chicagobooth.edu/research/workshops/finance/docs/cohen_attractingflows.pdf. 14. John C. Bogle, Enough: True Measures of Money, Business, and Life (John Wiley and Sons, 2009), 82. 15. The Aspen Institute Business and Society Program, Overcoming Short-Termism: A Call for a More Responsible Approach to Investment and Business Management (September 9, 2009), www.aspeninstitute.org/sites/default/files/content/docs/bsp/overcome_short_state0909.pdf. 16.

Makers and Takers: The Rise of Finance and the Fall of American Business by Rana Foroohar

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, additive manufacturing, Airbnb, Alan Greenspan, algorithmic trading, Alvin Roth, Asian financial crisis, asset allocation, bank run, Basel III, Bear Stearns, behavioural economics, Big Tech, bonus culture, Bretton Woods, British Empire, business cycle, buy and hold, call centre, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, Carmen Reinhart, carried interest, centralized clearinghouse, clean water, collateralized debt obligation, commoditize, computerized trading, corporate governance, corporate raider, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, crowdsourcing, data science, David Graeber, deskilling, Detroit bankruptcy, diversification, Double Irish / Dutch Sandwich, electricity market, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial intermediation, Ford Model T, Frederick Winslow Taylor, George Akerlof, gig economy, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Greenspan put, guns versus butter model, High speed trading, Home mortgage interest deduction, housing crisis, Howard Rheingold, Hyman Minsky, income inequality, index fund, information asymmetry, interest rate derivative, interest rate swap, Internet of things, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Bogle, John Markoff, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, London Whale, Long Term Capital Management, low interest rates, manufacturing employment, market design, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, non-tariff barriers, offshore financial centre, oil shock, passive investing, Paul Samuelson, pensions crisis, Ponzi scheme, principal–agent problem, proprietary trading, quantitative easing, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, Rana Plaza, RAND corporation, random walk, rent control, Robert Shiller, Ronald Reagan, Satyajit Das, Savings and loan crisis, scientific management, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, Snapchat, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, Steve Jobs, stock buybacks, subprime mortgage crisis, technology bubble, TED Talk, The Chicago School, the new new thing, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, Tobin tax, too big to fail, Tragedy of the Commons, trickle-down economics, Tyler Cowen: Great Stagnation, Vanguard fund, vertical integration, zero-sum game

Foroohar, “2030: The Year Retirement Ends,” Time, June 19, 2014. 5. John C. Bogle, The Clash of the Cultures: Investment vs. Speculation (Hoboken, NJ: Wiley, 2012). 6. Ibid., 215. 7. State Budget Crisis Task Force, “Final Report,” January 2014, 16. 8. Investment Company Institute, 2015 Investment Company Fact Book (Washington DC, 2015), 137. 9. William Sharpe, “The Arithmetic of Investment Expenses,” Financial Analysts Journal 69, no. 2 (March/April 2013): 34–41. 10. John C. Bogle, founder of the Vanguard Group, testimony before the Finance Committee of the United States Senate (written statement), September 16, 2014. 11. John C. Bogle, “Big Money in Boston: The Commercialization of the Mutual Fund Industry,” Journal of Portfolio Management 40, no. 4 (2013): 135. 12.

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Author interviews with Schultz, 2015; Rana Foroohar, “Starbucks for America,” Time, February 5, 2015. 35. Author interview with Palmisano for this book, 2014. 36. Andrew Ross Sorkin, “The Truth Hidden by IBM’s Buybacks,” New York Times, October 20, 2014. 37. Author interview with Smithers for this book. 38. John C. Bogle, “Wall St’s Illusion on Historical Performance,” Financial Times, March 30, 2011. 39. According to the State Budget Crisis Task Force, cochaired by former Fed chairman Paul Volcker, about 25 percent of the actuarial liabilities of the country’s major state and local pension plans are unfunded—meaning that the plans won’t be able to meet one-quarter of their obligations to pensioners based on current market returns.

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Bogle, “Big Money in Boston: The Commercialization of the Mutual Fund Industry,” Journal of Portfolio Management 40, no. 4 (2013): 135. 12. Knut A. Rostad, ed., The Man in the Arena: Vanguard Founder John C. Bogle and His Lifelong Battle to Serve Investors First (Hoboken, NJ: Wiley, 2013), 124–25. 13. Bogle, The Clash of the Cultures, 111. 14. Ian Ayres and Quinn Curtis, “Beyond Diversification: The Pervasive Problem of Excessive Fees and ‘Dominated Funds’ in 401(k) Plans,” Yale Law Journal 124, no. 5 (March 2015): 1501. 15. Bogle, “Big Money in Boston,” 142. 16. Author interview with John Shaw Sedgwick, the son of R.

The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William J. Bernstein

Alan Greenspan, asset allocation, behavioural economics, book value, Bretton Woods, British Empire, business cycle, butter production in bangladesh, buy and hold, buy low sell high, carried interest, corporate governance, cuban missile crisis, Daniel Kahneman / Amos Tversky, Dava Sobel, diversification, diversified portfolio, Edmond Halley, equity premium, estate planning, Eugene Fama: efficient market hypothesis, financial engineering, financial independence, financial innovation, fixed income, George Santayana, German hyperinflation, Glass-Steagall Act, high net worth, hindsight bias, Hyman Minsky, index fund, invention of the telegraph, Isaac Newton, John Bogle, John Harrison: Longitude, junk bonds, Long Term Capital Management, loss aversion, low interest rates, market bubble, mental accounting, money market fund, mortgage debt, new economy, pattern recognition, Paul Samuelson, Performance of Mutual Funds in the Period, quantitative easing, railway mania, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Savings and loan crisis, South Sea Bubble, stock buybacks, stocks for the long run, stocks for the long term, survivorship bias, Teledyne, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the rule of 72, transaction costs, Vanguard fund, yield curve, zero-sum game

A well-known rule among scientists is that each successive mathematical formula cuts a book’s popular readership in half; I’ve done my best to keep the math simple and the graphs as spare as possible. Now, almost a decade later, this title is in its seventeenth printing; so I suppose I’ve succeeded. Special thanks go to those who have provided encouragement and help along the way, including Cliff Asness, John C. Bogle Sr., Scott Burns, Edward Chancellor, Mark Gochnour, Christian Oelke, John Rekenthaler, Bill Schultheis, Larry Swedroe, Robert Sidelsky, Richard Thaler, Mike Veseth, and Jason Zweig. I’ll never understand what motivated Catherine Dassopoulos and Jeffrey Krames of McGraw-Hill to take an interest in an obscure electronic file by an unknown scribbler floating around in cyberspace, but their editorial and publishing support has been a constant source of delight and satisfaction.

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Within almost any asset class you care to name, and compared to almost any other fund company, Vanguard offers the lowest fees, often by a country mile. Why? Having told the stories of Charlie Merrill and Ned Johnson’s Fidelity, the time has now come for the most remarkable saga of all—that of Jack Bogle and the Vanguard Group. For it was Mr. Bogle who finally realized Merrill’s dream of bringing Wall Street to Main Street. John C. Bogle did not exactly tear up the track in his early years at Princeton. He had a particularly shaky freshman start, but by his senior year had begun to impress his professors with his grasp of the investment industry. The choice for his senior thesis could not have been more fortuitous—“The Economic Role of the Investment Company.”

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Stating that there was a “tripling of the dividend multiple” is just another way of saying that an enthusiastic investing public has driven up stock prices relative to earnings and dividends by a factor of three. Over relatively short periods of time—less than a few decades—this change in the dividend or PE multiple accounts for most of the stock market’s return, and over periods of less than a few years, almost 100% of it. John Bogle, founder of the Vanguard Group of mutual funds, provides us with a very useful way of thinking about this. He calls the short-term fluctuations in stock prices due to changes in dividend and PE multiples the “speculative return” of stocks. On the other hand, the long-term increase in stock market value is entirely the result of the sum of long-term dividend growth and dividend yield calculated from the Gordon Equation, what Bogle calls the “fundamental return” of stocks.

All About Asset Allocation, Second Edition by Richard Ferri

activist fund / activist shareholder / activist investor, Alan Greenspan, asset allocation, asset-backed security, barriers to entry, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, book value, buy and hold, capital controls, commoditize, commodity trading advisor, correlation coefficient, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, equity premium, equity risk premium, estate planning, financial independence, fixed income, full employment, high net worth, Home mortgage interest deduction, implied volatility, index fund, intangible asset, inverted yield curve, John Bogle, junk bonds, Long Term Capital Management, low interest rates, managed futures, Mason jar, money market fund, mortgage tax deduction, passive income, pattern recognition, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, selection bias, Sharpe ratio, stock buybacks, stocks for the long run, survivorship bias, too big to fail, transaction costs, Vanguard fund, yield curve

This led a few prominent icons in the investment industry to question the wisdom of owning international stocks. One of those was John Bogle, founder of the Vanguard Group of mutual funds. I have the greatest respect for John Bogle, but I don’t always agree with him, and this was one of those times. A single 10-year period is not a reason to be out of international stocks for a lifetime. By the end of 2009, after international stocks outperformed U.S. stocks by a wide margin, people saw the benefits of international exposure. Even John Bogle changed his view and now accepts an allocation of up to 20 percent in international stock index funds.

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Learn the principles of asset allocation, design an investment plan that fits your needs, implement and maintain that plan, and keep your costs low. You will be further ahead in the future for doing so. This page intentionally left blank APPENDIX A Research Web Sites Bogleheads.org Bogleheads was inspired by the writings and actions of John C. Bogle, founder and former chairman of the Vanguard Group. This unbiased online community of investors will help answer the questions you have about asset allocation and investment selection. DFAfunds.com Dimensional Fund Advisors offers unique index funds through advisors. Its three-factor approach to portfolio construction is gaining acceptance worldwide.

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This book provides sound advice on a variety of issues including mutual funds, bonds, diversification, and taxes. Published in 2006 by Wiley. The Coffeehouse Investor, by Bill Schultheis. An asset allocation book for those who want to keep their life simple. 2nd edition, published in 2009 by Portfolio Hardcover. Common Sense on Mutual Funds, by John C. Bogle. A low-cost mutual fund icon shares his views on investing. 2nd edition, published in 2009 by Wiley. The ETF Book, by Richard A. Ferri, CFA: All you need to know about exchangetraded products. 2nd edition, published in 2009 by Wiley. The Four Pillars of Investing: Lessons for Building a Winning Portfolio, by William J.

The Einstein of Money: The Life and Timeless Financial Wisdom of Benjamin Graham by Joe Carlen

Abraham Maslow, Albert Einstein, asset allocation, Bernie Madoff, book value, Bretton Woods, business cycle, business intelligence, discounted cash flows, Eugene Fama: efficient market hypothesis, full employment, index card, index fund, intangible asset, invisible hand, Isaac Newton, John Bogle, laissez-faire capitalism, margin call, means of production, Norman Mailer, oil shock, post-industrial society, price anchoring, price stability, reserve currency, Robert Shiller, the scientific method, Vanguard fund, young professional

in The Rediscovered Benjamin Graham, edited by Janet Lowe (New York: John Wiley & Sons, 1999), p. 9. CHAPTER 8. THE FOLLY OF “MR. MARKET” 1. Benjamin Graham, The Intelligent Investor, 4th ed. (New York: Harper & Row, 1973), p. 108. 2. Ibid. 3. Kelly Evans, “Ahead of the Tape,” Wall Street Journal, April 2, 2010. 4. Graham, Intelligent Investor, 4th ed., p. 108. 5. John C. Bogle, Common Sense on Mutual Funds (Hoboken, NJ: John Wiley & Sons, 2009), p. 28. 6. Pat Dorsey, The Five Rules for Successful Stock Investing (Hoboken, NJ: John Wiley & Sons, 2004), p. xvii. 7. Gary P. Brinson, Randolph L. Hood, and Gilbert P. Beebower, “Determinants of Portfolio Performance,” Financial Analysts Journal (July/August 1986). 8.

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storyID=22536&template=article&bhcp=1 (accessed April 9, 2012). 67. Greenwald et al., Value Investing, p. 197. 68. GAMCO Investors, Inc., 2005 Annual Report. 69. “Who We Are,” Vanguard, https://personal.vanguard.com/us/content/Home/WhyVanguard/AboutVanguardWhoWeAreContent.jsp (accessed April 25, 2012). 70. John C. Bogle, Bogle on Mutual Funds: New Perspectives for the Intelligent Investor (New York: Dell, 1994), p. v. 71. John Birger, “Eveillard: A Value Maestro's Encore,” Fortune, June 19, 2007. 72. Ibid. 73. “Jean-Marie Eveillard: Profile/Performance,” Guru Focus, February 11, 2012, http://www.gurufocus.com/StockBuy.php?

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Nonetheless, Gabelli remains a dedicated Graham devotee and Greenwald and his colleagues describe him as a “value investor…schooled in the Benjamin Graham tradition.”67 In fact, Gabelli presents an annual “Graham & Dodd, Murray, Greenwald Award for Distinguished Value Investors.”68 JOHN BOGLE The celebrated founder of the Vanguard Group (which manages over $1.7 trillion in assets69), John Bogle, now retired, scaled the heights of investment finance for several decades. He is also a proud Graham devotee throughout most of his career. In the acknowledgments to his classic work Bogle on Mutual Funds: New Perspectives for the Intelligent Investor, Bogle wrote: “Two centuries ago, it was said that if we stand on the shoulders of giants, we may see further than the giants themselves.

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

"Friedman doctrine" OR "shareholder theory", Abraham Wald, activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, Andrei Shleifer, AOL-Time Warner, asset allocation, asset-backed security, bank run, beat the dealer, behavioural economics, Benoit Mandelbrot, Big Tech, Black Monday: stock market crash in 1987, Black-Scholes formula, book value, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Carl Icahn, Cass Sunstein, collateralized debt obligation, compensation consultant, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, democratizing finance, Dennis Tito, discovery of the americas, diversification, diversified portfolio, Dr. Strangelove, Edward Glaeser, Edward Thorp, endowment effect, equity risk premium, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Glass-Steagall Act, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Bogle, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, market bubble, market design, Michael Milken, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, power law, prediction markets, proprietary trading, prudent man rule, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, rolodex, Ronald Reagan, seminal paper, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Skinner box, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, tech worker, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, Two Sigma, Tyler Cowen, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

“Big Money in Boston,” Fortune, Dec. 1949, 116–21, 189–96. There’s no byline, but Fortune’s records show that it was written by Hedley Donovan, who went on to succeed Henry Luce as editor of Time Inc. The second quote was a paraphrase by Donovan of a statement by an MIT executive. 8. John C. Bogle, “The Economic Role of the Investment Company,” reprinted in John Bogle on Investing: The First 50 Years (New York: McGraw-Hill, 2001), 355, 440. 9. The Collected Writings of John Maynard Keynes: Vol. XII, Donald Maggridge, ed. (Cambridge: Cambridge University Press, 1983), 100, 82. 10. Benjamin Graham, The Memoirs of the Dean of Wall Street, edited and introduction by Seymour Chatman (New York: McGraw-Hill, 1996), 124–26.

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A few months later, though, a rebuttal of their article appeared in the pages of the Financial Analysts Journal. Its author was “John B. Armstrong”—a pseudonym, a footnote revealed, for “a man who has spent many years in the security field and wrote his Princeton senior thesis on ‘The Economic Role of the Investment Company.’” His real name was John C. Bogle, and he was a rising young executive at Wellington Management Co., a Philadelphia mutual fund firm. He’d opted for the pseudonym (Armstrong was his maternal grandfather’s last name) because he didn’t want to get Wellington in trouble with the Securities and Exchange Commission.3 In his rebuttal, Bogle argued that the unmanaged fund was a solution in search of a problem.

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Joseph Nocera, A Piece of the Action: How the Middle Class Joined the Money Class (New York: Simon & Schuster, 1994), 116–18. Merrill switched to paying its brokers with commissions in the early 1970s. 31. Investment Company Institute v. Camp, 401 U.S. 617 (1971). 32. A much more extensive account of this can be found in Peter Bernstein, Capital Ideas (New York: Free Press, 1993). 33. John C. Bogle, “Remutualizing the Mutual Fund Industry—The Alpha and the Omega,” address at Boston College Law School, Jan. 21, 2004. 34. From an advertisement for the book that ran in New York Times on Oct. 14, 1973, 173. 35. Vartanig Vartan, “Research vs. Rhesus,” New York Times, Oct. 14, 1973, 181. 36.

Work Less, Live More: The Way to Semi-Retirement by Robert Clyatt

asset allocation, backtesting, buy and hold, currency risk, death from overwork, delayed gratification, diversification, diversified portfolio, do what you love, eat what you kill, employer provided health coverage, estate planning, Eugene Fama: efficient market hypothesis, financial independence, fixed income, future of work, independent contractor, index arbitrage, index fund, John Bogle, junk bonds, karōshi / gwarosa / guolaosi, lateral thinking, Mahatma Gandhi, McMansion, merger arbitrage, money market fund, mortgage tax deduction, passive income, rising living standards, risk/return, Silicon Valley, The 4% rule, The Theory of the Leisure Class by Thorstein Veblen, Thorstein Veblen, transaction costs, unpaid internship, upwardly mobile, Vanguard fund, work culture , working poor, zero-sum game

For example, PFUIX and PCRIX list a $5 million minimum in their literature but are available through fund supermarkets with a chapter 3 | Put Your Investing on Autopilot | 197 $25,000 minimum and $1,000 follow-on investments. The lesson here is that you may need to knock more than once to get into some of these funds. Resource The defining source of information on long-term buy-and-hold low-fee indexing has been Vanguard’s founder, John C. Bogle, author of the classic Common Sense on Mutual Funds (Wiley). Bogle also has a website loaded with numerous speeches and articles at www.vanguard.com/bogle_ site/bogle_home.html. Richard Ferri recently wrote a clear, well-researched book on asset allocation, All About Asset Allocation (McGraw Hill), which digs deeper into the research and data underlying Rational Investing principles.

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Appendix B | Resources | 347 Print Armstrong. The Informed Investor, by Frank Armstrong III (Amoco), a financial planner, gives a very readable discussion of the benefits of diversifying among key asset classes with Small, International, and Value Tilts. Bogle. Common Sense on Mutual Funds, by John C. Bogle (John Wiley and Sons). This book and anything written by Bogle are the gold standard for advice on cost-efficient indexing and long-term investing. As founder of the investment firm Vanguard, Bogle has arguably done more for the small investor than anyone in history and continues to rail against excessive fees and conflict of interest in the mutual fund industry.

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In all cases, your actual fees will be higher than those listed in fund prospectuses and published materials, since all funds incur trading expenses and commissions while buying and selling securities that are never clearly reported. The .5% figure for your budget attempts to capture those trading expenses and give you a clear and accurate picture of your costs. As a reference point, John Bogle, the founder of The Vanguard Group, a low-fee mutual fund firm owned by its shareholders, estimates that the fund management industry as a whole absorbs about 3% of asset values each year in investment management fees and commission. You will be far ahead of that average, keeping more of your money at work and growing in value for you every year.

More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded) by Michael J. Mauboussin

Alan Greenspan, Albert Einstein, Andrei Shleifer, Atul Gawande, availability heuristic, beat the dealer, behavioural economics, Benoit Mandelbrot, Black Swan, Brownian motion, butter production in bangladesh, buy and hold, capital asset pricing model, Clayton Christensen, clockwork universe, complexity theory, corporate governance, creative destruction, Daniel Kahneman / Amos Tversky, deliberate practice, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, dogs of the Dow, Drosophila, Edward Thorp, en.wikipedia.org, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, fixed income, framing effect, functional fixedness, hindsight bias, hiring and firing, Howard Rheingold, index fund, information asymmetry, intangible asset, invisible hand, Isaac Newton, Jeff Bezos, John Bogle, Kenneth Arrow, Laplace demon, Long Term Capital Management, loss aversion, mandelbrot fractal, margin call, market bubble, Menlo Park, mental accounting, Milgram experiment, Murray Gell-Mann, Nash equilibrium, new economy, Paul Samuelson, Performance of Mutual Funds in the Period, Pierre-Simon Laplace, power law, quantitative trading / quantitative finance, random walk, Reminiscences of a Stock Operator, Richard Florida, Richard Thaler, Robert Shiller, shareholder value, statistical model, Steven Pinker, stocks for the long run, Stuart Kauffman, survivorship bias, systems thinking, The Wisdom of Crowds, transaction costs, traveling salesman, value at risk, wealth creators, women in the workforce, zero-sum game

Bogle argues that the turnover ratios suggest most investors are speculators. See John C. Bogle, “Mutual Fund Industry in 2003: Back to the Future,” 14 January 2003, http://www.vanguard.com/bogle_site/sp20030114.html. 4 See Charles D. Ellis, “Will Business Success Spoil the Investment Management Profession?” The Journal of Portfolio Management (Spring 2001): 11-15, for an excellent exposition of this tension. 5 Bogle, “Mutual Fund Industry in 2003.” Also see, “Other People’s Money: A Survey of Asset Management,” The Economist, July 5, 2003; John C. Bogle, “The Emperor’s New Mutual Funds,” The Wall Street Journal, July 8, 2003; and John C. Bogle, “The Mutual Fund Industry Sixty Years Later: For Better or Worse?”

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Campbell, Martin Lettau, Burton Malkiel, and Yexiao Xu, “Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk,” Journal of Finance 54 (February 2001): 1-43. 5 This does not mean that stock prices reflect short-term expectations. 6 John C. Bogle, “Mutual Fund Directors: The Dog that Didn’t Bark,” January, 28, 2001, http://www.vanguard.com/bogle_site/sp20010128.html. Updated data are from John C. Bogle, “The Mutual Fund Industry Sixty Years Later: For Better or Worse?” Financial Analysts Journal (January-February 2005). 7 Kathryn Kranhold, “Florida Might Sue Alliance Capital Over Pension Fund’s Enron Losses,” The Wall Street Journal, April 23, 2002. 8 This is not to say that the stock market is short-term oriented.

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Brian Arthur, “Inductive Reasoning and Bounded Rationality: The El Farol Problem,” paper given at the American Economic Association Annual Meetings, 1994, published in American Economic Review (Papers and Proceedings) 84 (1994): 406-11, http://www.santafe.edu/arthur/Papers/El_Farol.html. 2 For a good discussion of expectation formation, see Karl-Erik Wärneryd, Stock-Market Psychology (Cheltenham, UK: Edward Elgar, 2001), 73-95. 3 See Bob Davis and Susan Warren, “How Fears of Impending War Already Take Economic Toll,” The Wall Street Journal, January 29, 2003. 4 John Maynard Keynes, The General Theory of Employment (New York: Harcourt, Brace and Company, 1936), 162. 5 Ibid., 159. 6 John C. Bogle, “The Mutual Fund Industry in 2003: Back to the Future,” remarks before the Harvard Club of Boston, January 14, 2003, http://www.vanguard.com/bogle_site/sp20030114.html. 7 This section relies heavily on Arthur, “Inductive Reasoning.” 8 Corinne Coen and Rick Riolo, “El Farol Revisited: How People in Large Groups Learn to Coordinate Through Complementary Scripts,” Organizational Learning and Knowledge Management conference proceedings, 4th International Conference, June 2001. 9 Max Bazerman, Judgment in Managerial Decision Making, 4th ed.

How I Invest My Money: Finance Experts Reveal How They Save, Spend, and Invest by Brian Portnoy, Joshua Brown

asset allocation, behavioural economics, bitcoin, blockchain, blue-collar work, buy and hold, coronavirus, COVID-19, cryptocurrency, diversification, diversified portfolio, estate planning, financial independence, fixed income, high net worth, housing crisis, index fund, John Bogle, low interest rates, mental accounting, passive investing, prediction markets, risk tolerance, Salesforce, Sharpe ratio, time value of money, underbanked, Vanguard fund

Crain’s Chicago Business named her a Notable Woman in Finance in 2019. Benz is author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances; co-author of Morningstar Guide to Mutual Funds: 5-Star Strategies for Success, a national bestseller; and author of the book’s second edition. She is a board member of the John C. Bogle Center for Financial Literacy. Benz is also a member of The Alpha Group, a group of thought leaders from the wealth management industry. She works with underprivileged women to improve their understanding of personal finance concepts. I’ll never be passionate about investments. That’s not a comfortable admission, given that I’ve spent my career in a job where investments are central, and I work amid people who are deeply, truly, genuinely into investments.

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His son’s firm manages about $1.1 billion and its small-cap mutual fund charges annual fees of 1.35%, much higher than the 0.24% annual fee for a Vanguard index fund that tracks similar stocks, but about average for active managers offering similar services. John Bogle has a ready reply: He is making money for clients and for himself. “Is there anything wrong with that?” he said once in response. This year, John Bogle’s fund has generated total returns of 40%... according to Morningstar, compared with 35% for the Russell 2000 and 34% for the similar Vanguard fund, according to Morningstar. Even his father benefits. He is an investor in the small-cap fund.

Value of Everything: An Antidote to Chaos The by Mariana Mazzucato

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, Alan Greenspan, bank run, banks create money, Basel III, behavioural economics, Berlin Wall, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, business cycle, butterfly effect, buy and hold, Buy land – they’re not making it any more, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Carmen Reinhart, carried interest, clean tech, Corn Laws, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, European colonialism, Evgeny Morozov, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, full employment, G4S, George Akerlof, Glass-Steagall Act, Google Hangouts, Growth in a Time of Debt, high net worth, Hyman Minsky, income inequality, independent contractor, index fund, informal economy, interest rate derivative, Internet of things, invisible hand, John Bogle, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour market flexibility, laissez-faire capitalism, light touch regulation, liquidity trap, London Interbank Offered Rate, low interest rates, margin call, Mark Zuckerberg, market bubble, means of production, military-industrial complex, Minsky moment, Money creation, money market fund, negative equity, Network effects, new economy, Northern Rock, obamacare, offshore financial centre, Pareto efficiency, patent troll, Paul Samuelson, peer-to-peer lending, Peter Thiel, Post-Keynesian economics, profit maximization, proprietary trading, quantitative easing, quantitative trading / quantitative finance, QWERTY keyboard, rent control, rent-seeking, Robert Solow, Sand Hill Road, shareholder value, sharing economy, short selling, Silicon Valley, Simon Kuznets, smart meter, Social Responsibility of Business Is to Increase Its Profits, software patent, Solyndra, stem cell, Steve Jobs, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, transaction costs, two and twenty, two-sided market, very high income, Vilfredo Pareto, wealth creators, Works Progress Administration, you are the product, zero-sum game

Philippon, ‘Finance vs Wal-Mart: Why are financial services so expensive?', in A. Blinder, A. Lo and R. Solow (eds), Rethinking the Financial Crisis (New York: Russell Sage Foundation, 2012), p. 13: http://www.russellsage.org/sites/all/files/Rethinking-Finance/Philippon_v3.pdf 38. John C. Bogle, ‘The arithmetic of “all-in” investment expenses', Financial Analysts Journal, 70(1) (2014), p. 18. 39. Ibid., p. 17. 40. John C. Bogle, The Clash of the Cultures: Investment vs. Speculation (Hoboken, NJ: John Wiley and Sons, 2012), p. 8. 41. Ibid., p. 2. 42. https://www.ft.com/content/ab1ce98e-c5da-11e6-9043-7e34c07b46ef 43. https://www.nytimes.com/2016/12/10/business/dealbook/just-how-much-do-the-top-private-equity-earners-make.html 44.

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A passive fund is usually an ‘index' or ‘tracker' fund, where the manager simply buys shares in proportion to a stock market index and tracks that benchmark. But performance must be balanced with fees. Consider investing longterm, say over the forty-year working life of a given employee. One of the leading figures in the US fund management industry is John Bogle. He founded Vanguard, a very large index investment group (not an active investor) which charges low fees. Bogle has estimated an all-in cost for actively managed funds of 2.27 per cent of the funds' value. The amounts may not seem excessive. But Bogle never tires of saying to fund investors: ‘Do not allow the tyranny of compounding costs to overwhelm the magic of compounding returns.'38 In fact, if you assume Bogle's estimate of fund management costs and also assume an annual return of 7 per cent, the total return to a saver over forty years will be 65 per cent higher without the charges.

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And the average holding time for equity investment, whether by individuals or institutions, has relentlessly fallen: from four years in 1945 to eight months in 2000, two months in 2008 and (with the rise of high-frequency trading) twenty-two seconds by 2011 in the US.20 Average PE holding times jumped to almost six years when stock markets froze in the wake of the 2008 global financial crash, but were on a firm downward course again by 2015.21 The ‘short-termism' which Keynes anticipated is encapsulated in index fund pioneer John Bogle's concept that institutional investors rent the shares of the companies they invest in rather than take ownership for the long term. Consider the increased turnover of domestic shares: according to the World Federation of Exchanges, which represents the world's publicly regulated stock exchanges, in the US turnover of domestic shares was around 20 per cent a year in the 1970s, rising steeply to consistently over 100 per cent a year in the 2000s.

Winner-Take-All Politics: How Washington Made the Rich Richer-And Turned Its Back on the Middle Class by Paul Pierson, Jacob S. Hacker

accounting loophole / creative accounting, active measures, affirmative action, air traffic controllers' union, Alan Greenspan, asset allocation, barriers to entry, Bear Stearns, Bonfire of the Vanities, business climate, business cycle, carried interest, Cass Sunstein, clean water, collective bargaining, corporate governance, Credit Default Swap, David Brooks, desegregation, employer provided health coverage, financial deregulation, financial innovation, financial intermediation, fixed income, full employment, Glass-Steagall Act, Home mortgage interest deduction, Howard Zinn, income inequality, invisible hand, John Bogle, knowledge economy, laissez-faire capitalism, Martin Wolf, medical bankruptcy, moral hazard, Nate Silver, new economy, night-watchman state, offshore financial centre, oil shock, Paul Volcker talking about ATMs, Powell Memorandum, Ralph Nader, Ronald Reagan, Savings and loan crisis, shareholder value, Silicon Valley, Tax Reform Act of 1986, The Wealth of Nations by Adam Smith, three-martini lunch, too big to fail, trickle-down economics, union organizing, very high income, War on Poverty, winner-take-all economy, women in the workforce

Murphy, “Politics, Economics, and Executive Compensation,” University of Cincinnati Law Review 63 (1995): 714–746. 45 Peter A. Gourevitch and James Shinn, Political Power and Corporate Control: The New Global Politics of Corporate Governance (Princeton: Princeton University Press, 2005). 46 John C. Bogle, “A Crisis of Ethic Proportions,” Wall Street Journal, April 21, 2009; John C. Bogle, The Battle for the Soul of Capitalism: How the Financial System Undermined Social Ideals, Damaged Trust in the Markets, Robbed Investors of Trillions—And What to Do About It (New Haven: Yale University Press, 2005). 47 Lucian Bebchuk and Jesse Fried, Pay Without Performance: The Unfulfilled Promise of Executive Compensation (Cambridge, MA: Harvard University Press, 2004). 48 Ibid., 100. 49 Ibid., 102, 105. 50 Ellen E.

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Many of those who study how this process actually works are more doubtful. Looking at corporate governance in a number of rich democracies, the political economists Peter Gourevitch and James Shinn argue that a better description is “managerism,” a system in which managerial elites are in a strong position to extract resources.45 The financier John Bogle has contended that instead of an “ownership society” in which managers serve owners, the United States is moving toward an “agency society” in which managers serve themselves.46 Two of the nation’s leading experts on corporate compensation, Lucian Bebchuk and Jesse Fried, provide many findings more consistent with a “board capture” view than a “shareholder value” perspective.

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As we write midway through the fourth year of Democratic control of Congress, the rules governing taxation of hedge funds look more vulnerable than ever but remain unchanged. Schumer’s policy role, combined with his success in fund-raising, has garnered scathing criticism from many close observers of Wall Street practices. John Bogle, founder of the Vanguard Group and a passionate advocate for ordinary shareholders, bluntly concludes that Schumer “is serving the parochial interest of a very small group of financial people, bankers, investment bankers, fund managers, private equity firms, rather than serving the general public… It has hurt the American investor first and the average American taxpayer.”10 Yet one could also say Schumer has simply followed a time-honored American practice.

Who Stole the American Dream? by Hedrick Smith

Affordable Care Act / Obamacare, Airbus A320, airline deregulation, Alan Greenspan, anti-communist, asset allocation, banking crisis, Bear Stearns, Boeing 747, Bonfire of the Vanities, British Empire, business cycle, business process, clean water, cloud computing, collateralized debt obligation, collective bargaining, commoditize, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, David Brooks, Deng Xiaoping, desegregation, Double Irish / Dutch Sandwich, family office, financial engineering, Ford Model T, full employment, Glass-Steagall Act, global supply chain, Gordon Gekko, guest worker program, guns versus butter model, high-speed rail, hiring and firing, housing crisis, Howard Zinn, income inequality, independent contractor, index fund, industrial cluster, informal economy, invisible hand, John Bogle, Joseph Schumpeter, junk bonds, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, laissez-faire capitalism, Larry Ellison, late fees, Long Term Capital Management, low cost airline, low interest rates, manufacturing employment, market fundamentalism, Maui Hawaii, mega-rich, Michael Shellenberger, military-industrial complex, MITM: man-in-the-middle, mortgage debt, negative equity, new economy, Occupy movement, Own Your Own Home, Paul Samuelson, Peter Thiel, Plutonomy: Buying Luxury, Explaining Global Imbalances, Ponzi scheme, Powell Memorandum, proprietary trading, Ralph Nader, RAND corporation, Renaissance Technologies, reshoring, rising living standards, Robert Bork, Robert Shiller, rolodex, Ronald Reagan, Savings and loan crisis, shareholder value, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Solyndra, Steve Jobs, stock buybacks, tech worker, Ted Nordhaus, The Chicago School, The Spirit Level, too big to fail, transaction costs, transcontinental railway, union organizing, Unsafe at Any Speed, Vanguard fund, We are the 99%, women in the workforce, working poor, Y2K

CHAPTER 14 THE GREAT WEALTH SHIFT HOW THE BANKS ERODED MIDDLE-CLASS SAVINGS The American people realize they’ve been robbed. They’re just not sure by whom. —GRETCHEN MORGENSON AND JOSHUA ROSNER, Reckless Endangerment Our present economic crisis was, by and large, foisted on Main Street by Wall Street—the mostly innocent public taken to the cleaners, as it were, by the mostly greedy financiers. —JOHN C. BOGLE, founder, the Vanguard Group HOUSING EPITOMIZES DIVIDED AMERICA. It lies astride the fault line of the economic earthquake that split the country. The housing bubble and bust did more to devastate middle-class wealth in a relatively short span than any other single development. In the 1990s and 2000s, the secondary market in housing mortgages gave birth to probably the most massive operation for creating, packaging, and selling debt in American history.

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Olin Center for Law, Economics, and Business, Harvard University, February 2010). 64 Angelo Mozilo, CEO Frank Ahrens, “Big Payday Awaits Chairman After Countrywide Sale,” The Washington Post, January 12, 2008. 65 The SEC found Eric Dash, “Dodging Taxes Is a New Stock Options Scheme,” The New York Times, October 30, 2006; “Stock-Options Scandal Fugitive Puts Roots Down in Namibia,” The Wall Street Journal, November 17, 2006; “How Backdating Helped Executives Cut Their Taxes,” The Wall Street Journal, December 12, 2006. 66 Steve Jobs had been personally involved “Jobs Helped Pick ‘Favorable’ Dates for Options Grants,” The Wall Street Journal, December 30, 2006; and Alan Sipress, “Apple Chief Benefited from Options, Records Indicate,” The Washington Post, January 11, 2007. 67 One revealing case, William McGuire “Embattled CEO to Step Down at United Health,” The Wall Street Journal, October 16, 2006; “How a Giant Insurer Decided to Oust Hugely Successful CEO,” The Wall Street Journal, December 7, 2007. 68 One reason so many CEOs got away Lucian Bebchuk, Yaniv Grinstein, and Urs Peyer, “Lucky CEOs and Lucky Directors,” Discussion Paper No. 573 (Cambridge, MA: John M. Olin Center for Law, Economics, and Business, Harvard University, December 2006), published in Journal of Finance 65, no. 6 (December 2010); John Hechinger, “Backdated Options Pad CEO Pay by Average of 10%,” The Wall Street Journal, November 17, 2006. 69 Bogle also derided the idea John C. Bogle, The Battle for the Soul of Capitalism (New Haven, CT: Yale University Press, 2005), 10–26. 70 Dissenting academics Jay Lorsch and Rakesh Khurana, “The Pay Problem,” Harvard Magazine, May–June 2010. 71 Executive stock options Despite his dismay, Jensen was against abandoning the pay-for-performance stock options.

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Department of Justice, news release, December 17, 2007, Exhibit 82, Levin subcommittee, hearing April 13, 2010, www.​hsgac.​senate.​gov/​public/​_files/​Financial_​Crisis/​041310​Exhibits.​pdf. 35 55 percent of subprime borrowers “Subprime Debacle Traps Even Very Credit-Worthy,” The Wall Street Journal, December 3, 2007; “Policing Main Street,” Newsweek, July 25, 2010. 36 The floating-rate mortgage Heller, interview, August 4, 2010. 37 Terboss spent $200,000 John Terboss, interview, September 2, 2010. 38 Terboss shared with me Homegate Mortgage Company, fax letter, “Proposal for John Terboss, Prepared by Bob Norrris, 10/03/07,” provided by Terboss. 39 “It was a very strange closing” Terboss, interview, September 2, 2010. 40 “I immediately called the bank” Ibid. 41 “This is not how it was represented” John Terboss, fax letter to Washington Mutual, December 11, 2007. 42 “It’s as if the broker” David Leen, interview, August 30, 2010. 43 “I learned that the banking industry” Terboss, interview, September 17, 2010. CHAPTER 14: THE GREAT WEALTH SHIFT 1 “The American people” Morgenson and Rosner, Reckless Endangerment, xiv. 2 “Our present economic crisis” John C. Bogle, testimony, House Committee on Education and Labor, February 24, 2009. 3 It powered the growth of debt Frank J. Fabozzi, Anand K. Bhattacharya, and William S. Berliner, Mortgage-Backed Securities (Hoboken, NJ: John Wiley & Sons, 2007), preface. 4 Greenspan dismissed the risk Alan Greenspan, remarks, annual convention of Independent Community Bankers of America, Orlando, FL, March 4, 2003. 5 “Greatest global financial crisis ever” Alan Greenspan, citing Federal Reserve data, in “Activism,” International Finance 14, no. 1 (Spring 2011), http://​www.​cfr.​org. 6 “I found a flaw in the model” Alan Greenspan, testimony, House Committee on Oversight and Government Reform, October 23, 2008. 7 Greenspan went on to admit that the crash Greenspan, citing Federal Reserve data, in “Activism.” 8 “A shift in the mortgage product” James Grant, Mr.

The Scandal of Money by George Gilder

Affordable Care Act / Obamacare, Alan Greenspan, bank run, behavioural economics, Bernie Sanders, bitcoin, blockchain, borderless world, Bretton Woods, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, Claude Shannon: information theory, Clayton Christensen, cloud computing, corporate governance, cryptocurrency, currency manipulation / currency intervention, currency risk, Daniel Kahneman / Amos Tversky, decentralized internet, Deng Xiaoping, disintermediation, Donald Trump, fiat currency, financial innovation, Fractional reserve banking, full employment, George Gilder, glass ceiling, guns versus butter model, Home mortgage interest deduction, impact investing, index fund, indoor plumbing, industrial robot, inflation targeting, informal economy, Innovator's Dilemma, Internet of things, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jeff Bezos, John Bogle, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, Law of Accelerating Returns, low interest rates, Marc Andreessen, Mark Spitznagel, Mark Zuckerberg, Menlo Park, Metcalfe’s law, Money creation, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Nixon triggered the end of the Bretton Woods system, obamacare, OSI model, Paul Samuelson, Peter Thiel, Ponzi scheme, price stability, Productivity paradox, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, reality distortion field, reserve currency, road to serfdom, Robert Gordon, Robert Metcalfe, Ronald Reagan, Sand Hill Road, Satoshi Nakamoto, Search for Extraterrestrial Intelligence, secular stagnation, seigniorage, Silicon Valley, Skinner box, smart grid, Solyndra, South China Sea, special drawing rights, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, time value of money, too big to fail, transaction costs, trickle-down economics, Turing machine, winner-take-all economy, yield curve, zero-sum game

The figures on jobs contribution from venture capital vary from 11 percent to 17 percent, but since the epochs of slavery and socialism all jobs have stemmed from the process of knowledge accumulation and learning, which is the focus of venture investment. 3.Charles Gave, “Indexation=Parasitism,” GavekalDragonomics (Hong Kong: Gavekal Research, July 15, 2014), 1. 4.John C. Bogle, The Clash of Cultures: Investment vs. Speculation (New York, NY: John Wiley and Sons, 2012). Bogle astonishingly sees the culture of investment as index funds and the culture of speculation as actively managed capital. 5.Nassim Nicholas Taleb and Mark Spitznagel, blog post, Global Public Square, CNN, October 2012. 6.Ibid. 7.Robert Laughlin, A Different Universe (New York, NY: Basic Books, 2006). 8.Robert J.

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The anomalous rise of Apple to the world’s most valuable corporation has saved the careers of thousands of managers. Momentum prevails until it stops. But as the economist Charles Gave of Gavekal puts it, “In a true capitalist system, the rule is the higher the price the lower the demand. With indexation, the higher the price, the higher the demand. This is insane.”3 Yet as pioneered by the laureled John Bogle at Vanguard and encouraged by the SEC’s insider-trading phobias, these parasitical and distortionary index funds directly extinguish knowledge and learning in the economy.4 Vanguard now passively “manages” some $2.9 trillion of assets while contributing nothing to the investment process. Rather than investing in the market, they parasitically infest and congest it.

The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk by William J. Bernstein

asset allocation, backtesting, book value, buy and hold, capital asset pricing model, commoditize, computer age, correlation coefficient, currency risk, diversification, diversified portfolio, Eugene Fama: efficient market hypothesis, financial engineering, fixed income, index arbitrage, index fund, intangible asset, John Bogle, junk bonds, Long Term Capital Management, p-value, passive investing, prediction markets, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, South Sea Bubble, stocks for the long run, survivorship bias, the rule of 72, the scientific method, time value of money, transaction costs, Vanguard fund, Wayback Machine, Yogi Berra, zero-coupon bond

Business One Irwin, 1991. Peters, Thomas J., and Waterman, Robert W. Jr., In Search of Excellence: Lessons from America’s Best Companies. Harper Collins, 1982. Siegel, Jeremy, Stocks for the Long Run. McGraw-Hill, 2000. Value Line Graphic Supplement 1994 (valuation historical data). Chapter 8 Bogle, John C., Bogle on Mutual Funds. Dell, 1994. Bogle, John C., Common Sense on Mutual Funds. Wiley, 1999. Cooley, P. L., Hubbard, C. M., and Walz, D. T., “Sustainable Withdrawal Rates from Your Retirement Portfolio.” Financial Counseling and Planning, 10(1), 39–47. Edleson, Michael E., Value Averaging: The Safe and Easy Strategy for Higher Investment Returns.

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All of the books I shall recommend are quite well written and should not serve as substitutes for sleeping medicine. A Modest Reading List 1. A Random Walk Down Wall Street, by Burton Malkiel. An excellent investment primer, it explains the basics of stocks, bonds, and mutual funds and will reinforce the efficient-market concept. 2. Common Sense on Mutual Funds. Replaces Bogle on Mutual Funds, by who else, John Bogle. This will provide more detail than you ever wanted to know about this important investment vehicle. Mr. Bogle is the chairman and founder of the Vanguard Group, and he has been an important voice in the industry for decades. Beautifully written, opinionated, and highly recommended. The book also demonstrates the democratization which has swept the investment industry in recent years.

Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies by Jeremy J. Siegel

addicted to oil, Alan Greenspan, asset allocation, backtesting, behavioural economics, Black-Scholes formula, book value, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, capital asset pricing model, cognitive dissonance, compound rate of return, correlation coefficient, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, fixed income, German hyperinflation, implied volatility, index arbitrage, index fund, Isaac Newton, it's over 9,000, John Bogle, joint-stock company, Long Term Capital Management, loss aversion, machine readable, market bubble, mental accounting, Money creation, Myron Scholes, new economy, oil shock, passive investing, Paul Samuelson, popular capitalism, prediction markets, price anchoring, price stability, proprietary trading, purchasing power parity, random walk, Richard Thaler, risk free rate, risk tolerance, risk/return, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, stock buybacks, stocks for the long run, subprime mortgage crisis, survivorship bias, technology bubble, The Great Moderation, The Wisdom of Crowds, transaction costs, tulip mania, uptick rule, Vanguard fund, vertical integration

Actively managed equity funds did on average outperform the Wilshire 5000 and the S&P 500 indexes during the period from 1975 through 1983 when small stocks returned a spectacular 35.32 percent per year. Equity mutual funds generally do well when small stocks outperform large stocks, as many money managers seek to boost performance by buying smaller-sized firms. 3 Fund data provided by the Vanguard Group. See John C. Bogle, Bogle on Mutual Funds, Burr Ridge, Ill.: Irwin Professional Publishing, 1994, for a fuller description of these data. TABLE 20–1 Equity Mutual Funds and Benchmark Returns: Annual Compound Returns (Excluding Sales and Redemption Fees), January 1971 through December 2006 (Standard Deviations in Parentheses) 344 PART 5 Building Wealth through Stocks Since 1983, when the small stocks surge ended, the performance of the average mutual fund has been worse, falling nearly 11⁄2 percentage points per year behind either the Wilshire 5000 or the S&P 500 Index.

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First, in seeking superior returns, a manager buys and sells stocks, which involves brokerage commissions and paying the bid-ask spread, or the difference be- 7 Darryll Hendricks, Jayendu Patel, and Richard Zeckhauser, “Hot Hands in Mutual Funds: ShortRun Persistence of Relative Performance, 1974–1988,” Journal of Finance, vol. 48, no. 1 (March 1993), pp. 93–130. 8 Edwin J. Elton, Martin J. Gruber, and Christopher R. Blake, “The Persistence of Risk-Adjusted Mutual Fund Performance,” Journal of Business, vol. 69, no. 2 (April 1996), pp. 133–157. 9 Burton G. Malkiel, A Random Walk Down Wall Street, 8th ed., New York: Norton, 2003, pp. 372–274. 10 John C. Bogle, The Little Book of Common Sense Investing, Hoboken, N.J.: Wiley, 2007, Chap. 9. CHAPTER 20 Fund Performance, Indexing, and Beating the Market 349 tween the buying and the selling price of shares. Second, investors pay management fees (and possibly sales, or “load,” fees) to the organizations and individuals that sell these funds.

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CHAPTER 20 Fund Performance, Indexing, and Beating the Market 351 THE INCREASED POPULARITY OF PASSIVE INVESTING Many investors have realized that the poor performance of actively managed funds relative to benchmark indexes strongly implies that they would do very well to just equal the market return of one of the broadbased indexes. Thus, the 1990s witnessed an enormous increase in passive investing, the placement of funds whose sole purpose was to match the performance of an index. The oldest and most popular of the index funds is the Vanguard 500 Index Fund.12 The fund, started by visionary John Bogle, raised only $11.4 million when it debuted in 1976, and few thought the concept would survive. But slowly and surely indexing gathered momentum, and the fund’s assets reached $17 billion at the end of 1995. In the latter stages of the 1990s bull market, the popularity of indexing soared. By March 2000, when the S&P 500 Index reached its alltime high, the fund claimed the title of the world’s largest equity fund with assets over $100 billion.

Stocks for the Long Run 5/E: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies by Jeremy Siegel

Alan Greenspan, AOL-Time Warner, Asian financial crisis, asset allocation, backtesting, banking crisis, Bear Stearns, behavioural economics, Black Monday: stock market crash in 1987, Black-Scholes formula, book value, break the buck, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, capital asset pricing model, carried interest, central bank independence, cognitive dissonance, compound rate of return, computer age, computerized trading, corporate governance, correlation coefficient, Credit Default Swap, currency risk, Daniel Kahneman / Amos Tversky, Deng Xiaoping, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Financial Instability Hypothesis, fixed income, Flash crash, forward guidance, fundamental attribution error, Glass-Steagall Act, housing crisis, Hyman Minsky, implied volatility, income inequality, index arbitrage, index fund, indoor plumbing, inflation targeting, invention of the printing press, Isaac Newton, it's over 9,000, John Bogle, joint-stock company, London Interbank Offered Rate, Long Term Capital Management, loss aversion, machine readable, market bubble, mental accounting, Minsky moment, Money creation, money market fund, mortgage debt, Myron Scholes, new economy, Northern Rock, oil shock, passive investing, Paul Samuelson, Peter Thiel, Ponzi scheme, prediction markets, price anchoring, price stability, proprietary trading, purchasing power parity, quantitative easing, random walk, Richard Thaler, risk free rate, risk tolerance, risk/return, Robert Gordon, Robert Shiller, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, stocks for the long run, survivorship bias, technology bubble, The Great Moderation, the payments system, The Wisdom of Crowds, transaction costs, tulip mania, Tyler Cowen, Tyler Cowen: Great Stagnation, uptick rule, Vanguard fund

Benjamin Graham and Seymour Chatman, ed., Benjamin Graham: The Memoirs of the Dean of Wall Street, New York: McGraw-Hill, 1996, p. 273. 2. Charles D. Ellis, “The Loser’s Game,” Financial Analysts Journal, vol. 31, no. 4 (July/August 1975). 3. Fund data provided by Walter Lenhard of the Vanguard Group. See John C. Bogle, Bogle on Mutual Funds, Burr Ridge, IL: Irwin Professional Publishing, 1994, for a fuller description of these data. 4. Burton G. Malkiel, A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, 5th ed., New York: Norton, 1990, p. 362. 5. The standard deviation of the Magellan Fund over Lynch’s period was 21.38 percent, compared with 13.88 percent for the Wilshire 5000, while its correlation coefficient with the Wilshire was .86. 6.

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Darryll Hendricks, Jayendu Patel, and Richard Zeckhauser, “Hot Hands in Mutual Funds: Short-Run Persistence of Relative Performance, 1974-1988,” Journal of Finance, vol. 48, no. 1 (March 1993), pp. 93-130. 9. Edwin J. Elton, Martin J. Gruber, and Christopher R. Blake, “The Persistence of Risk-Adjusted Mutual Fund Performance,” Journal of Business, vol. 69, no. 2 (April 1996), pp. 133-157. 10. Burton G. Malkiel, A Random Walk Down Wall Street, 8th ed., New York: Norton, 2003, pp. 372-274. 11. John C. Bogle, The Little Book of Common Sense Investing, Hoboken, NJ: Wiley, 2007, Chap. 9. 12. Ellis, “The Loser’s Game,” Financial Analysts Journal, p. 19. 13. Five years before the Vanguard 500 Index Fund, Wells Fargo created an equally weighted index fund called “Samsonite,” but its assets remained relatively small. 14.

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THE INCREASED POPULARITY OF PASSIVE INVESTING Many investors have realized that the poor performance of actively managed funds relative to benchmark indexes strongly implies that they would do very well to just equal the market return of one of the broad-based indexes. Thus, the 1990s witnessed an enormous increase in passive investing, the placement of funds whose sole purpose was to match the performance of an index. The oldest and most popular of the index funds is the Vanguard 500 Index Fund.13 The fund, started by visionary John Bogle, raised only $11.4 million when it debuted in 1976, and few thought the concept would survive. But slowly and surely, indexing gathered momentum, and the fund’s assets reached $17 billion at the end of 1995. In the latter stages of the 1990s bull market, the popularity of indexing soared. By March 2000, when the S&P 500 Index reached its all-time high, the fund claimed the title of the world’s largest equity fund, with assets over $100 billion.

Adaptive Markets: Financial Evolution at the Speed of Thought by Andrew W. Lo

Alan Greenspan, Albert Einstein, Alfred Russel Wallace, algorithmic trading, Andrei Shleifer, Arthur Eddington, Asian financial crisis, asset allocation, asset-backed security, backtesting, bank run, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, bitcoin, Bob Litterman, Bonfire of the Vanities, bonus culture, break the buck, Brexit referendum, Brownian motion, business cycle, business process, butterfly effect, buy and hold, capital asset pricing model, Captain Sullenberger Hudson, carbon tax, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, confounding variable, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, Daniel Kahneman / Amos Tversky, delayed gratification, democratizing finance, Diane Coyle, diversification, diversified portfolio, do well by doing good, double helix, easy for humans, difficult for computers, equity risk premium, Ernest Rutherford, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, Fractional reserve banking, framing effect, Glass-Steagall Act, global macro, Gordon Gekko, greed is good, Hans Rosling, Henri Poincaré, high net worth, housing crisis, incomplete markets, index fund, information security, interest rate derivative, invention of the telegraph, Isaac Newton, it's over 9,000, James Watt: steam engine, Jeff Hawkins, Jim Simons, job satisfaction, John Bogle, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, language acquisition, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, Louis Pasteur, mandelbrot fractal, margin call, Mark Zuckerberg, market fundamentalism, martingale, megaproject, merger arbitrage, meta-analysis, Milgram experiment, mirror neurons, money market fund, moral hazard, Myron Scholes, Neil Armstrong, Nick Leeson, old-boy network, One Laptop per Child (OLPC), out of africa, p-value, PalmPilot, paper trading, passive investing, Paul Lévy, Paul Samuelson, Paul Volcker talking about ATMs, Phillips curve, Ponzi scheme, predatory finance, prediction markets, price discovery process, profit maximization, profit motive, proprietary trading, public intellectual, quantitative hedge fund, quantitative trading / quantitative finance, RAND corporation, random walk, randomized controlled trial, Renaissance Technologies, Richard Feynman, Richard Feynman: Challenger O-ring, risk tolerance, Robert Shiller, Robert Solow, Sam Peltzman, Savings and loan crisis, seminal paper, Shai Danziger, short selling, sovereign wealth fund, Stanford marshmallow experiment, Stanford prison experiment, statistical arbitrage, Steven Pinker, stochastic process, stocks for the long run, subprime mortgage crisis, survivorship bias, systematic bias, Thales and the olive presses, The Great Moderation, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Triangle Shirtwaist Factory, ultimatum game, uptick rule, Upton Sinclair, US Airways Flight 1549, Walter Mischel, Watson beat the top human players on Jeopardy!, WikiLeaks, Yogi Berra, zero-sum game

Instead, he advised readers to put their money in broadly diversified, passive mutual funds that charged minimal fees—and millions of his readers did. In a curious twist of fate, a former Princeton undergraduate launched a mutual fund company for this exact purpose a year after Malkiel’s book debuted. You may have heard of this individual, the index fund pioneer John C. Bogle. His little startup, the Vanguard Group, manages over $3 trillion and employs more than fourteen thousand people as of December 31, 2014.5 Vanguard’s main message, and the advice most often dispensed to millions of consumers, is “don’t try this at home.” Don’t try to beat the market. Instead, stick to passive buy-and-hold investments in broadly diversified stock index funds, and hold these investments until you retire.

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The CAPM allowed investors to construct an efficient portfolio simply by holding a basket of all stocks in proportion to their market capitalization—in other words, a portfolio that simulated the whole stock market (Principle 3). The Efficient Markets Hypothesis, meanwhile, meant that active investing couldn’t outperform passive investing on average, after accounting for the transactions costs and fees. The index fund business may have grown from seeds produced by academic research, but most people credit John Bogle as the pioneer who planted those seeds and cultivated their first harvest in 1976: the Vanguard Index Trust. However, this was just the first index mutual fund. Bogle generously credited the roots of his business to others: The basic ideas go back a few years earlier. In 1969–1971, Wells Fargo Bank had worked from academic models to develop the principles and techniques leading to index investing.

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In fact, the Samsonite account was launched during the era of fixed commissions, when the standard brokerage commission was 2 percent or higher (regulators ended this era on May 1, 1975, of which more later). Lower costs for the portfolio manager would eventually translate, through competition, into lower costs for the investor, and this has become one of the hallmarks of the index fund industry, thanks in large part to John Bogle. Bogle has advanced his own alternative to the Efficient Markets Hypothesis, which he calls the Cost Matters Hypothesis, a theory I heartily support. Mutual fund fees can do remarkable damage to an investor’s wealth over time. In many cases, it can completely overwhelm a portfolio manager’s alpha (if it exists).

The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing by Michael J. Mauboussin

Amazon Mechanical Turk, Atul Gawande, Benoit Mandelbrot, Black Swan, Boeing 747, Checklist Manifesto, Clayton Christensen, cognitive bias, commoditize, Daniel Kahneman / Amos Tversky, David Brooks, deliberate practice, disruptive innovation, Emanuel Derman, fundamental attribution error, Gary Kildall, Gini coefficient, hindsight bias, hiring and firing, income inequality, Innovator's Dilemma, John Bogle, Long Term Capital Management, loss aversion, Menlo Park, mental accounting, moral hazard, Network effects, power law, prisoner's dilemma, random walk, Richard Thaler, risk-adjusted returns, shareholder value, Simon Singh, six sigma, Steven Pinker, transaction costs, winner-take-all economy, zero-sum game, Zipf's Law

Raynor, and Mumtaz Ahmed, “How Long Must a Firm Be Great to Rule Out Luck? Benchmarking Sustained Superior Performance Without Being Fooled By Randomness,” Strategic Management Journal 33, no. 4 (April 2012): 387–406. 22. Charles MacKay, Extraordinary Delusions and the Madness of Crowds (New York: Three Rivers Press, 1995). 23. John C. Bogle, Common Sense on Mutual Funds: Fully Updated 10th Anniversary Issue (Hoboken, NJ: John Wiley & Sons, 2010). 24. Werner F. M. De Bondt and Richard H. Thaler, “Anomalies: A Mean-Reverting Walk Down Wall Street,” Journal of Economic Perspectives 3, no. 1 (Winter 1989): 189–202. 25. Mark Grinblatt and Sheridan Titman, “The Persistence of Mutual Fund Performance,” Journal of Finance 47, no. 5 (December 1992): 1977–1984; Darryll Hendricks, Jayendu Patel, and Richard Zeckhauser, “Hot Hands in Mutual Funds: Short-Run Persistence of Relative Performance, 1974–1988,” Journal of Finance 48, no. 1 (March 1993): 93–129; and Stephen J.

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Prices in markets reflect the interaction of lots of investors, and we know that identifying a cause for any given effect in these kinds of systems is notoriously difficult. Booms and crashes have been consistent features of markets for centuries, and there is no simple way to anticipate the behavior of markets in the short-term.22 Reversion to the mean is a powerful force in investing, too. John Bogle, a luminary of the investment industry, illustrates this by ranking mutual funds in four groups based on results in the 1990s and seeing how those groups performed in the 2000s. The group that was most successful, the top fourth of the mutual funds, handily outpaced the average fund in the 1990s.

Broke: How to Survive the Middle Class Crisis by David Boyle

anti-communist, AOL-Time Warner, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, bonus culture, call centre, collateralized debt obligation, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, delayed gratification, Desert Island Discs, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, financial deregulation, financial independence, financial innovation, financial intermediation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, gentrification, Goodhart's law, housing crisis, income inequality, Jane Jacobs, job satisfaction, John Bogle, junk bonds, Kickstarter, knowledge economy, knowledge worker, low interest rates, market fundamentalism, Martin Wolf, Mary Meeker, mega-rich, Money creation, mortgage debt, Neil Kinnock, Nelson Mandela, new economy, Nick Leeson, North Sea oil, Northern Rock, Ocado, Occupy movement, off grid, offshore financial centre, pension reform, pensions crisis, Plutonomy: Buying Luxury, Explaining Global Imbalances, Ponzi scheme, positional goods, precariat, quantitative easing, school choice, scientific management, Slavoj Žižek, social intelligence, subprime mortgage crisis, too big to fail, trickle-down economics, Vanguard fund, Walter Mischel, wealth creators, Winter of Discontent, work culture , working poor

, Money Week, 1 Aug. 2006. [20] Fowler, 222. [21] Austin Mitchell and Prem Sikka, Pensions Crisis: A failure of public policy-making (Basildon, Association for Accountancy & Business Affairs, 2006). [22] Independent, 17 May 2009. [23] This example is worked out in more detail in Morris and Palmer, 25ff. [24] John C. Bogle, Enough: True measures of money, business and life (New York, John Wiley, 2009), 30. [25] This example is worked out more clearly for an American audience in Bogle, 42–3. [26] Observer, 5 May 2002. [27] Anthony Hilton, ‘Here’s how to solve the pension problem, Ed’, Evening Standard, 17 Jul. 2012. 6 The fifth clue: the great education panic [1] Evening Standard, 11 Sept. 2012

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— is the high charges levied, rather furtively, by the financial services industry on middle-class thrift. Other kinds of investment are in some ways even worse, and again — if you dare to invest as an ordinary punter — the implacable arithmetic of the investment world counts against you. The American mutual fund innovator John Bogle has done more than almost anyone else to lift the lid on the way the system extracts money from savers. Bogle is an extraordinary man, a pioneer of the idea of index-linked funds, one of those Wall Street giants that have always shunned Wall Street, and — like Warren Buffett — he has kept up a sceptical commentary about the excesses of his own sector.

The Trouble With Billionaires by Linda McQuaig

"World Economic Forum" Davos, battle of ideas, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, British Empire, Build a better mousetrap, carried interest, Charles Babbage, collateralized debt obligation, computer age, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Douglas Engelbart, Douglas Engelbart, employer provided health coverage, financial deregulation, fixed income, full employment, Gary Kildall, George Akerlof, Gini coefficient, Glass-Steagall Act, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of the telephone, invention of the wheel, invisible hand, Isaac Newton, Jacquard loom, John Bogle, Joseph-Marie Jacquard, laissez-faire capitalism, land tenure, lateral thinking, low interest rates, Mark Zuckerberg, market bubble, Martin Wolf, mega-rich, minimum wage unemployment, Mont Pelerin Society, Naomi Klein, neoliberal agenda, Northern Rock, offshore financial centre, Paul Samuelson, plutocrats, Ponzi scheme, pre–internet, price mechanism, proprietary trading, purchasing power parity, RAND corporation, rent-seeking, rising living standards, road to serfdom, Robert Solow, Ronald Reagan, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, trickle-down economics, Vanguard fund, very high income, wealth creators, women in the workforce

In the past, corporate and financial professionals were regarded as agents who managed the enterprises of the owning class. In recent decades, however, these management professionals have moved centre-stage, grabbing more power for themselves – and a much larger share of the financial rewards. The result, according to John C. Bogle, founder and former chairman of US-based Vanguard Group mutual fund organization, has been ‘grotesquely excessive compensation paid to executive chiefs’ – compensation that is ‘unjustified by ‌any remotely comparable business achievement’.18 Bogle argues that the corporate world is now riddled with conflicts of interest, leaving little check on the cosy relations between CEOs and corporate directors, compensation committees and auditors.

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With that disapproval largely set aside in recent decades – indeed replaced with a culture that reveres ‘wealth creators’ – there’s been nothing to discourage corporate boards from indulging themselves. The problem has been compounded by the tendency of corporate boards to match what other corporate boards are doing. ‘We pay our executives not on the basis of performance, but on the basis of peer group,’ notes John C. Bogle, former chairman of the Vanguard Group. Bogle says that this creates a ‘ghastly ratchet effect’ as cosy corporate boards bring up the pay of their CEOs to match what’s going on ‌at other similarly cosy boards.10 The cosy nature of corporate boards goes a long way towards explaining how executive compensation has climbed skyward – in an era of often lacklustre corporate performance.

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When my life hit rock bottom, that safety net, threadbare though it had become under John Major’s government, was there to break the fall. I cannot help feeling, therefore, that it would have been contemptible to scarper for the West Indies at the first sniff of a seven-figure royalty cheque. This, if you like, ‌is my notion of patriotism.12 To these powerful commentaries, let’s add a third. Here’s John C. Bogle, founder of the Vanguard Group, nicely capturing the pointlessness of excessive greed: At a party given by a billionaire on Shelter Island, the late Kurt Vonnegut informs his pal, the author Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch 22 over its whole history.

Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick

activist fund / activist shareholder / activist investor, Airbnb, Albert Einstein, AOL-Time Warner, asset allocation, Bear Stearns, behavioural economics, bitcoin, Bretton Woods, buy and hold, buy low sell high, Carl Icahn, cognitive bias, cognitive dissonance, Credit Default Swap, cryptocurrency, Daniel Kahneman / Amos Tversky, endowment effect, financial engineering, financial innovation, fixed income, global macro, hindsight bias, index fund, initial coin offering, invention of the wheel, Isaac Newton, Jim Simons, John Bogle, John Meriwether, Kickstarter, Long Term Capital Management, loss aversion, low interest rates, Market Wizards by Jack D. Schwager, mega-rich, merger arbitrage, multilevel marketing, Myron Scholes, Paul Samuelson, Pershing Square Capital Management, quantitative easing, Reminiscences of a Stock Operator, Renaissance Technologies, Richard Thaler, Robert Shiller, short squeeze, Snapchat, Stephen Hawking, Steve Jobs, Steve Wozniak, stocks for the long run, subprime mortgage crisis, transcontinental railway, two and twenty, value at risk, Vanguard fund, Y Combinator

Notes 1. Credit Suisse, “Looking for Easy Games,” January 4, 2017. 2. Morningstar, “Recommendations for Fund Companies Not Named Vanguard,” December 27, 2016. 3. John C. Bogle, “The Professor, the Student, and the Index Fund,” johncbogle.com, September 4, 2011. 4. Vanguard, “Reflections on Wellington Fund's 75th Birthday,” 2006. 5. Ibid. 6. Adam Smith, Supermoney, foreword by John C. Bogle (Hoboken, NJ: Wiley, 2007). 7. John C. Bogle, The Clash of the Cultures (Hoboken, NJ: Wiley, 2012). 8. Institutional Investor, “The Whiz Kids Take Over,” January 1968. 9. Bogle, The Clash of the Cultures, 262. 10.

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Michael Regan, “Q&A with Jack Bogle: ‘We're in the Middle of a Revolution,’” Bloomberg.com, November 23, 2016. 11. John Brooks, The Go‐Go Years (Hoboken, NJ: Wiley, 1999), 128. 12. Bogle, The Clash of the Cultures, 272. 13. Smith, Supermoney. 14. Ibid. 15. Bogle, The Clash of the Cultures, 272. 16. Smith. 17. Ibid. 18. Quoted in John C. Bogle, “Lightning Strikes,” Institutional Investor 40, no. 5 (Special 40th Anniversary Issue, 2014): 42–59. 19. Bogle, The Clash of the Cultures, 278. 20. Ibid. 21. Ali Masarwah. “Indexing, Vanguard Drove Global Fund Flows,” Morningstar.com, February 4, 2017. CHAPTER 6 Michael Steinhardt Stay in Your Lane Investors who confine themselves to what they know, as difficult as that may be, have a considerable advantage over everyone else.

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Brooks and Lewis, The Go‐Go Years, 211. 6. Smith, The Money Game, 180. 7. Brooks and Lewis, The Go‐Go Years, 5. 8. Smith, The Money Game, 23. 9. Lowenstein, Buffett, 99. 10. Brooks and Lewis, The Go‐Go Years, 135. 11. New York Times, “Fidelity Capital Shows Wide Gains,” July 7, 1961. 12. John C. Bogle, Foreword to Supermoney by Adam Smith (Hoboken, NJ: Wiley, 2007). 13. Brian Stelter, “Gerald Tsai, Innovative Investor, Dies at 79,” New York Times, July 11, 2008. 14. Bogle, Supermoney. 15. Smith, The Money Game, 202–203. 16. David N. Dremen, Psychology and the Stock Market (New York: Amacom, 1977), 84. 17.

The Gone Fishin' Portfolio: Get Wise, Get Wealthy...and Get on With Your Life by Alexander Green

Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, backtesting, behavioural economics, borderless world, buy and hold, buy low sell high, cognitive dissonance, diversification, diversified portfolio, Elliott wave, endowment effect, Everybody Ought to Be Rich, financial independence, fixed income, framing effect, hedonic treadmill, high net worth, hindsight bias, impulse control, index fund, interest rate swap, Johann Wolfgang von Goethe, John Bogle, junk bonds, Long Term Capital Management, means of production, mental accounting, Michael Milken, money market fund, Paul Samuelson, Ponzi scheme, risk tolerance, risk-adjusted returns, short selling, statistical model, stocks for the long run, sunk-cost fallacy, transaction costs, Vanguard fund, yield curve

He ends his book by telling readers, “What the market is going to do ought to be irrelevant. If I could convince you of this one thing, I’d feel this book had done its job.” Why doesn’t your investment advisor, obviously a smart guy, give up the economic forecasts and market predictions? Vanguard® founder John Bogle put it best when he wrote in The Little Book of Common Sense Investing, “It’s amazing how difficult it is for a man to understand something if he’s paid a small fortune not to understand it.” This message also goes against the instincts—not to mention the hypercharged emotions—of most investors.

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Of course, some financial advisors simply shrug and tell you, “Don’t buy the average funds. Buy the good ones.” But there’s the rub. Studies show that a fund that beats the market one year is no more likely than its competitors to outperform it the following year. In The Little Book of Common Sense Investing, Vanguard founder John Bogle quotes David Swenson, chief investment officer of the Yale University Endowment Fund: “A miniscule 4% of funds produce market-beating after-tax results with a scant 0.6% (annual) margin of gain. The 96% of funds that fail to meet or beat the Vanguard 500 Index Fund lose by a wealth-destroying margin of 4.8% per annum.”

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It operates the funds “at cost”—charging only the amounts needed to cover operating costs and extracting no profits. That means no fund family is likely to seriously challenge Vanguard’s low-cost leadership. Vanguard also embodies a particular philosophy of investing, one that, in many respects, dovetails nicely with our Gone Fishin’ Portfolio. The story of this fund family and its founder John Bogle is one worth telling. In 1949, Bogle was a graduate student at Princeton University who needed a topic for his thesis. He stumbled on an article in Fortune magazine about the mutual fund industry, an industry so small and young at the time that Bogle had never heard of it. Since no academics had researched or published on the topic, Bogle decided to lead the way.

Heads I Win, Tails I Win by Spencer Jakab

Alan Greenspan, Asian financial crisis, asset allocation, backtesting, Bear Stearns, behavioural economics, Black Monday: stock market crash in 1987, book value, business cycle, buy and hold, collapse of Lehman Brothers, correlation coefficient, crowdsourcing, Daniel Kahneman / Amos Tversky, diversification, dividend-yielding stocks, dogs of the Dow, Elliott wave, equity risk premium, estate planning, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, fear index, fixed income, geopolitical risk, government statistician, index fund, Isaac Newton, John Bogle, John Meriwether, Long Term Capital Management, low interest rates, Market Wizards by Jack D. Schwager, Mexican peso crisis / tequila crisis, money market fund, Myron Scholes, PalmPilot, passive investing, Paul Samuelson, pets.com, price anchoring, proprietary trading, Ralph Nelson Elliott, random walk, Reminiscences of a Stock Operator, risk tolerance, risk-adjusted returns, Robert Shiller, robo advisor, Savings and loan crisis, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, subprime mortgage crisis, survivorship bias, technology bubble, transaction costs, two and twenty, VA Linux, Vanguard fund, zero-coupon bond, zero-sum game

Try 2 Out of 2,862 Funds,” July 19, 2014, http://www.nytimes.com/2014/07/20/your-money/who-routinely-trounces-the-stock-market-try-2-out-of-2862-funds.html?_r=0. 4. John Bogle, “The Arithmetic of All-In Investment Expenses,” Financial Analysts Journal 70, no. 1 (January–February 2015). 5. Mitch Tuchman, “Warren Buffett to Heirs: Put My Estate in Index Funds,” MarketWatch, March 13, 2014, http://www.marketwatch.com/story/warren-buffett-to-heirs-put-my-estate-in-index-funds-2014-03-13. 6. “Convergence! The Great Paradox: Just as Active Fund Management Becomes More and More Like Passive Indexing, So Passive Indexing Becomes More and More Like Active Fund Management,” remarks by John Bogle, founder and former chairman, the Vanguard Group, before “The Art of Indexing” conference, September 30, 2004, Washington, DC, http://www.vanguard.com/bogle_site/sp20040930.htm. 7.

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Sure, but you’re fooling yourself if you think your odds are good of being one of them. The more passive your approach to investing, the greater the likelihood your results will match the market return—a benchmark most people reading this fail to come anywhere close to meeting. That’s the gospel of plenty of smart, successful investors, notably John Bogle, the father of index funds, who says, “Don’t just do something, stand there.” It can’t be repeated enough and is the first, easiest, and most productive step out of Lake Moneybegone. It might seem counterintuitive that a person who’s confident enough to be very active would do worse than another who is largely passive.

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Since the market usually is going up or at least paying dividends, having cash lying around that earns next to nothing adds another 0.15 percent.4 Add it all up and active funds’ 2.27 percentage points of total visible and invisible expenses is 2.21 points higher than the largest stock index fund. Even if we assume that a typical fund manager can match the performance of the market exactly, that’s a major drag that compounds over time and a big reason why most investors live in Lake Moneybegone. John Bogle, the founder of Vanguard Group and the man who started the first index mutual fund back in 1976, lays out the argument in dollars and cents. His starting premise is that an active manager will neither do better nor worse than an index fund once costs are stripped out. He uses the example of a thirty-year-old making $30,000 a year who starts saving for eventual retirement at age seventy.

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan by Ben Carlson

Albert Einstein, asset allocation, backtesting, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, book value, business cycle, buy and hold, buy low sell high, commodity super cycle, corporate governance, delayed gratification, discounted cash flows, diversification, diversified portfolio, do what you love, endowment effect, family office, financial independence, fixed income, Gordon Gekko, high net worth, index fund, John Bogle, junk bonds, loss aversion, market bubble, medical residency, Occam's razor, paper trading, passive investing, Ponzi scheme, price anchoring, Reminiscences of a Stock Operator, Richard Thaler, risk tolerance, Robert Shiller, robo advisor, South Sea Bubble, sovereign wealth fund, stocks for the long run, technology bubble, Ted Nelson, transaction costs, Vanguard fund, Vilfredo Pareto

Warren Buffett, Letter to Shareholders, 1993, www.berkshire hathaway.com/letters/1993.html. 15. Janet Lowe, Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger (Hoboken, NJ: John Wiley & Sons, 2003). CHAPTER 3 Defining Market and Portfolio Risk The stock market is a giant distraction to the business of investing. —John Bogle In the 1960s there was a French film called The Lovers (Les Amants). It turned out to be a little risqué for some people in the Midwest. The state of Ohio ruled the film to be obscene and pornographic. The case eventually made it all the way to the Supreme Court, where it was ruled that the movie was not, in fact, too obscene to be viewed by the public.

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Behavior has always been more important than costs, but this will only be magnified as the cost structure falls. The biggest things for investors is to understand what you own and why you own it. The Benefits of Doing Nothing Lethargy, bordering on sloth, should remain the cornerstone of an investment style. —Warren Buffett Vanguard founder John Bogle once said, “Don't just do something. Stand there!” This is easier said than done for most people. Investors can feel lazy if they're not doing something, so people are constantly trying to keep themselves busy. There will always be a new hot investment idea that grabs your attention. Or maybe you have a model, but it's not working, so the first inclination is to make changes.

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Like the study from above, both surviving and outperforming is quite the difficult task for fund managers over longer periods. Only 18 percent, or about 275 funds, of the initial 1,540 funds in the study both survived the full period and outperformed their benchmarks.10 In a separate study, Vanguard founder John Bogle discovered that almost half of all mutual funds created in the 1990s stock market boom ended up failing and following the technology bust there were 1,000 fund failures from 2000 to 2004.11 Exhibit 4: If Picking One Active Fund Is Hard . . . Rick Ferri and Alex Benke performed a study that spanned 16 years by looking at Vanguard's three-fund portfolio of total market index funds in U.S. stocks, foreign stocks, and U.S. bonds.

Dead Companies Walking by Scott Fearon

Alan Greenspan, bank run, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, book value, business cycle, Carl Icahn, corporate raider, cost per available seat-mile, creative destruction, crony capitalism, Donald Trump, Eugene Fama: efficient market hypothesis, fear of failure, Golden Gate Park, hiring and firing, housing crisis, index fund, it's over 9,000, Jeff Bezos, John Bogle, Joseph Schumpeter, Larry Ellison, late fees, legacy carrier, McMansion, moral hazard, multilevel marketing, new economy, pets.com, Ponzi scheme, Ronald Reagan, short selling, short squeeze, Silicon Valley, Snapchat, South of Market, San Francisco, Steve Jobs, survivorship bias, Upton Sinclair, Vanguard fund, young professional

It also creates an even more destructive mind-set—once they themselves rise to positions of power, they see themselves as infallible and worthy of worship. Add it all up and there’s only one conclusion you can reach: these are the last people you want safeguarding your money. And it’s not just me saying this. The numbers back me up. The great author and investor John Bogle—who invented the passive index fund back in the 1970s—examined the average returns of equity mutual funds from 1983 to 2003. A dollar invested in those kinds of funds in the early 1980s netted just $7.10 in profits twenty years later. Over the same period, a dollar invested in the S&P 500 index, which Bogle’s Vanguard 500 Fund tracks, would have brought in over $11.50.§ Think about those numbers for a second.

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I don’t know how else to put this, so I’ll just be blunt: If you are an individual investor, you should not under any circumstances trust your money to a Wall Street brokerage or investment management company. The vast majority of people in my business have the wrong temperaments for investing. So unless you are uniquely positioned to find that rare manager who can outperform the market over the long term, do what John Bogle has been urging people to do for decades: put your money in an index fund and leave it there. You’ll make more, and you’ll pay less in fees to do it. The attributes I listed earlier—joinerism, power worship, hypercompetitiveness, intellectual torpor—lead to some very common investment mistakes like averaging down and trusting the word of so-called experts.

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And yet, year after year, Big Finance continues to reap massive profits—not for its clients, of course, but for itself. The asset-size paradox isn’t the only thing that separates Wall Street from the rest of the private sector. Can you think of another business in the world that would continue to exist as a going concern even after it had been proven definitively—as John Bogle of Vanguard proved about the financial industry—that most of its products are vastly inferior to other, cheaper alternatives like index funds? I can’t. How about a business whose most prestigious firms have been caught defrauding their own customers not once, but over and over again? In the normal corporate world, would such a business not only continue to operate, but actually make more and more money every year?

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever by Robin Wigglesworth

Albert Einstein, algorithmic trading, asset allocation, Bear Stearns, behavioural economics, Benoit Mandelbrot, Big Tech, Black Monday: stock market crash in 1987, Blitzscaling, Brownian motion, buy and hold, California gold rush, capital asset pricing model, Carl Icahn, cloud computing, commoditize, coronavirus, corporate governance, corporate raider, COVID-19, data science, diversification, diversified portfolio, Donald Trump, Elon Musk, Eugene Fama: efficient market hypothesis, fear index, financial engineering, fixed income, Glass-Steagall Act, Henri Poincaré, index fund, industrial robot, invention of the wheel, Japanese asset price bubble, Jeff Bezos, Johannes Kepler, John Bogle, John von Neumann, Kenneth Arrow, lockdown, Louis Bachelier, machine readable, money market fund, Myron Scholes, New Journalism, passive investing, Paul Samuelson, Paul Volcker talking about ATMs, Performance of Mutual Funds in the Period, Peter Thiel, pre–internet, RAND corporation, random walk, risk-adjusted returns, road to serfdom, Robert Shiller, rolodex, seminal paper, Sharpe ratio, short selling, Silicon Valley, sovereign wealth fund, subprime mortgage crisis, the scientific method, transaction costs, uptick rule, Upton Sinclair, Vanguard fund

On paper, the merger seemed sensible to both insiders and outsiders. “Wellington gets a hot research group deep with young investment management and analyst talent, and Ivest gets the benefit of Wellington’s prestigious name, its powerful distribution organization, and the administrative and marketing talents of John Bogle,” Institutional Investor wrote in a cover story on the merger, titled “The Whiz Kids Take Over at Wellington,” illustrated by Bogle as a multi-armed quarterback handing balls of financial securities to the four Boston partners.23 Initially, the merger appeared a runaway success. Buoyed by the marriage of its strong returns with Wellington’s powerful distribution network, Ivest’s assets vaulted from almost $50 million at the end of 1966 to $340 million by the close of 1968.

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Fabozzi, Perspectives on Equity Indexing, 42. 41. Paul Samuelson, “Index-Fund Investing,” Newsweek, August 1976. CHAPTER 6: THE HEDGEHOG 1. Jack Bogle, Stay the Course: The Story of Vanguard and the Index Revolution (Hoboken, NJ: Wiley, 2018), 262. 2. Lewis Braham, The House That Bogle Built: How John Bogle and Vanguard Reinvented the Mutual Fund Industry (New York: McGraw-Hill, 2011), chapter 1, ePub. 3. Gene Colter, “Change of Heart,” Wall Street Journal, September 24, 2004. 4. Braham, The House That Bogle Built, chap. 1, ePub. 5. Bogle, Stay the Course, 258. 6. Bogle, Stay the Course, 258. 7.

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Braham, The House That Bogle Built, chap. 5, ePub. 34. Robin Wigglesworth, “Passive Attack: The Story of a Wall Street Revolution,” Financial Times, December 20, 2018.” 35. Braham, The House That Bogle Built, chap. 5, ePub. 36. Bogle, Stay the Course, 25. CHAPTER 7: BOGLE’S FOLLY 1. Lewis Braham, The House That Bogle Built: How John Bogle and Vanguard Reinvented the Mutual Fund Industry (New York: McGraw-Hill, 2011), chap. 6, ePub. 2. Jack Bogle, Character Counts: The Creation and Building of the Vanguard Group (New York: McGraw-Hill, 2002), 7. 3. Jack Bogle, Stay the Course: The Story of Vanguard and the Index Revolution (Hoboken, NJ: Wiley, 2018), 32. 4.

Red-Blooded Risk: The Secret History of Wall Street by Aaron Brown, Eric Kim

Abraham Wald, activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, Asian financial crisis, Atul Gawande, backtesting, Basel III, Bayesian statistics, Bear Stearns, beat the dealer, Benoit Mandelbrot, Bernie Madoff, Black Swan, book value, business cycle, capital asset pricing model, carbon tax, central bank independence, Checklist Manifesto, corporate governance, creative destruction, credit crunch, Credit Default Swap, currency risk, disintermediation, distributed generation, diversification, diversified portfolio, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, experimental subject, fail fast, fear index, financial engineering, financial innovation, global macro, illegal immigration, implied volatility, independent contractor, index fund, John Bogle, junk bonds, Long Term Capital Management, loss aversion, low interest rates, managed futures, margin call, market clearing, market fundamentalism, market microstructure, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, natural language processing, open economy, Pierre-Simon Laplace, power law, pre–internet, proprietary trading, quantitative trading / quantitative finance, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, shareholder value, Sharpe ratio, special drawing rights, statistical arbitrage, stochastic volatility, stock buybacks, stocks for the long run, tail risk, The Myth of the Rational Market, Thomas Bayes, too big to fail, transaction costs, value at risk, yield curve

Curtis Faith was one for the original turtles, and he describes his methods in Trading from Your Gut: How to Use Right Brain Instinct & Left Brain Smarts to Become a Master Trader. But the classic account of trading is The Education of a Speculator by Victor Niederhoffer. For practical finance, a great book is John Bogle on Investing: The First 50 Years by John Bogle. John has not become a brand, but he does have a large and raucous base of fans. They call themselves Bogleheads. David Einhorn is one of the great qualitative investors in the world. He wrote Fooling Some of the People All of the Time: A Long Short (and Now Complete) Story.

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But Red Blood, Blue Blood, Cold Blood, Thin Blood, Hot Blood, Unblooded, and Blood Sucker are composites of real people I have worked with over the years. So I acknowledge here my debt to the dozens of people who provided slices of various characters’ history and attitudes. Many people read part or all of the manuscript and sent useful comments. Brandon Adams, Gustavo Bamberger, Bill Benter, John Bogle, Rick Bookstaber, Reuven Brenner, Eugene Christiansen, Emanuel Derman, Art Duquette, Dylan Evans, Doyne Farmer, Justin Fox, Kenneth French, Lisa Goldberg, James Grosjean, Ian Hacking, Michael Heneberry, Carey Hobbs, Craig Howe, James McManus, Michael Maubossin, Nick Maughan, Perry Mehrling, Robert Merton, Joe Nocera, John O’Brien, Deborah Pastor, Scott Patterson, William Poundstone, Kevin Rosema, Myron Scholes, James Stoner, Nassim Taleb, Edward Thorp, Whitney Tilson, James Ward, Paul Wilmott, and Bruce Zastera were particularly helpful.

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Among other things, it guarantees that they are overinvested in anything overpriced, and underinvested in anything underpriced. It may be impossible to tell overpriced assets from underpriced ones, but that doesn’t matter; it’s a mathematical certainty the index fund investor has the worst of both worlds. (Of course, as Ken French and John Bogle independently pointed out to me, half the nonindex investors must be even more overweighted in the overpriced assets, and all the nonindex investors pay higher costs.) Large, diversified portfolios have also been blamed for investors not providing oversight to their investments, and for feeding bubbles and crashes.

Deep Value by Tobias E. Carlisle

activist fund / activist shareholder / activist investor, Andrei Shleifer, availability heuristic, backtesting, behavioural economics, book value, business cycle, buy and hold, Carl Icahn, corporate governance, corporate raider, creative destruction, Daniel Kahneman / Amos Tversky, discounted cash flows, financial engineering, fixed income, Henry Singleton, intangible asset, John Bogle, joint-stock company, low interest rates, margin call, passive investing, principal–agent problem, Richard Thaler, risk free rate, riskless arbitrage, Robert Shiller, Rory Sutherland, shareholder value, Sharpe ratio, South Sea Bubble, statistical model, Teledyne, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tim Cook: Apple

Devil Take the Hindmost: A History of Financial Speculation (New York: Penguin Group) 2000. 34. Ibid. 35. Ibid. 36. Ibid. 37. Sobel, 1984. 38. Ibid. Trading in Glamour: The Conglomerate Era 117 39. Justin Fox. The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. (New York: HarperCollins) 2009. 40. John. C. Bogle. “Statement of John C. Bogle to the United States Senate Governmental Affairs Subcommittee,” November 3, 2003. Available at http:// www.vanguard.com/bogle_site/sp20031103.html. 41. J. Lakonishok, A. Shleifer, and R.W. Vishny.“Contrarian Investments, Extrapolation, and Risk.” Journal of Finance, Vol. XLIX, No. 5, (1994) pp. 1541–1578. 42.

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Worse, Cowles concluded of the performances of those few who had beaten the market that their results were “little, if any, better than what might be expected to result from pure chance.”39 He made the last claim after he assembled random market analyses from shuffled decks containing hundreds of cards, and found that the cards tended to beat the professional analysts. More recently John C. Bogle, legendary founder of The Vanguard Group, appeared before the Senate Subcommittee on Financial Management, the Budget, and International Security on November 3, 2003, to demonstrate the paucity of the returns generated by professional investors. Bogle’s argument was that the competitive nature of the investment industry meant that the return of the average mutual fund should equal the return of the market less the fees charged by the mutual fund industry.

The Dhandho Investor: The Low-Risk Value Method to High Returns by Mohnish Pabrai

asset allocation, backtesting, beat the dealer, Black-Scholes formula, book value, business intelligence, call centre, cuban missile crisis, discounted cash flows, Edward Thorp, Exxon Valdez, fixed income, hiring and firing, index fund, inventory management, John Bogle, Mahatma Gandhi, merger arbitrage, passive investing, price mechanism, Silicon Valley, time value of money, transaction costs, two and twenty, zero-sum game

Lowenstein, Buffett: The Making of an American Capitalist (New York: Random House, 1997). 10 See note 8, 1964-1967 letters. 11 See note 10. 12 Michael Mauboussin, “Mauboussin on Strategy: Size Matters,” Legg Mason Capital Management, February 1, 2006, www.leggmason.com/funds/knowledge/mauboussin/Mauboussin_on_Strategy_020106.pdf. 13 John C. Bogle, Common Sense on Mutual Funds (New York: John Wiley & Sons, 1999). Chapter 11 1 Amar V. Bhide, The Origin and Evolution of New Businesses (Oxford: Oxford University Press, 2000). 2 CompuLink’s corporate web site, www.compulink-usa.com (accessed May 25, 2006). 3 Berkshire Hathaway annual meeting, Omaha, NE, May 1, 2000. 4 Warren Buffett, July 1999 at Allen & Co.’s annual conference /retreat in Sun Valley, ID.

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(India: Auromere, 1999). 2 Simon Reynolds, Thoughts of Chairman Buffett (New York: Harper Collins, 1998). 3 Joel Greenblatt, The Little Book That Beats the Market (New York: John Wiley & Sons, 2005). 4 Universal Stainless & Alloy Products’ web site, www.univstainless.com (accessed July 22, 2006). 5 Berkshire Hathaway Annual Meeting, Omaha, NE, May 6, 1996. 6 Berkshire Hathaway Annual Meeting, Omaha, NE, May 3, 2003. 7 See note 6. 8 Warren Buffett, “1985 Letter to Shareholders of Berkshire Hathaway,” Letters to Shareholders of Berkshire Hathaway 1984, posted on the web site, www.berkshirehathaway.com. Chapter 16 1 John C. Bogle, Common Sense on Mutual Funds (New York: John Wiley & Sons, 1999). 2 Marcia Vickers, “The Money Game,” Fortune magazine, October 3, 2005. 3 David F. Swensen, Unconventional Success: A Fundamental Approach to Personal Investment (New York: Free Press, 2005). 4 See note 3. 5 Joel Greenblatt, The Little Book That Beats the Market (New York: John Wiley & Sons, 2005).

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", "there is no alternative" (TINA), "World Economic Forum" Davos, affirmative action, Alan Greenspan, Albert Einstein, algorithmic trading, Andy Kessler, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, book value, Bretton Woods, BRICs, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, carbon credits, Carl Icahn, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, Daniel Kahneman / Amos Tversky, deal flow, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Dr. Strangelove, Dutch auction, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial engineering, financial independence, financial innovation, financial thriller, fixed income, foreign exchange controls, full employment, Glass-Steagall Act, global reserve currency, Goldman Sachs: Vampire Squid, Goodhart's law, Gordon Gekko, greed is good, Greenspan put, happiness index / gross national happiness, haute cuisine, Herman Kahn, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", job automation, Johann Wolfgang von Goethe, John Bogle, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Michael Milken, Mikhail Gorbachev, Milgram experiment, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, Phillips curve, planned obsolescence, plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, proprietary trading, public intellectual, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, Reminiscences of a Stock Operator, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk free rate, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, short squeeze, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, stock buybacks, survivorship bias, tail risk, Teledyne, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, two and twenty, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

“Interview by Farah Nayeri: Greenspan was “very bad” Fed chairman, says Artus of Natixis” (30 November 2007), Bloomberg. 49. Denny Gulino “Greenspan: Congress has “amnesia” re its part in crisis” (7 April 2010) (http://imarketnews.com/node/11417). 50. Vanessa Thorpe “Magical realism...and fakery: the ailing Nobel Laureate is writing the definitive account of his life” (21 January 2001) The Observer. 51. John C. Bogle (2007) The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns, John Wiley, New Jersey: 39. 52. Philip Delves Broughton (2009) Ahead of the Curve: Two Years at Harvard Business School, Penguin Books, New York: 285. 53. Jennifer Burns (2009) How Markets Fail: The Logic of Economic Calamities, Oxford University Press, Oxford: 149. 54.

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Bernstein (2009) A Splendid Exchange: How Trade Shaped The World, Grove Press, New York. Barton Biggs (2006) Hedge Hogging, John Wiley, New Jersey. Richard Bitner (2008) Confessions of a Sub-prime Lender: An Insider’s Tale of Greed, Fraud and Ignorance, Icon Books, London. Robin Blackburn (2002) Banking on Death, Verso, London. John Bogle (2009) Enough: True Measures of Money, Business and Life, John Wiley, New Jersey. Bill Bonner and Addison Wiggin (2006) Empire of Debt: The Rise of an Epic Financial Crisis, John Wiley, New Jersey. Richard Bookstaber (2007) A Demon of Our Own Design, John Wiley, New Jersey. Piers Brendon (2000) The Dark Valley: A Panorama of the 1930s, Pimlico, London.

Pound Foolish: Exposing the Dark Side of the Personal Finance Industry by Helaine Olen

Alan Greenspan, American ideology, asset allocation, Bear Stearns, behavioural economics, Bernie Madoff, buy and hold, Cass Sunstein, Credit Default Swap, David Brooks, delayed gratification, diversification, diversified portfolio, Donald Trump, Elliott wave, en.wikipedia.org, estate planning, financial engineering, financial innovation, Flash crash, game design, greed is good, high net worth, impulse control, income inequality, index fund, John Bogle, Kevin Roose, London Whale, longitudinal study, low interest rates, Mark Zuckerberg, Mary Meeker, money market fund, mortgage debt, multilevel marketing, oil shock, payday loans, pension reform, Ponzi scheme, post-work, prosperity theology / prosperity gospel / gospel of success, quantitative easing, Ralph Nader, RAND corporation, random walk, Richard Thaler, Ronald Reagan, Saturday Night Live, Stanford marshmallow experiment, stocks for the long run, The 4% rule, too big to fail, transaction costs, Unsafe at Any Speed, upwardly mobile, Vanguard fund, wage slave, women in the workforce, working poor, éminence grise

In what is now sometimes called our finance-based economy, most of us were not, it turns out, savvy winners, but chumps. In a poll CNBC conducted in 2010, a stunning 86 percent of people surveyed declared the stock market unfair to small investors, but fair for banks, hedge funds, and professional traders. Less than half of us even thought individual stocks were a good way to make a buck. Even John Bogle, the founder of the common-man mutual fund company the Vanguard Group, proclaimed we were losers, fleeced for fees by the financial services sector and buffeted by market speculators. “Our financial system has gone off the rails,” he told CBS News. Nonetheless, as we’ll see in the chapters to follow, the personal finance industrial complex continues to prosper.

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Over the years Quinn made numerous enemies, ranging from brokers to heads of mutual fund companies, for relentlessly putting the financial interests of the consumer ahead of the financial interests of the financial services industry. Quinn sees herself as both a part of the consumer movement and the personal finance and investment communities. She names as her contemporaries such financial pioneers as Bruce Bent, the creator of the now ubiquitous money market fund, and John Bogle, the force behind Vanguard’s low-cost index funds. Yet a look at Quinn’s work demonstrates both the promise and the perils of the financial advice arena. A quick run through the many, many profiles of her penned over the years shows howlers mixed in with the prescient comments, sometimes in the same piece, proving how hard it is to get this forecasting thing right.

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That will, of course, come on top of the fees you are already paying on the account. Fee-only financial planners and registered investment advisers (RIAs) are willing to help out too—provided, that is, they can count your savings toward their assets under management and collect the fees. Surveying the situation, no one less than John Bogle, the founder of the Vanguard Group and the man who pioneered the low-cost index fund, has come forward to say the mutual fund and retirement industries collect so much money in fees that the entire system is a “train wreck.” But a train wreck for your future retirement is a gravy train for those collecting the fees.

The Intelligent Investor (Collins Business Essentials) by Benjamin Graham, Jason Zweig

3Com Palm IPO, accounting loophole / creative accounting, air freight, Alan Greenspan, Andrei Shleifer, AOL-Time Warner, asset allocation, book value, business cycle, buy and hold, buy low sell high, capital asset pricing model, corporate governance, corporate raider, Daniel Kahneman / Amos Tversky, diversified portfolio, dogs of the Dow, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, George Santayana, hiring and firing, index fund, intangible asset, Isaac Newton, John Bogle, junk bonds, Long Term Capital Management, low interest rates, market bubble, merger arbitrage, Michael Milken, money market fund, new economy, passive investing, price stability, Ralph Waldo Emerson, Richard Thaler, risk tolerance, Robert Shiller, Ronald Reagan, shareholder value, sharing economy, short selling, Silicon Valley, South Sea Bubble, Steve Jobs, stock buybacks, stocks for the long run, survivorship bias, the market place, the rule of 72, transaction costs, tulip mania, VA Linux, Vanguard fund, Y2K, Yogi Berra

Wright; and the indefatigable Tara Kalwarski of Money. Superb ideas and critical readings came from Theodore Aronson, Kevin Johnson, Martha Ortiz, and the staff of Aronson + Johnson + Ortiz, L.P.; Peter L. Bernstein, president, Peter L. Bernstein Inc.; William Bernstein, Efficient Frontier Advisors; John C. Bogle, founder, the Vanguard Group; Charles D. Ellis, founding partner, Greenwich Associates; and Laurence B. Siegel, director of investment policy research, the Ford Foundation. I am also grateful to Warren Buffett; Nina Munk; the tireless staff of the Time Inc. Business Information Research Center; Martin Fridson, chief executive officer, FridsonVision LLC; Howard Schilit, president, Center for Financial Research & Analysis; Robert N.

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The principle behind such option grants is to align the interests of managers with outside investors. If you are an outside Apple shareholder, you want its managers to be rewarded only if Apple’s stock earns superior returns. Nothing else could possibly be fair to you and the other owners of the company. But, as John Bogle, former chairman of the Vanguard funds, points out, nearly all managers sell the stock they receive immediately after exercising their options. How could dumping millions of shares for an instant profit possibly align their interests with those of the company’s loyal long-term shareholders? In Jobs’ case, if Apple stock rises by just 5% annually through the beginning of 2010, he will be able to cash in his options for $548.3 million.

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present by Jeff Madrick

Abraham Maslow, accounting loophole / creative accounting, Alan Greenspan, AOL-Time Warner, Asian financial crisis, bank run, Bear Stearns, book value, Bretton Woods, business cycle, capital controls, Carl Icahn, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, desegregation, disintermediation, diversified portfolio, Donald Trump, financial deregulation, fixed income, floating exchange rates, Frederick Winslow Taylor, full employment, George Akerlof, Glass-Steagall Act, Greenspan put, Hyman Minsky, income inequality, index fund, inflation targeting, inventory management, invisible hand, John Bogle, John Meriwether, junk bonds, Kitchen Debate, laissez-faire capitalism, locking in a profit, Long Term Capital Management, low interest rates, market bubble, Mary Meeker, Michael Milken, minimum wage unemployment, MITM: man-in-the-middle, Money creation, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, North Sea oil, Northern Rock, oil shock, Paul Samuelson, Philip Mirowski, Phillips curve, price stability, quantitative easing, Ralph Nader, rent control, road to serfdom, Robert Bork, Robert Shiller, Ronald Coase, Ronald Reagan, Ronald Reagan: Tear down this wall, scientific management, shareholder value, short selling, Silicon Valley, Simon Kuznets, tail risk, Tax Reform Act of 1986, technology bubble, Telecommunications Act of 1996, The Chicago School, The Great Moderation, too big to fail, union organizing, V2 rocket, value at risk, Vanguard fund, War on Poverty, Washington Consensus, Y2K, Yom Kippur War

., No. 02C2180, Northern District, Illinois. 24 IT WAS ALSO SUED: See in general, David Young, “Waste Firm Still Hauling Image Woes,” Chicago Tribune, October 6, 1991; and Partnoy, Infectious Greed, pp. 196–98. 25 IT WAS A MODEST FINE: Securities and Exchange Commission, Litigation Release, No. 19351, August 29, 2005. 26 BETWEEN 1990 AND 1994: John C. Bogle, The Battle for the Soul of Capitalism (New Haven, Conn.: Yale University Press, 2005), p. 111. 27 SECURITIES LAW PROFESSOR FRANK PARTNOY ARGUED: Partnoy, Infectious Greed, pp. 33, 166–68, 269. 28 BY 1996, AVERAGE CEO COMPENSATION: Kevin J. Murphy, “Executive Compensation,” April 1998, p. 90, http://ssrn.com/abstract=163914 or doi:10.2139/ssrn.163914. 29 AT THE HEIGHT OF THE BULL MARKET: Bogle, The Battle for the Soul of Capitalism, p. 17. 30 IN THE MID-1990S ALONE: Murphy, “Executive Compensation,” p. 6.

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The government decided to prosecute on the basis of a flimsy case of tampering and obstruction of justice, rather than outright fraud, but after two trials ended in hung juries, Quattrone was acquitted in 2007 and back in the financial business. Kickbacks and payoffs contributed to the stock market bubble. But after the 2000 crash, nearly all the thousands of IPOs issued in the late 1990s had fallen to below their initial offering prices. Half of the ones that hadn’t gone out of business were selling for less than $1 a share. John Bogle, who had founded Vanguard Funds, estimated that the top executives of both old-line and newly public companies earned in total $1 trillion when they sold their shares during the bull market of the late 1990s. Fees and commission payments to investment banks, brokers, and mutual funds totaled another $1.275 trillion, he figured.

The Joys of Compounding: The Passionate Pursuit of Lifelong Learning, Revised and Updated by Gautam Baid

Abraham Maslow, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, Albert Einstein, Alvin Toffler, Andrei Shleifer, asset allocation, Atul Gawande, availability heuristic, backtesting, barriers to entry, beat the dealer, Benoit Mandelbrot, Bernie Madoff, bitcoin, Black Swan, book value, business process, buy and hold, Cal Newport, Cass Sunstein, Checklist Manifesto, Clayton Christensen, cognitive dissonance, collapse of Lehman Brothers, commoditize, corporate governance, correlation does not imply causation, creative destruction, cryptocurrency, Daniel Kahneman / Amos Tversky, deep learning, delayed gratification, deliberate practice, discounted cash flows, disintermediation, disruptive innovation, Dissolution of the Soviet Union, diversification, diversified portfolio, dividend-yielding stocks, do what you love, Dunning–Kruger effect, Edward Thorp, Elon Musk, equity risk premium, Everything should be made as simple as possible, fear index, financial independence, financial innovation, fixed income, follow your passion, framing effect, George Santayana, Hans Rosling, hedonic treadmill, Henry Singleton, hindsight bias, Hyman Minsky, index fund, intangible asset, invention of the wheel, invisible hand, Isaac Newton, it is difficult to get a man to understand something, when his salary depends on his not understanding it, Jeff Bezos, John Bogle, Joseph Schumpeter, junk bonds, Kaizen: continuous improvement, Kickstarter, knowledge economy, Lao Tzu, Long Term Capital Management, loss aversion, Louis Pasteur, low interest rates, Mahatma Gandhi, mandelbrot fractal, margin call, Mark Zuckerberg, Market Wizards by Jack D. Schwager, Masayoshi Son, mental accounting, Milgram experiment, moral hazard, Nate Silver, Network effects, Nicholas Carr, offshore financial centre, oil shock, passive income, passive investing, pattern recognition, Peter Thiel, Ponzi scheme, power law, price anchoring, quantitative trading / quantitative finance, Ralph Waldo Emerson, Ray Kurzweil, Reminiscences of a Stock Operator, reserve currency, Richard Feynman, Richard Thaler, risk free rate, risk-adjusted returns, Robert Shiller, Savings and loan crisis, search costs, shareholder value, six sigma, software as a service, software is eating the world, South Sea Bubble, special economic zone, Stanford marshmallow experiment, Steve Jobs, Steven Levy, Steven Pinker, stocks for the long run, subscription business, sunk-cost fallacy, systems thinking, tail risk, Teledyne, the market place, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, time value of money, transaction costs, tulip mania, Upton Sinclair, Walter Mischel, wealth creators, Yogi Berra, zero-sum game

So the really big money tends to be made by investors who are right on qualitative decisions but, at least in my opinion, the more sure money tends to be made on the obvious quantitative decisions [emphasis added].20 CHAPTER 23 THE MARKET IS EFFICIENT MOST, BUT NOT ALL, OF THE TIME The stock market is a giant distraction to the business of investing. —John Bogle In Berkshire Hathaway’s 1987 annual letter to shareholders, Warren Buffett discussed the concept of Mr. Market: In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace [emphasis added].

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Peter is only $60,000 in total contributions behind Paul, and he still has forty years to go before he turns seventy, so he figures it isn’t too bad. When he reaches retirement, though, he has only $2.2 million. A mere $60,000 difference between Paul and Peter in cumulative investment turned into a $4.8 million difference in net worth. This example shows, as John Bogle would call it, “the relentless rules of humble arithmetic.”11 Time is power in investing. This is best illustrated by the timeless tale of Benjamin Franklin’s experiment with compound interest, which was driven by the strong optimism he had for his newly formed country at the time: When Franklin died in 1790, he left a gift of $5,000 to each of his two favorite cities, Boston and Philadelphia.

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George Soros, Benoit Mandelbrot, and Richard Bookstaber made me aware of the intricate and highly dynamic feedback loops present in markets and social systems. John Maynard Keynes enlightened me on the significance of prevailing sentiments in markets and economies, and the critical role of timely government intervention. Burton Malkiel, Charles Ellis, and John Bogle taught me the importance of minimizing costs and staying the course. Phil Fisher, Peter Lynch, Ralph Wanger, Pat Dorsey, Tom Gayner, Terry Smith, Chuck Akre, Peter Cundill, William O’Neil, Jesse Stine, and Nicolas Darvas taught me how to pick a stock. Jesse Livermore taught me how to hold on to a stock and to respect the market’s collective wisdom above all else.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel

accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, backtesting, Bear Stearns, beat the dealer, Bernie Madoff, book value, BRICs, butter production in bangladesh, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial engineering, financial innovation, fixed income, framing effect, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Japanese asset price bubble, John Bogle, junk bonds, Long Term Capital Management, loss aversion, low interest rates, margin call, market bubble, Mary Meeker, money market fund, mortgage tax deduction, new economy, Own Your Own Home, PalmPilot, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, stock buybacks, stocks for the long run, sugar pill, survivorship bias, The Myth of the Rational Market, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond

This acknowledgment of my debt to her is the largest understatement of all. Finally, I would like to acknowledge with deep gratitude the assistance of the following individuals who made important contributions to earlier editions. They include: Peter Asch, Leo Bailey, Howard Baker, Jeffrey Balash, David Banyard, William Baumol, Clair Bien, G. Gordon Biggar Jr., John Bogle, Lynne Brady, John Brennan, Markus Brunnermeier, Claire Cabelus, Lester Chandler, Andrew Clarke, Abby Joseph Cohen, Douglas Daniels, Pia Ellen, Andrew Engel, Steve Feinstein, Barry Feldman, Roger Ford, Stephen Goldfeld, William Grant, Leila Heckman, William Helman, Roger Ibbotson, Deborah Jenkins, Barbara Johnson, George S.

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THE VERDICT ON MARKET TIMING Many professional investors move money from cash to equities or to long-term bonds on the basis of their forecasts of fundamental economic conditions. Indeed, this is one reason many brokers give to support their belief in professional money management. The words of John Bogle, founder of the Vanguard Group of Investment Companies, are closest to my views on the subject of market timing. Bogle said, “In 30 years in this business, I do not know anybody who has done it successfully and consistently, nor anybody who knows anybody who has done it successfully and consistently.

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ETFs require the payment of transactions costs, however, including brokerage fees* and bid-asked spreads. No-load index mutual funds will better serve investors who will be accumulating index shares over time in small amounts. I suggest that you avoid the temptation to buy or sell ETFs at any hour of the day and to buy such funds on margin. I agree with John Bogle, founder of the Vanguard Group, who says, “Investors cut their own throats when they trade ETFs.” If you are so tempted, follow the practice of Little Miss Muffet and run far away from the spiders and their siblings. In the table below, I list the ETFs that can be used to build your portfolio.

Choose Yourself! by James Altucher

Airbnb, Albert Einstein, Bernie Madoff, bitcoin, cashless society, cognitive bias, dark matter, digital rights, do what you love, Elon Musk, estate planning, John Bogle, junk bonds, Mark Zuckerberg, mirror neurons, money market fund, Network effects, new economy, PageRank, passive income, pattern recognition, payday loans, Peter Thiel, Ponzi scheme, Rodney Brooks, rolodex, Salesforce, Saturday Night Live, sharing economy, short selling, side project, Silicon Valley, Skype, software as a service, Steve Jobs, superconnector, Uber for X, Vanguard fund, Virgin Galactic, Y2K, Zipcar

There are exceptions, but that’s the case with any broad statement. In most cases, all of these sophisticated vehicles are highly correlated with the US stock market, which is highly correlated with global markets. Everything I’ve said so far in this chapter might suggest that I like John Bogle’s approach. John Bogle is a hero for many in the investment community. He is the founder of the Vanguard funds, which charge super-low fees to be fairer to the investor. This is not such a bad approach. However, you still often have to pay fees to the bank to buy into his funds. There’s still an annual fee (albeit very low) and there’s till this nonsense about lending out their shares so people can short the stocks they own (to be fair, I don’t know if Vanguard does this but many funds like Vanguard do).

Investing Demystified: How to Invest Without Speculation and Sleepless Nights by Lars Kroijer

Andrei Shleifer, asset allocation, asset-backed security, Bernie Madoff, bitcoin, Black Swan, BRICs, Carmen Reinhart, clean tech, compound rate of return, credit crunch, currency risk, diversification, diversified portfolio, equity premium, equity risk premium, estate planning, fixed income, high net worth, implied volatility, index fund, intangible asset, invisible hand, John Bogle, Kenneth Rogoff, low interest rates, market bubble, money market fund, passive investing, pattern recognition, prediction markets, risk tolerance, risk/return, Robert Shiller, selection bias, sovereign wealth fund, too big to fail, transaction costs, Vanguard fund, yield curve, zero-coupon bond

As the mutual fund industry grew so did the index-tracking industry. The index-tracking firms were not generally as widely known as the mutual funds, probably in large part because their low fees did not leave a lot of room for general marketing expense. They were led by Vanguard and the legendary John Bogle. The growth in the index trackers was a natural extension of the disaggregation that the finance industry had moved slowly towards for decades. Disaggregation is perhaps too big a term and I’m sure that nobody had a grand plan, but the basic idea was that you paid for what you got. If you only wanted market exposure as defined by the creation of some index, you only paid for that, with the simplicity of the product continuously pushing down its costs.

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Even a strong leader in its sector, like Legal & General in the UK, does not have a broadly diversified world portfolio. It has an index fund of the top 100 blue-chip companies, but this is quite different from any kind of world equity index. Also, that product comes at an annual charge of 1% plus extra expenses of 0.15%. John Bogle, the founder of Vanguard, would be aghast at those kinds of fees. So if you wanted to gain access to a world equity portfolio through Legal & General you would be forced to put a portfolio of index funds together yourself, instead of having a one-stop product like a world equity product. Generally speaking, some index products can be incredibly expensive and best avoided.

MONEY Master the Game: 7 Simple Steps to Financial Freedom by Tony Robbins

"World Economic Forum" Davos, 3D printing, active measures, activist fund / activist shareholder / activist investor, addicted to oil, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, backtesting, Bear Stearns, behavioural economics, bitcoin, Black Monday: stock market crash in 1987, buy and hold, Carl Icahn, clean water, cloud computing, corporate governance, corporate raider, correlation does not imply causation, Credit Default Swap, currency risk, Dean Kamen, declining real wages, diversification, diversified portfolio, Donald Trump, estate planning, fear of failure, fiat currency, financial independence, fixed income, forensic accounting, high net worth, index fund, Internet of things, invention of the wheel, it is difficult to get a man to understand something, when his salary depends on his not understanding it, Jeff Bezos, John Bogle, junk bonds, Kenneth Rogoff, lake wobegon effect, Lao Tzu, London Interbank Offered Rate, low interest rates, Marc Benioff, market bubble, Michael Milken, money market fund, mortgage debt, Neil Armstrong, new economy, obamacare, offshore financial centre, oil shock, optical character recognition, Own Your Own Home, passive investing, profit motive, Ralph Waldo Emerson, random walk, Ray Kurzweil, Richard Thaler, risk free rate, risk tolerance, riskless arbitrage, Robert Shiller, Salesforce, San Francisco homelessness, self-driving car, shareholder value, Silicon Valley, Skype, Snapchat, sovereign wealth fund, stem cell, Steve Jobs, subscription business, survivorship bias, tail risk, TED Talk, telerobotics, The 4% rule, The future is already here, the rule of 72, thinkpad, tontine, transaction costs, Upton Sinclair, Vanguard fund, World Values Survey, X Prize, Yogi Berra, young professional, zero-sum game

It was the most provocative, probing interview of my long career, a reaction shared, I’m sure, by the other souls with strong investment values and sharp financial minds who populate this fine book. This book will enlighten you and reinforce your understanding of how to master the money game and, in the long run, earn your financial freedom.” —John C. Bogle, founder, the Vanguard Group and the Vanguard index funds, #1 largest mutual funds in the world “This book is not the typical financial book in any way. It is packed with wisdom and vital philosophies to enrich your life. A lot of books out there have more sizzle than steak to offer. Tony’s is different.

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SECTION 5 UPSIDE WITHOUT THE DOWNSIDE: CREATE A LIFETIME INCOME PLAN Chapter 5.1: Invincible, Unsinkable, Unconquerable: The All Seasons Strategy Chapter 5.2: It’s Time to Thrive: Storm-Proof Returns and Unrivaled Results Chapter 5.3: Freedom: Creating Your Lifetime Income Plan Chapter 5.4: Time to Win: Your Income Is the Outcome Chapter 5.5: Secrets of the Ultrawealthy (That You Can Use Too!) SECTION 6 INVEST LIKE THE .001%: THE BILLIONAIRE’S PLAYBOOK Chapter 6.0: Meet the Masters Chapter 6.1: Carl Icahn: Master of the Universe Chapter 6.2: David Swensen: A $23.9 Billion Labor of Love Chapter 6.3: John C. Bogle: The Vanguard of Investing Chapter 6.4: Warren Buffett: The Oracle of Omaha Chapter 6.5: Paul Tudor Jones: A Modern-Day Robin Hood Chapter 6.6: Ray Dalio: A Man for All Seasons Chapter 6.7: Mary Callahan Erdoes: The Trillion-Dollar Woman Chapter 6.8: T. Boone Pickens: Made to Be Rich, Made to Give Chapter 6.9: Kyle Bass: The Master of Risk Chapter 6.10: Marc Faber: The Billionaire They Call Dr.

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In this book, you won’t get talking heads, and you won’t get my opinions, either. You’ll hear it straight from the masters of the game: self-made billionaires, Nobel laureates, and financial titans. Here’s just a sampling of a few of the masters of money that you will be learning from in the pages ahead: • John C. Bogle, the 85-year-old sage with 64 years of stock market history and the founder of the Vanguard Group, the number one mutual fund company in the world; • Ray Dalio, founder of the largest hedge fund on the planet, with $160 billion in assets; • David Swensen, one of the greatest institutional investors of all time, who grew Yale University’s endowment from $1 billion to more than $23.9 billion in less than two decades; • Kyle Bass, a man who turned $30 million in investments into $2 billion in two years during the subprime crisis; • Carl Icahn, who has outperformed Warren Buffett, the market, and virtually everyone else in the last one-, five-, and ten-year cycles; • Mary Callahan Erdoes, whom many consider to be the most powerful woman in finance.

The Revolution That Wasn't: GameStop, Reddit, and the Fleecing of Small Investors by Spencer Jakab

4chan, activist fund / activist shareholder / activist investor, barriers to entry, behavioural economics, Bernie Madoff, Bernie Sanders, Big Tech, bitcoin, Black Swan, book value, buy and hold, classic study, cloud computing, coronavirus, COVID-19, crowdsourcing, cryptocurrency, data science, deal flow, democratizing finance, diversified portfolio, Dogecoin, Donald Trump, Elon Musk, Everybody Ought to Be Rich, fake news, family office, financial innovation, gamification, global macro, global pandemic, Google Glasses, Google Hangouts, Gordon Gekko, Hacker News, income inequality, index fund, invisible hand, Jeff Bezos, Jim Simons, John Bogle, lockdown, Long Term Capital Management, loss aversion, Marc Andreessen, margin call, Mark Zuckerberg, market bubble, Masayoshi Son, meme stock, Menlo Park, move fast and break things, Myron Scholes, PalmPilot, passive investing, payment for order flow, Pershing Square Capital Management, pets.com, plutocrats, profit maximization, profit motive, race to the bottom, random walk, Reminiscences of a Stock Operator, Renaissance Technologies, Richard Thaler, ride hailing / ride sharing, risk tolerance, road to serfdom, Robinhood: mobile stock trading app, Saturday Night Live, short selling, short squeeze, Silicon Valley, Silicon Valley billionaire, SoftBank, Steve Jobs, TikTok, Tony Hsieh, trickle-down economics, Vanguard fund, Vision Fund, WeWork, zero-sum game

As for skill, while I do believe that it exists, it is very hard to distinguish statistically from luck over just a handful of years. Not one of the five Morningstar “fund managers of the decade” through 2010 even managed to beat the market in the next ten years. The only certainty with funds is their cost. The late John Bogle, the founder of the index fund pioneer Vanguard Group, ran the numbers on mutual funds using the example of a thirty-year-old earning $30,000 a year who saves 10 percent of her salary and gets a 3 percent annual raise. Assuming that the stock market rose by 7 percent a year, she would have $561,000 saved by age seventy in a typical actively managed mutual fund if it matched the market return before fees and other costs.

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BACK TO NOTE REFERENCE 4 Murray Coleman, “SPIVA: 2020 Mid-year Active vs. Passive Scorecard, Index Fund Advisors,” Index Fund Advisors blog post, October 7, 2020, www.ifa.com/articles/despite_brief_reprieve_2018_spiva_report_reveals_active_funds_fail_dent_indexing_lead_-_works. BACK TO NOTE REFERENCE 5 John Bogle, “The Arithmetic of ‘All-in’ Investment Expenses,” Financial Analysts Journal 70, no. 1 (2014): https://doi.org/10.2469/faj.v70.n1.1. BACK TO NOTE REFERENCE 6 Larry Swedroe, “Older Investors Handled Last Year’s Volatility Worst,” The Evidence-Based Investor, April 9, 2021, www.evidenceinvestor.com/older-investors-handled-last-years-volatility-worst-morningstar.

Money Moments: Simple Steps to Financial Well-Being by Jason Butler

Albert Einstein, asset allocation, behavioural economics, buy and hold, Cass Sunstein, Cornelius Vanderbilt, diversified portfolio, estate planning, financial independence, fixed income, happiness index / gross national happiness, index fund, intangible asset, John Bogle, longitudinal study, loss aversion, Lyft, Mark Zuckerberg, mortgage debt, Mr. Money Mustache, passive income, placebo effect, Richard Thaler, ride hailing / ride sharing, Steve Jobs, time value of money, traffic fines, Travis Kalanick, Uber and Lyft, uber lyft, Vanguard fund, Yogi Berra

Berrett-Koehler Publishers, Inc. 2014. Smarter Investing 3rd edn: Simpler Decisions for Better Results (Financial Times Series) by Tim Hale. FT Publishing International; 3 edition, 2013. The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits) by John C. Bogle. John Wiley & Sons; Updated and Revised edition (7 Dec. 2017). The Little Book of Bahavioral Investing: How Not to Be Your Own Worst Enemy by James Montier. John Wiley & Sons, Inc., Hoboken, New Jersey, 2010. DIGITAL RESOURCES Boring Money – www.boringmoney.co.uk Describes itself as ‘like the lovechild of a financial magazine and TripAdvisor’.

Reset: How to Restart Your Life and Get F.U. Money: The Unconventional Early Retirement Plan for Midlife Careerists Who Want to Be Happy by David Sawyer

"World Economic Forum" Davos, Abraham Maslow, Airbnb, Albert Einstein, asset allocation, beat the dealer, bitcoin, Black Monday: stock market crash in 1987, Cal Newport, cloud computing, cognitive dissonance, content marketing, crowdsourcing, cryptocurrency, currency risk, David Attenborough, David Heinemeier Hansson, Desert Island Discs, diversification, diversified portfolio, Edward Thorp, Elon Musk, fake it until you make it, fake news, financial independence, follow your passion, gig economy, Great Leap Forward, hiring and firing, imposter syndrome, index card, index fund, invention of the wheel, John Bogle, knowledge worker, loadsamoney, low skilled workers, Mahatma Gandhi, Mark Zuckerberg, meta-analysis, mortgage debt, Mr. Money Mustache, passive income, passive investing, Paul Samuelson, pension reform, risk tolerance, Robert Shiller, Ronald Reagan, Silicon Valley, Skype, smart meter, Snapchat, stakhanovite, Steve Jobs, sunk-cost fallacy, TED Talk, The 4% rule, Tim Cook: Apple, Vanguard fund, William Bengen, work culture , Y Combinator

[358] most important economist of the late 20th century: “Paul Samuelson – Wikipedia.” toreset.me/358. [359] “A Challenge to Judgment”: “The inspiration for John Bogle’s great invention – MarketWatch.” 5 Mar. 2014, toreset.me/359. [360] $403bn: “VFINX - Vanguard 500 Index Fund Investor Shares | Vanguard.” toreset.me/360. [361] 29% of the entire US market: “Index funds to surpass active fund assets in U.S. by 2024: Moody’s.” 2 Feb. 2017, toreset.me/361. [362] “Something new under the sun”: “The inspiration for John Bogle’s great invention – MarketWatch.” 5 Mar. 2014, toreset.me/362. [363] but it’s a lot more rational than us: “Is the Market Rational?

Rebooting Democracy: A Citizen's Guide to Reinventing Politics by Manuel Arriaga

banking crisis, behavioural economics, business climate, David Graeber, digital divide, financial innovation, first-past-the-post, Gunnar Myrdal, John Bogle, Occupy movement, principal–agent problem, Slavoj Žižek

Whenever managers and the traders they oversee sustainedly engage in practices that put the very existence of the whole bank at stake—thus risking wiping out all the capital invested by shareholders whose interests they supposedly represent—our notions of delegation deserve some serious rethinking. These problems are addressed at length in The Battle for the Soul of Capitalism by John Bogle (founder of Vanguard, one of the world’s largest mutual fund companies) and his later joint work with Alfred Rappaport (professor at the Kellogg Graduate School of Management at Northwestern University), Saving Capitalism From Short-Termism. [ix] At least beyond the casual exchange of a couple of provocative remarks between friends or family members of different political persuasions, both of whom are guaranteed to stick to well-defined roles during the exchange—e.g., “the liberal” and “the conserva­tive”—and none of them actually considering the content of the other’s remarks.

Fred Schwed's Where Are the Customers' Yachts?: A Modern-Day Interpretation of an Investment Classic by Leo Gough

Albert Einstein, banking crisis, Bernie Madoff, book value, corporate governance, discounted cash flows, disinformation, diversification, fixed income, index fund, John Bogle, junk bonds, Long Term Capital Management, Michael Milken, Northern Rock, passive investing, Ralph Waldo Emerson, random walk, short selling, South Sea Bubble, The Nature of the Firm, the rule of 72, The Wealth of Nations by Adam Smith, transaction costs, young professional

That might mean investing less, or it might mean spreading the cash across different, but similar vehicles, like having several savings accounts in different banks. 51 THE ‘FAT, STUPID PEASANT’ APPROACH ‘[After selling shares at a profit] … a long time later it turns out that I should have just bought them, and thereafter sat on them like a fat, stupid peasant. A peasant, however, who is rich beyond his limited dreams of avarice.’ DEFINING IDEA… Time is your friend; impulse is your enemy. ~ JOHN BOGLE, FAMOUS INVESTOR In this book we have identified two promising routes to a making a good return in the stock market: index investing and buying companies with good fundamentals at a time when their share prices are low. The first is extremely easy to do, and although it can never perform better than the index that it follows, that really shouldn’t matter very much, since it will still probably produce a better return than investing in any other type of financial security over the long term.

The Wisdom of Crowds by James Surowiecki

Alan Greenspan, AltaVista, Andrei Shleifer, Apollo 13, asset allocation, behavioural economics, Cass Sunstein, classic study, congestion pricing, coronavirus, Daniel Kahneman / Amos Tversky, experimental economics, Frederick Winslow Taylor, George Akerlof, Great Leap Forward, Gregor Mendel, Howard Rheingold, I think there is a world market for maybe five computers, interchangeable parts, Jeff Bezos, John Bogle, John Meriwether, Joseph Schumpeter, knowledge economy, lone genius, Long Term Capital Management, market bubble, market clearing, market design, Monkeys Reject Unequal Pay, moral hazard, Myron Scholes, new economy, offshore financial centre, Picturephone, prediction markets, profit maximization, Richard Feynman, Richard Feynman: Challenger O-ring, Richard Thaler, Robert Shiller, Ronald Coase, Ronald Reagan, seminal paper, shareholder value, short selling, Silicon Valley, South Sea Bubble, tacit knowledge, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Toyota Production System, transaction costs, ultimatum game, vertical integration, world market for maybe five computers, Yogi Berra, zero-sum game

The Chase quote is from James Shanteau, “Expert Judgment and Financial Decision Making,” paper prepared for Risky Business: Risk Behavior and Risk Management, edited by Bo Green (Stockholm: Stockholm University, 1995). This paper includes an excellent survey of expert studies. Also see Shanteau, “Domain Differences in Expertise,” Kansas State University unpublished paper (2002), http://www.ksu.edu/psych/cws/downloads.htm. The numbers on mutual-fund performance are from John Bogle, John Bogle on Investing (New York: McGraw Hill, 2001): 20. J. Scott Armstrong, “The Seer-Sucker Theory: The Value of Experts in Forecasting,” Technology Review 83 (June–July 1980): 16–24. Shanteau, “Expert Judgment and Financial Decision Making”: 2. See also Shanteau, “Why Do Experts Disagree,” in Risk Behaviour and Risk Management in Business Life, edited by B.

file:///C:/Documents%20and%... by vpavan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, Alan Greenspan, AOL-Time Warner, asset allocation, Bear Stearns, Berlin Wall, book value, business cycle, buttonwood tree, buy and hold, Carl Icahn, corporate governance, corporate raider, currency risk, disintermediation, diversification, diversified portfolio, Donald Trump, estate planning, financial engineering, fixed income, index fund, intangible asset, interest rate swap, John Bogle, junk bonds, Larry Ellison, margin call, Mary Meeker, money market fund, Myron Scholes, new economy, payment for order flow, price discovery process, profit motive, risk tolerance, shareholder value, short selling, Silicon Valley, Small Order Execution System, Steve Jobs, stocks for the long run, stocks for the long term, tech worker, technology bubble, transaction costs, Vanguard fund, women in the workforce, zero-coupon bond, éminence grise

The ICI also doesn't count the high costs charged by the 5 percent of funds that go out of business every year. Nor does the ICI consider that the average fund holds between 5 percent and 7 percent of its assets in cash. That money is never invested in the stock market, yet you pay a management fee on it, and thus there is an "opportunity" cost that shows up in reduced returns. John Bogle, the founder of the Vanguard Group and the person who pioneered index funds, calls the ICI's claim that fund costs have declined "sheer, unadulterated bologna." Bogle says the true cost of owning an equity fund is more like 2.5 percent, a long way from 1.4 percent. Some experts, such as Don Phillips, managing director of Morningstar Inc., a Chicago company that rates mutual funds, believes funds with higher expense ratios pose special problems.

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Warren Buffett, the Berkshire Hathaway chairman, has been an avid champion of plain English SEC documents, more-transparent accounting, low-cost mutual funds, and many other pro-investor initiatives. His annual report to shareholders is a model of how companies should communicate with their investors. You can read it at www.berkshirehathaway.com. Vanguard founder John Bogle has been a thorn in the side of the mutual fund industry for fifty years. He is convinced that the lower fees, lower portfolio turnover, and fewer capital gains distributions of index funds make them the best possible investment for individuals. He makes a compelling case in his speeches, books, and other publications, all of which can be found on the Vanguard Web site (www.vanguard.com/bogle).

The Great Mental Models: General Thinking Concepts by Shane Parrish

Albert Einstein, anti-fragile, Atul Gawande, Barry Marshall: ulcers, bitcoin, Black Swan, colonial rule, correlation coefficient, correlation does not imply causation, cuban missile crisis, Daniel Kahneman / Amos Tversky, dark matter, delayed gratification, feminist movement, Garrett Hardin, if you see hoof prints, think horses—not zebras, index fund, Isaac Newton, Jane Jacobs, John Bogle, Linda problem, mandelbrot fractal, Pepsi Challenge, Philippa Foot, Pierre-Simon Laplace, Ponzi scheme, Richard Feynman, statistical model, stem cell, The Death and Life of Great American Cities, the map is not the territory, the scientific method, Thomas Bayes, Torches of Freedom, Tragedy of the Commons, trolley problem

He used the descriptor “appeals of indirection”, and each time when “hired to sell a product or service, he instead sold whole new ways of behaving, which appeared obscure but over time reaped huge rewards for his clients and redefined the very texture of American life.”8 What are you trying to avoid? Instead of thinking through the achievement of a positive outcome, we could ask ourselves how we might achieve a terrible outcome, and let that guide our decision-making. Index funds are a great example of stock market inversion promoted and brought to bear by Vanguard’s John Bogle.9 Instead of asking how to beat the market, as so many before him, Bogle recognized the difficulty of the task. Everyone is trying to beat the market. No one is doing it with any consistency, and in the process real people are losing actual money. So he inverted the approach. The question then became, how can we help investors minimize losses to fees and poor money manager selection?

The Little Book That Builds Wealth: The Knockout Formula for Finding Great Investments by Pat Dorsey

Airbus A320, barriers to entry, book value, business process, call centre, carbon tax, creative destruction, credit crunch, discounted cash flows, intangible asset, John Bogle, knowledge worker, late fees, low cost airline, Network effects, pets.com, price anchoring, risk tolerance, risk/return, rolodex, search costs, shareholder value, Stewart Brand

The Little Book of Value Investing, where Christopher Browne, managing director of Tweedy, Browne Company, LLC, the oldest value investing firm on Wall Street, simply and succinctly explains how value investing, one of the most effective investment strategies ever created, works, and shows you how it can be applied globally. The Little Book of Common Sense Investing, where Vanguard Group founder John C. Bogle shares his own time-tested philosophies, lessons, and personal anecdotes to explain why outperforming the market is an investor illusion, and how the simplest of investment strategies—indexing—can deliver the greatest return to the greatest number of investors. The Little Book That Makes You Rich, where Louis Navellier, financial analyst and editor of investment newsletters since 1980, offers readers a fundamental understanding of how to get rich using the best in growth investing strategies.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Eleventh Edition) by Burton G. Malkiel

accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, beat the dealer, Bernie Madoff, bitcoin, book value, butter production in bangladesh, buttonwood tree, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, Detroit bankruptcy, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, equity risk premium, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial engineering, financial innovation, financial repression, fixed income, framing effect, George Santayana, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Japanese asset price bubble, John Bogle, junk bonds, Long Term Capital Management, loss aversion, low interest rates, margin call, market bubble, Mary Meeker, money market fund, mortgage tax deduction, new economy, Own Your Own Home, PalmPilot, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Salesforce, short selling, Silicon Valley, South Sea Bubble, stock buybacks, stocks for the long run, sugar pill, survivorship bias, Teledyne, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond, zero-sum game

ETFs require the payment of transactions costs, however, including brokerage fees* and bid-asked spreads. No-load index mutual funds will better serve investors who will be accumulating index shares over time in small amounts. I suggest that you avoid the temptation to buy or sell ETFs at any hour of the day and to buy such funds on margin. I agree with John Bogle, founder of the Vanguard Group, who says, “Investors cut their own throats when they trade ETFs.” If you are so tempted, follow the practice of Little Miss Muffet and run far away from the spiders and their siblings. In the table on page 392, I list the ETFs that can be used to build your portfolio.

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This acknowledgment of my debt to her is the largest understatement of all. Finally, I would like to acknowledge with deep gratitude the assistance of the following individuals who made important contributions to earlier editions. They include Peter Asch, Leo Bailey, Howard Baker, Jeffrey Balash, David Banyard, William Baumol, Clair Bien, G. Gordon Biggar Jr., John Bogle, Lynne Brady, John Brennan, Markus Brunnermeier, Claire Cabelus, Lester Chandler, Andrew Clarke, Abby Joseph Cohen, Douglas Daniels, Pia Ellen, Andrew Engel, Steve Feinstein, Barry Feldman, Roger Ford, Stephen Goldfeld, William Grant, Leila Heckman, William Helman, Roger Ibbotson, Deborah Jenkins, Barbara Johnson, George S.

Your Money: The Missing Manual by J.D. Roth

Airbnb, Alan Greenspan, asset allocation, bank run, book value, buy and hold, buy low sell high, car-free, Community Supported Agriculture, delayed gratification, diversification, diversified portfolio, do what you love, estate planning, Firefox, fixed income, full employment, hedonic treadmill, Home mortgage interest deduction, index card, index fund, John Bogle, late fees, lifestyle creep, low interest rates, mortgage tax deduction, Own Your Own Home, Paradox of Choice, passive investing, Paul Graham, random walk, retail therapy, Richard Bolles, risk tolerance, Robert Shiller, speech recognition, stocks for the long run, traveling salesman, Vanguard fund, web application, Zipcar

As you'll learn in the next section, this makes them a great long-term investment. Index funds Because index funds try to match an index and not beat it, they don't require much intervention from the fund manager, which makes their costs much lower than those of actively managed funds. In The Little Book of Common Sense Investing (Wiley, 2007), John Bogle writes that the average actively managed fund has a total of about 2% in annual costs, whereas a typical passive index fund's costs are only about 0.25%. Although this 1.75% difference in costs between actively and passively managed mutual funds may not seem like much, there's a growing body of research that says it makes a huge difference in long-term investment results.

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For instance, if you only have 34% in bonds instead of your target 40%, add more bonds to bring your portfolio back into balance. By doing this, you don't have to worry about taxes, but you will need some cash on hand. Though many investment professionals swear by rebalancing, some research shows that it's not as important as people once thought. In The Little Book of Common Sense Investing, John Bogle writes, "Rebalancing is a personal choice, not a choice that statistics can validate. There's nothing the matter with doing it…but also no reason to slavishly worry about small changes…" In other words, rebalance if your asset allocation is way out of line but don't worry about small changes—especially if you'd end up paying a lot of fees by rebalancing.

A Man for All Markets by Edward O. Thorp

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", 3Com Palm IPO, Alan Greenspan, Albert Einstein, asset allocation, Bear Stearns, beat the dealer, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, book value, Brownian motion, buy and hold, buy low sell high, caloric restriction, caloric restriction, carried interest, Chuck Templeton: OpenTable:, Claude Shannon: information theory, cognitive dissonance, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Edward Thorp, Erdős number, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, Garrett Hardin, George Santayana, German hyperinflation, Glass-Steagall Act, Henri Poincaré, high net worth, High speed trading, index arbitrage, index fund, interest rate swap, invisible hand, Jarndyce and Jarndyce, Jeff Bezos, John Bogle, John Meriwether, John Nash: game theory, junk bonds, Kenneth Arrow, Livingstone, I presume, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, Mason jar, merger arbitrage, Michael Milken, Murray Gell-Mann, Myron Scholes, NetJets, Norbert Wiener, PalmPilot, passive investing, Paul Erdős, Paul Samuelson, Pluto: dwarf planet, Ponzi scheme, power law, price anchoring, publish or perish, quantitative trading / quantitative finance, race to the bottom, random walk, Renaissance Technologies, RFID, Richard Feynman, risk-adjusted returns, Robert Shiller, rolodex, Sharpe ratio, short selling, Silicon Valley, Stanford marshmallow experiment, statistical arbitrage, stem cell, stock buybacks, stocks for the long run, survivorship bias, tail risk, The Myth of the Rational Market, The Predators' Ball, the rule of 72, The Wisdom of Crowds, too big to fail, Tragedy of the Commons, uptick rule, Upton Sinclair, value at risk, Vanguard fund, Vilfredo Pareto, Works Progress Administration

waiting fifteen years The NASDAQ Composite finally exceeded its March 2000 peak in April of 2015. However, investors were still behind more than 20 percent after adjusting for inflation. weren’t available yet Bogle on Mutual Funds, pp. 169–70 says “The indexing concept was…introduced…to the mutual fund industry in 1976.” and in fact by the author himself, John C. Bogle. or the stock market According to a Fidelity Research Institute Report dated February 2007 stocks averaged about 10 percent a year, beating residential real estate by more than 4 percent a year for 1963–2005 and by more than 5.5 percent annualized over 1835–2005. Bonds also did better than residential real estate.

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New York: Houghton Mifflin, 1985. Black, Fischer, and Myron Scholes. “The Pricing of Options and Corporate Liabilities.” Journal of Political Economy 81.3 (1973): 637–54. Blackwood, Kevin, and Larry Barker. Legends of Blackjack: True Stories of Players Who Crushed the Casinos. Kindle EBook, April 5, 2009. Bogle, John C. Bogle on Mutual Funds: New Perspectives for the Intelligent Investor. Burr Ridge, IL: Irwin, 1994. Edwardothorp.com. View articles written by the author. Feller, William. An Introduction to Probability Theory and Its Applications, Volume I. New York: Wiley, 1957, 1968. Fox, Justin. The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street.

The Little Book of Hedge Funds by Anthony Scaramucci

Alan Greenspan, Andrei Shleifer, asset allocation, Bear Stearns, Bernie Madoff, business process, carried interest, corporate raider, Credit Default Swap, diversification, diversified portfolio, Donald Trump, Eugene Fama: efficient market hypothesis, fear of failure, financial engineering, fixed income, follow your passion, global macro, Gordon Gekko, high net worth, index fund, it's over 9,000, John Bogle, John Meriwether, Long Term Capital Management, mail merge, managed futures, margin call, mass immigration, merger arbitrage, Michael Milken, money market fund, Myron Scholes, NetJets, Ponzi scheme, profit motive, proprietary trading, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk-adjusted returns, risk/return, Ronald Reagan, Saturday Night Live, Sharpe ratio, short selling, short squeeze, Silicon Valley, tail risk, Thales and the olive presses, Thales of Miletus, the new new thing, too big to fail, transaction costs, two and twenty, uptick rule, Vanguard fund, Y2K, Yogi Berra, zero-sum game

Each book offers a unique perspective on investing, allowing the reader to pick and choose from the very best in investment advice today. Books in the Little Book Big Profits series include: The Little Book That Still Beats the Market by Joel Greenblatt The Little Book of Value Investing by Christopher Browne The Little Book of Common Sense Investing by John C. Bogle The Little Book That Makes You Rich by Louis Navellier The Little Book That Builds Wealth by Pat Dorsey The Little Book That Saves Your Assets by David M. Darst The Little Book of Bull Moves by Peter D. Schiff The Little Book of Main Street Money by Jonathan Clements The Little Book of Safe Money by Jason Zweig The Little Book of Behavioral Investing by James Montier The Little Book of Big Dividends by Charles B.

The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by Morgan Housel

airport security, Amazon Web Services, Bernie Madoff, book value, business cycle, computer age, Cornelius Vanderbilt, coronavirus, discounted cash flows, diversification, diversified portfolio, do what you love, Donald Trump, financial engineering, financial independence, Hans Rosling, Hyman Minsky, income inequality, index fund, invisible hand, Isaac Newton, It's morning again in America, Jeff Bezos, Jim Simons, John Bogle, Joseph Schumpeter, knowledge worker, labor-force participation, Long Term Capital Management, low interest rates, margin call, Mark Zuckerberg, new economy, Paul Graham, payday loans, Ponzi scheme, quantitative easing, Renaissance Technologies, Richard Feynman, risk tolerance, risk-adjusted returns, Robert Gordon, Robert Shiller, Ronald Reagan, side hustle, Stephen Hawking, Steven Levy, stocks for the long run, tech worker, the scientific method, traffic fines, Vanguard fund, WeWork, working-age population

But more important is that as much as we recognize the role of luck in success, the role of risk means we should forgive ourselves and leave room for understanding when judging failures. Nothing is as good or as bad as it seems. Now let’s look at the stories of two men who pushed their luck. John Bogle, the Vanguard founder who passed away in 2019, once told a story about money that highlights something we don’t think about enough: At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history.

The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life by J L Collins

asset allocation, Bernie Madoff, Black Monday: stock market crash in 1987, buy and hold, compound rate of return, currency risk, diversification, financial independence, full employment, German hyperinflation, index fund, inverted yield curve, John Bogle, lifestyle creep, low interest rates, money market fund, Mr. Money Mustache, nuclear winter, passive income, payday loans, risk tolerance, side hustle, The 4% rule, Vanguard fund, yield curve

By design they are almost precisely the same. Since we can invest in VTSAX, going forward I’ll be using it as our proxy for the stock market overall. Last time I checked, and this will vary, VTSAX held about 3,700 companies. This means that in owning VTSAX, you own a piece of all these businesses. In 1976 John Bogle, the founder of The Vanguard Group, launched the world’s first index fund. It tracked the S&P 500 index, allowing investors to own the largest 500 or so companies in the U.S. in one low-cost fund. It instantly became the single best tool for taking advantage of the market’s relentless climb. Then, in 1992, Vanguard created the Total Stock Market Index Fund and investors could own in this one fund not just the 500 largest U.S. companies, but virtually the entire U.S. stock market.

Retire Before Mom and Dad by Rob Berger

Airbnb, Albert Einstein, Apollo 13, asset allocation, Black Monday: stock market crash in 1987, buy and hold, car-free, cuban missile crisis, discovery of DNA, diversification, diversified portfolio, en.wikipedia.org, fixed income, hedonic treadmill, index fund, John Bogle, junk bonds, mortgage debt, Mr. Money Mustache, passive investing, Ralph Waldo Emerson, robo advisor, The 4% rule, the rule of 72, transaction costs, Vanguard fund, William Bengen, Yogi Berra, Zipcar

With this approach, you might invest 90% of your money in the Vanguard 2060 fund and 10% in the Vanguard small cap fund. 3-Fund Portfolio Our next option involves just three mutual funds. It’s an approach popularized by a group of investors called the Bogleheads. Don’t let the name fool you. This is a serious group of passionate and knowledgeable investors. They named their group after Vanguard’s founder, John Bogle. They even have a conference each year. The 3-Fund Portfolio requires three types of index mutual funds: U.S. Stocks Foreign Stocks U.S. Bonds That’s it. Now the big question. How much money do you put in each type of fund? One option would be to follow what Vanguard does in its TDR funds.

A Mathematician Plays the Stock Market by John Allen Paulos

Alan Greenspan, AOL-Time Warner, Benoit Mandelbrot, Black-Scholes formula, book value, Brownian motion, business climate, business cycle, butter production in bangladesh, butterfly effect, capital asset pricing model, confounding variable, correlation coefficient, correlation does not imply causation, Daniel Kahneman / Amos Tversky, diversified portfolio, dogs of the Dow, Donald Trump, double entry bookkeeping, Elliott wave, endowment effect, equity risk premium, Erdős number, Eugene Fama: efficient market hypothesis, four colour theorem, George Gilder, global village, greed is good, index fund, intangible asset, invisible hand, Isaac Newton, it's over 9,000, John Bogle, John Nash: game theory, Larry Ellison, Long Term Capital Management, loss aversion, Louis Bachelier, mandelbrot fractal, margin call, mental accounting, Myron Scholes, Nash equilibrium, Network effects, passive investing, Paul Erdős, Paul Samuelson, Plato's cave, Ponzi scheme, power law, price anchoring, Ralph Nelson Elliott, random walk, Reminiscences of a Stock Operator, Richard Thaler, risk free rate, Robert Shiller, short selling, six sigma, Stephen Hawking, stocks for the long run, survivorship bias, transaction costs, two and twenty, ultimatum game, UUNET, Vanguard fund, Yogi Berra

Question: How many efficient market theorists does it take to change a light bulb? Answer: None. If the light bulb needed changing the market would have already done it. Efficient market theorists tend to believe in passive investments such as broad-gauged index funds, which attempt to track a given market index such as the S&P 500. John Bogle, the crusading founder of Vanguard and presumably a believer in efficient markets, was the first to offer such a fund to the general investing public. His Vanguard 500 fund is unmanaged, offers broad diversification and very low fees, and generally beats the more expensive, managed funds. Investing in it does have a cost, however: One must give up the fantasy of a perspicacious gunslinger/investor outwitting the market.

Wall Street Meat by Andy Kessler

accounting loophole / creative accounting, Alan Greenspan, Andy Kessler, automated trading system, banking crisis, Bob Noyce, George Gilder, index fund, Jeff Bezos, John Bogle, junk bonds, market bubble, Mary Meeker, Menlo Park, Michael Milken, Pepto Bismol, pets.com, Robert Metcalfe, rolodex, Salesforce, Sand Hill Road, Silicon Valley, Small Order Execution System, Steve Jobs, technology bubble, undersea cable, Y2K

Back in 1980, a scant $40 billion was being professionally managed by mutual funds. The rest was in pension funds, foundations like the Ford Foundation, or in banks. These “professionals” were terrible, most couldn’t pick stocks that did better than the market. Books were being written about chimpanzees and dart throwers doing better than professional money managers. John Bogle at Vanguard in Pennsylvania had a solution, i.e., if you can’t beat the market, just become the market. Index the whole thing. The bulk of the market was represented by the Standards and Poor (S&P) 500 index, the top 500 valuable public companies in the U.S. Bogle offered an index fund that did neither better, nor worse than the market, and it caught on as a savior of investors.

Personal Investing: The Missing Manual by Bonnie Biafore, Amy E. Buttell, Carol Fabbri

asset allocation, asset-backed security, book value, business cycle, buy and hold, currency risk, diversification, diversified portfolio, Donald Trump, employer provided health coverage, estate planning, fixed income, Home mortgage interest deduction, index fund, John Bogle, Kickstarter, low interest rates, money market fund, mortgage tax deduction, risk tolerance, risk-adjusted returns, Rubik’s Cube, Sharpe ratio, stocks for the long run, Vanguard fund, Yogi Berra, zero-coupon bond

(You can adjust them later on, if necessary.) Automatic deposits also help you succeed by regularly contributing to your plan through thick and thin, good times and bad, high prices and low (read about dollar-cost averaging on page 4). 3. Repeat step 2 for each additional asset class. That’s it! Easy, huh? Manage Your Portfolio 167 John Bogle, the founder of the Vanguard Group, Inc., is a pioneer of low-cost mutual funds and has written several great books (http://tinyurl.com/boglebooks) about the benefits of index funds. Stealing a Lazy Portfolio from an Expert If you don’t want to design a lazy portfolio of your own, you can use one that financial experts have put together.

Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required by Kristy Shen, Bryce Leung

Affordable Care Act / Obamacare, Airbnb, Apollo 13, asset allocation, barriers to entry, buy low sell high, call centre, car-free, Columbine, cuban missile crisis, Deng Xiaoping, digital nomad, do what you love, Elon Musk, fear of failure, financial independence, fixed income, follow your passion, Great Leap Forward, hedonic treadmill, income inequality, index fund, John Bogle, junk bonds, longitudinal study, low cost airline, Mark Zuckerberg, mortgage debt, Mr. Money Mustache, obamacare, offshore financial centre, passive income, Ponzi scheme, risk tolerance, risk/return, side hustle, Silicon Valley, single-payer health, Snapchat, Steve Jobs, subprime mortgage crisis, supply-chain management, the rule of 72, working poor, Y2K, Zipcar

The most dangerous thing about the Investor pathway is that it’s easy to delude yourself into thinking you’ve got the skills, when any initial wins could be just due to luck. Consistently successful Investors are exceedingly rare. As I mentioned in chapter 10, only 15 percent of active fund managers on Wall Street manage to beat the market in any given year. NOTABLE INVESTORS Benjamin Graham Warren Buffett John Bogle THE OPTIMIZER Income Average Savings Exceptional Investments Average Optimizers make their fortune by obsessively controlling their spending.

I Will Teach You To Be Rich by Sethi, Ramit

Albert Einstein, asset allocation, buy and hold, buy low sell high, diversification, diversified portfolio, do what you love, geopolitical risk, index fund, John Bogle, late fees, low interest rates, money market fund, mortgage debt, mortgage tax deduction, Paradox of Choice, prediction markets, random walk, risk tolerance, Robert Shiller, shareholder value, Silicon Valley, survivorship bias, the rule of 72, Vanguard fund

In short, mutual funds are prevalent because of their convenience, but because actively managed mutual funds are, by definition, expensive, they’re not the best investment any more. Active management can’t compete with passive management, which takes us to index funds, the more attractive cousin of mutual funds. Index Funds: The Attractive Cousin in an Otherwise Unattractive Family In 1975, John Bogle, the founder of Vanguard, introduced the world’s first index fund. These simple funds use computers to buy stocks and match the market (such as the S&P 500 or NASDAQ). Instead of having a mutual fund’s expensive staff of “experts” who try to beat the market, index funds set a lower bar: A computer matches the indexes by automatically matching the makeup of the market.

Concentrated Investing by Allen C. Benello

activist fund / activist shareholder / activist investor, asset allocation, barriers to entry, beat the dealer, Benoit Mandelbrot, Bob Noyce, Boeing 747, book value, business cycle, buy and hold, carried interest, Claude Shannon: information theory, corporate governance, corporate raider, delta neutral, discounted cash flows, diversification, diversified portfolio, Dutch auction, Edward Thorp, family office, fixed income, Henry Singleton, high net worth, index fund, John Bogle, John von Neumann, junk bonds, Louis Bachelier, margin call, merger arbitrage, Paul Samuelson, performance metric, prudent man rule, random walk, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, shareholder value, Sharpe ratio, short selling, survivorship bias, technology bubble, Teledyne, transaction costs, zero-sum game

Illustrating his tendency toward understating his own achievements, Simpson says, “Concentration may be the only way I can add value to the process.”160 Simpson is also skeptical that any investor can add value over a longer period of time by trading vigorously. He doesn’t believe, for example, that the ease of buying and selling exchange traded funds (ETFs) will help most investors because most investors will trade them, and tend to buy when they are high and sell when they are low. He agrees with John Bogle, who prefers index funds to ETFs, not because they’re cheaper—the fees on index funds might be a few basis points more—but because investors are more likely to buy them and put them away. They’re not likely to trade them. The ETF’s big advantage— that they can be traded throughout the entire day—will turn out to be a negative for most investors, including professional investors, because it will make them more likely to trade the ETF for a few percentage points, which won’t work over a long period of time.

Practical Doomsday: A User's Guide to the End of the World by Michal Zalewski

accounting loophole / creative accounting, AI winter, anti-communist, artificial general intelligence, bank run, big-box store, bitcoin, blockchain, book value, Buy land – they’re not making it any more, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carrington event, clean water, coronavirus, corporate governance, COVID-19, cryptocurrency, David Graeber, decentralized internet, deep learning, distributed ledger, diversification, diversified portfolio, Dogecoin, dumpster diving, failed state, fiat currency, financial independence, financial innovation, fixed income, Fractional reserve banking, Francis Fukuyama: the end of history, Haber-Bosch Process, housing crisis, index fund, indoor plumbing, information security, inventory management, Iridium satellite, Joan Didion, John Bogle, large denomination, lifestyle creep, mass immigration, McDonald's hot coffee lawsuit, McMansion, medical bankruptcy, Modern Monetary Theory, money: store of value / unit of account / medium of exchange, moral panic, non-fungible token, nuclear winter, off-the-grid, Oklahoma City bombing, opioid epidemic / opioid crisis, paperclip maximiser, passive investing, peak oil, planetary scale, ransomware, restrictive zoning, ride hailing / ride sharing, risk tolerance, Ronald Reagan, Satoshi Nakamoto, Savings and loan crisis, self-driving car, shareholder value, Silicon Valley, supervolcano, systems thinking, tech worker, Ted Kaczynski, TED Talk, Tunguska event, underbanked, urban sprawl, Wall-E, zero-sum game, zoonotic diseases

If you invest in stable, fairly valued enterprises, it doesn’t matter if some cybersecurity startup is trading at 100 times its revenue. It is, however, true that in a frothy market, finding good investments requires more effort; throwing darts at the board won’t do. This brings us, in a roundabout way, to the topic of index funds. These passively managed investment vehicles are the brainchild of John C. Bogle, the founder of The Vanguard Group. Bogle observed that most brokerage customers—and most professional fund managers, for that matter—didn’t seem to be able to beat the returns of an index (the Dow Jones, S&P 500, or a similar capitalization-weighed sum of the prices of many stocks). He argued that the smartest thing for an investor to do is put their money in an investment fund containing such a blend of equities, managed by his firm for a very low fee.

Nerds on Wall Street: Math, Machines and Wired Markets by David J. Leinweber

"World Economic Forum" Davos, AI winter, Alan Greenspan, algorithmic trading, AOL-Time Warner, Apollo 11, asset allocation, banking crisis, barriers to entry, Bear Stearns, Big bang: deregulation of the City of London, Bob Litterman, book value, business cycle, butter production in bangladesh, butterfly effect, buttonwood tree, buy and hold, buy low sell high, capital asset pricing model, Charles Babbage, citizen journalism, collateralized debt obligation, Cornelius Vanderbilt, corporate governance, Craig Reynolds: boids flock, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Danny Hillis, demand response, disintermediation, distributed generation, diversification, diversified portfolio, electricity market, Emanuel Derman, en.wikipedia.org, experimental economics, fake news, financial engineering, financial innovation, fixed income, Ford Model T, Gordon Gekko, Hans Moravec, Herman Kahn, implied volatility, index arbitrage, index fund, information retrieval, intangible asset, Internet Archive, Ivan Sutherland, Jim Simons, John Bogle, John Nash: game theory, Kenneth Arrow, load shedding, Long Term Capital Management, machine readable, machine translation, Machine translation of "The spirit is willing, but the flesh is weak." to Russian and back, market fragmentation, market microstructure, Mars Rover, Metcalfe’s law, military-industrial complex, moral hazard, mutually assured destruction, Myron Scholes, natural language processing, negative equity, Network effects, optical character recognition, paper trading, passive investing, pez dispenser, phenotype, prediction markets, proprietary trading, quantitative hedge fund, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Reminiscences of a Stock Operator, Renaissance Technologies, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Metcalfe, Ronald Reagan, Rubik’s Cube, Savings and loan crisis, semantic web, Sharpe ratio, short selling, short squeeze, Silicon Valley, Small Order Execution System, smart grid, smart meter, social web, South Sea Bubble, statistical arbitrage, statistical model, Steve Jobs, Steven Levy, stock buybacks, Tacoma Narrows Bridge, the scientific method, The Wisdom of Crowds, time value of money, tontine, too big to fail, transaction costs, Turing machine, two and twenty, Upton Sinclair, value at risk, value engineering, Vernor Vinge, Wayback Machine, yield curve, Yogi Berra, your tax dollars at work

We see an important part of the beginnings of financial information technology innovation in the form of the blinking, humming refrigeratorsized computers of the 1970s. Bill Fouse, at Wells Fargo, bought a Prime computer and used it to run the first index fund,5 the granddaddy of quantitative equity investing and the vast systematic investment industry.6 John C. Bogle founded Vanguard in 1974, doing the same thing for retail mutual fund investors. Alas, I can’t find a picture of Bogle and his first computer, so Figure 4.2 shows Fouse with his. Further innovation came in the form of factor models, notably “Barr’s better betas,” a fundamental multifactor model developed by Barr Rosenberg at Berkeley.

Fortunes of Change: The Rise of the Liberal Rich and the Remaking of America by David Callahan

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, affirmative action, Albert Einstein, American Legislative Exchange Council, An Inconvenient Truth, automated trading system, benefit corporation, Bernie Sanders, Big Tech, Bonfire of the Vanities, book value, carbon credits, carbon footprint, carbon tax, Carl Icahn, carried interest, clean water, corporate social responsibility, David Brooks, demographic transition, desegregation, don't be evil, Donald Trump, Douglas Engelbart, Douglas Engelbart, Edward Thorp, financial deregulation, financial engineering, financial independence, global village, Gordon Gekko, greed is good, Herbert Marcuse, high net worth, income inequality, Irwin Jacobs: Qualcomm, Jeff Bezos, John Bogle, John Markoff, Kickstarter, knowledge economy, knowledge worker, Larry Ellison, Marc Andreessen, Mark Zuckerberg, market fundamentalism, medical malpractice, mega-rich, Mitch Kapor, Naomi Klein, NetJets, new economy, offshore financial centre, Peter Thiel, plutocrats, power law, profit maximization, quantitative trading / quantitative finance, Ralph Nader, Renaissance Technologies, Richard Florida, Robert Bork, rolodex, Ronald Reagan, school vouchers, short selling, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, stem cell, Steve Ballmer, Steve Jobs, systematic bias, systems thinking, unpaid internship, Upton Sinclair, Vanguard fund, War on Poverty, working poor, World Values Survey

He has defended the tax loophole on carried interest income for hedge funds and private equity firms, has sought to cut the fees that Wall Street pays to the Securities and Exchange Commission (SEC), and has tried to block stricter oversight of the credit agencies that rate Wall Street debt. In a 2009 interview with the New York Times, John Bogle, the founder of the mutual fund colossus Vanguard Group, said about Schumer, “He is serving the parochial interest of a very small group of financial people, bankers, investment bankers, fund managers, private equity firms, rather than serving the general public.”3 Thanks to friends like Schumer, Wall Street was allowed to blow itself up— and take the economy with it—after an era of risky and unrestrained financial engineering.

Finance and the Good Society by Robert J. Shiller

Alan Greenspan, Alvin Roth, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, benefit corporation, Bernie Madoff, buy and hold, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, cognitive dissonance, collateralized debt obligation, collective bargaining, computer age, corporate governance, Daniel Kahneman / Amos Tversky, democratizing finance, Deng Xiaoping, diversification, diversified portfolio, Donald Trump, Edward Glaeser, eurozone crisis, experimental economics, financial engineering, financial innovation, financial thriller, fixed income, full employment, fundamental attribution error, George Akerlof, Great Leap Forward, Ida Tarbell, income inequality, information asymmetry, invisible hand, John Bogle, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, land reform, loss aversion, Louis Bachelier, Mahatma Gandhi, Mark Zuckerberg, market bubble, market design, means of production, microcredit, moral hazard, mortgage debt, Myron Scholes, Nelson Mandela, Occupy movement, passive investing, Ponzi scheme, prediction markets, profit maximization, quantitative easing, random walk, regulatory arbitrage, Richard Thaler, Right to Buy, road to serfdom, Robert Shiller, Ronald Reagan, selection bias, self-driving car, shareholder value, Sharpe ratio, short selling, Simon Kuznets, Skype, social contagion, Steven Pinker, tail risk, telemarketer, Thales and the olive presses, Thales of Miletus, The Market for Lemons, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, Vanguard fund, young professional, zero-sum game, Zipcar

If we are seeing the bursting of a bubble in investment manager compensation, we may see relatively lean times in coming years for people in this line of business. Anyone contemplating going into this line of work must take such considerations into mind. In his book Enough! True Measures of Money, Business, and Life, the founder of the Vanguard Funds, John C. Bogle, laments that many in the nancial community are milking society based on their false hopes of extraordinary pro ts. There must be some element of truth here, but the true magnitude of this “milking” is hard to pin down, as Bogle himself recognizes: “I know of not one academic study that has systematically attempted to calculate the value extracted by our nancial system from the returns earned by investors.”13 It will be just as hard to measure the bene t that the nancial community provides in improving the allocation of resources and incentives to achieve business success.

The Black Box Society: The Secret Algorithms That Control Money and Information by Frank Pasquale

Adam Curtis, Affordable Care Act / Obamacare, Alan Greenspan, algorithmic trading, Amazon Mechanical Turk, American Legislative Exchange Council, asset-backed security, Atul Gawande, bank run, barriers to entry, basic income, Bear Stearns, Berlin Wall, Bernie Madoff, Black Swan, bonus culture, Brian Krebs, business cycle, business logic, call centre, Capital in the Twenty-First Century by Thomas Piketty, Chelsea Manning, Chuck Templeton: OpenTable:, cloud computing, collateralized debt obligation, computerized markets, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, data science, Debian, digital rights, don't be evil, drone strike, Edward Snowden, en.wikipedia.org, Evgeny Morozov, Fall of the Berlin Wall, Filter Bubble, financial engineering, financial innovation, financial thriller, fixed income, Flash crash, folksonomy, full employment, Gabriella Coleman, Goldman Sachs: Vampire Squid, Google Earth, Hernando de Soto, High speed trading, hiring and firing, housing crisis, Ian Bogost, informal economy, information asymmetry, information retrieval, information security, interest rate swap, Internet of things, invisible hand, Jaron Lanier, Jeff Bezos, job automation, John Bogle, Julian Assange, Kevin Kelly, Kevin Roose, knowledge worker, Kodak vs Instagram, kremlinology, late fees, London Interbank Offered Rate, London Whale, machine readable, Marc Andreessen, Mark Zuckerberg, Michael Milken, mobile money, moral hazard, new economy, Nicholas Carr, offshore financial centre, PageRank, pattern recognition, Philip Mirowski, precariat, profit maximization, profit motive, public intellectual, quantitative easing, race to the bottom, reality distortion field, recommendation engine, regulatory arbitrage, risk-adjusted returns, Satyajit Das, Savings and loan crisis, search engine result page, shareholder value, Silicon Valley, Snapchat, social intelligence, Spread Networks laid a new fibre optics cable between New York and Chicago, statistical arbitrage, statistical model, Steven Levy, technological solutionism, the scientific method, too big to fail, transaction costs, two-sided market, universal basic income, Upton Sinclair, value at risk, vertical integration, WikiLeaks, Yochai Benkler, zero-sum game

HFT mavens effectively tax the rest of the market.121 If you ever wonder exactly what 401(k) “expense ratios” or other mysterious fi nance fees go toward, it may well be to help your fund manager anticipate and deflect HFT’ers arbitrage strategies. Armoring against HFT’ers (and all the other tricks and traps described in this chapter) takes expensive talent and software. The think tank Dēmos estimates that, over a lifetime, retirement account fees “can cost a median-income two-earner family nearly $155,000.”122 Investor John Bogle notes that a 2 percent fee applied over a 50-year investing lifetime would erode 63 percent of the value of an average account.123 Note, too, how the finance sector as a whole has little interest in stopping such wasteful activities. The more treacherous it becomes for outsiders to trade in the brave new world of computerized markets, the more they have to pay some knowledgeable insider a fee to fend off the piranhas.

Liars and Outliers: How Security Holds Society Together by Bruce Schneier

Abraham Maslow, airport security, Alvin Toffler, barriers to entry, behavioural economics, benefit corporation, Berlin Wall, Bernie Madoff, Bernie Sanders, Brian Krebs, Broken windows theory, carried interest, Cass Sunstein, Chelsea Manning, commoditize, corporate governance, crack epidemic, credit crunch, CRISPR, crowdsourcing, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Graeber, desegregation, don't be evil, Double Irish / Dutch Sandwich, Douglas Hofstadter, Dunbar number, experimental economics, Fall of the Berlin Wall, financial deregulation, Future Shock, Garrett Hardin, George Akerlof, hydraulic fracturing, impulse control, income inequality, information security, invention of agriculture, invention of gunpowder, iterative process, Jean Tirole, John Bogle, John Nash: game theory, joint-stock company, Julian Assange, language acquisition, longitudinal study, mass incarceration, meta-analysis, microcredit, mirror neurons, moral hazard, Multics, mutually assured destruction, Nate Silver, Network effects, Nick Leeson, off-the-grid, offshore financial centre, Oklahoma City bombing, patent troll, phenotype, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, profit motive, race to the bottom, Ralph Waldo Emerson, RAND corporation, Recombinant DNA, rent-seeking, RFID, Richard Thaler, risk tolerance, Ronald Coase, security theater, shareholder value, slashdot, statistical model, Steven Pinker, Stuxnet, technological singularity, The Market for Lemons, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Timothy McVeigh, too big to fail, traffic fines, Tragedy of the Commons, transaction costs, ultimatum game, UNCLOS, union organizing, Vernor Vinge, WikiLeaks, World Values Survey, Y2K, Yochai Benkler, zero-sum game

Lynne Dallas (2011), “Short-Termism, the Financial Crisis and Corporate Governance,” San Diego Legal Studies Paper No. 11–052. Lawrence Mitchell (2011), Corporate Irresponsibility: America's Newest Export, Yale University Press. Alfred Rappaport (2011), Saving Capitalism from Short-Termism, McGraw-Hill. investors have access John C. Bogle (2005), The Battle for the Soul of Capitalism, Yale University Press. wicked problems C. West Churchman (1967), “Wicked Problems,” Management Science, 14:141–2. Horst Rittel and Melvin Webber (1973), “Dilemmas in a General Theory of Planning,” Policy Sciences, 4:155–69. E. Jeffrey Conklin (2006), Dialog Mapping: Building a Shared Understanding of Wicked Problems, John Wiley & Sons.

How I Became a Quant: Insights From 25 of Wall Street's Elite by Richard R. Lindsey, Barry Schachter

Albert Einstein, algorithmic trading, Andrew Wiles, Antoine Gombaud: Chevalier de Méré, asset allocation, asset-backed security, backtesting, bank run, banking crisis, Bear Stearns, Black-Scholes formula, Bob Litterman, Bonfire of the Vanities, book value, Bretton Woods, Brownian motion, business cycle, business process, butter production in bangladesh, buy and hold, buy low sell high, capital asset pricing model, centre right, collateralized debt obligation, commoditize, computerized markets, corporate governance, correlation coefficient, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency risk, discounted cash flows, disintermediation, diversification, Donald Knuth, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, full employment, George Akerlof, global macro, Gordon Gekko, hiring and firing, implied volatility, index fund, interest rate derivative, interest rate swap, Ivan Sutherland, John Bogle, John von Neumann, junk bonds, linear programming, Loma Prieta earthquake, Long Term Capital Management, machine readable, margin call, market friction, market microstructure, martingale, merger arbitrage, Michael Milken, Myron Scholes, Nick Leeson, P = NP, pattern recognition, Paul Samuelson, pensions crisis, performance metric, prediction markets, profit maximization, proprietary trading, purchasing power parity, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Reminiscences of a Stock Operator, Richard Feynman, Richard Stallman, risk free rate, risk-adjusted returns, risk/return, seminal paper, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, sorting algorithm, statistical arbitrage, statistical model, stem cell, Steven Levy, stochastic process, subscription business, systematic trading, technology bubble, The Great Moderation, the scientific method, too big to fail, trade route, transaction costs, transfer pricing, value at risk, volatility smile, Wiener process, yield curve, young professional

Later screening techniques would search, characterize and quantify textual information from the web and SEC documents. See David Leinweber’s description of Codexa in this book. 8. The outside academic examiners included Bob Merton, Merton Miller, Stewart Myers, Steve Ross, Myron Scholes and Jay Light. Client representatives included Jon Hagler, Charley Ellis, John English, Peter Bernstein, John Bogle, Marvin Damsma, and Greta JWPR007-Lindsey May 18, 2007 11:41 Notes 345 Marshall. Fischer Black’s recommendation letters, rarely more than two or three sentences long, were to the point and a delight to read. 9. Lattice was an outgrowth of MJT. MJT was founded with Bill Lupien and Murray Finebaum from Instinet and John McCormack and myself from Batterymarch.

Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives by Satyajit Das

accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, Asian financial crisis, asset-backed security, Bear Stearns, beat the dealer, Black Swan, Black-Scholes formula, Bretton Woods, BRICs, Brownian motion, business logic, business process, buy and hold, buy low sell high, call centre, capital asset pricing model, collateralized debt obligation, commoditize, complexity theory, computerized trading, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, currency peg, currency risk, disinformation, disintermediation, diversification, diversified portfolio, Edward Thorp, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, financial engineering, financial innovation, fixed income, Glass-Steagall Act, Haight Ashbury, high net worth, implied volatility, index arbitrage, index card, index fund, interest rate derivative, interest rate swap, Isaac Newton, job satisfaction, John Bogle, John Meriwether, junk bonds, locking in a profit, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, Marshall McLuhan, mass affluent, mega-rich, merger arbitrage, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mutually assured destruction, Myron Scholes, new economy, New Journalism, Nick Leeson, Nixon triggered the end of the Bretton Woods system, offshore financial centre, oil shock, Parkinson's law, placebo effect, Ponzi scheme, proprietary trading, purchasing power parity, quantitative trading / quantitative finance, random walk, regulatory arbitrage, Right to Buy, risk free rate, risk-adjusted returns, risk/return, Salesforce, Satyajit Das, shareholder value, short selling, short squeeze, South Sea Bubble, statistical model, technology bubble, the medium is the message, the new new thing, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, volatility smile, yield curve, Yogi Berra, zero-coupon bond

Not really, it is how the game is played. The trustee meetings were never the same again. Agents all The entire investment management process is flawed – projected returns are too high and actual returns are measured with tools that the fund managers and asset consultants choose. It is like getting a student to mark their own exams. John Bogle, the founder of Vanguard, a low-cost mutual fund manager, is the Bolshevik of the industry. His arguments are simple: fund expenses are too high; trading costs eat into returns as fund managers churn portfolios to the delight of dealers; hidden fees and charges eat into the value of investments; a small difference of 1% or 2% each year in return over 30 years is staggering.

Investment: A History by Norton Reamer, Jesse Downing

activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, book value, break the buck, Brownian motion, business cycle, buttonwood tree, buy and hold, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, Cornelius Vanderbilt, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, dogs of the Dow, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, flying shuttle, Glass-Steagall Act, Gordon Gekko, Henri Poincaré, Henry Singleton, high net worth, impact investing, index fund, information asymmetry, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, John Bogle, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, managed futures, margin call, means of production, Menlo Park, merger arbitrage, Michael Milken, money market fund, moral hazard, mortgage debt, Myron Scholes, negative equity, Network effects, new economy, Nick Leeson, Own Your Own Home, Paul Samuelson, pension reform, Performance of Mutual Funds in the Period, Ponzi scheme, Post-Keynesian economics, price mechanism, principal–agent problem, profit maximization, proprietary trading, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Sand Hill Road, Savings and loan crisis, seminal paper, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, survivorship bias, tail risk, technology bubble, Teledyne, The Wealth of Nations by Adam Smith, time value of money, tontine, too big to fail, transaction costs, two and twenty, underbanked, Vanguard fund, working poor, yield curve

Investment Company Institute, 2013 Investment Company Fact Book, accessed 2014, http://www.ici.org/pdf/2013_factbook.pdf, 36 and 47. 55. Dan Culloton, “A Brief History of Indexing,” Fund Spy (blog), Morningstar, August 9, 2011, http://news.morningstar.com/articlenet/article .aspx?id=390749. 56. John C. Bogle, “The First Index Mutual Fund: A History of Vanguard Index Trust and the Vanguard Index Strategy,” Bogle Financial Markets Research Center, Vanguard, last modified 1997, http://www.vanguard .com/bogle_site/lib/sp19970401.html. 57. Ibid. 58. Ibid. 59. Investment Company Institute, 2013 Investment Company Fact Book, 36 and 47. 60.

Trend Following: How Great Traders Make Millions in Up or Down Markets by Michael W. Covel

Albert Einstein, Alvin Toffler, Atul Gawande, backtesting, Bear Stearns, beat the dealer, Bernie Madoff, Black Swan, buy and hold, buy low sell high, California energy crisis, capital asset pricing model, Carl Icahn, Clayton Christensen, commodity trading advisor, computerized trading, correlation coefficient, Daniel Kahneman / Amos Tversky, delayed gratification, deliberate practice, diversification, diversified portfolio, Edward Thorp, Elliott wave, Emanuel Derman, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, fiat currency, fixed income, Future Shock, game design, global macro, hindsight bias, housing crisis, index fund, Isaac Newton, Jim Simons, John Bogle, John Meriwether, John Nash: game theory, linear programming, Long Term Capital Management, managed futures, mandelbrot fractal, margin call, market bubble, market fundamentalism, market microstructure, Market Wizards by Jack D. Schwager, mental accounting, money market fund, Myron Scholes, Nash equilibrium, new economy, Nick Leeson, Ponzi scheme, prediction markets, random walk, Reminiscences of a Stock Operator, Renaissance Technologies, Richard Feynman, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, shareholder value, Sharpe ratio, short selling, South Sea Bubble, Stephen Hawking, survivorship bias, systematic trading, Teledyne, the scientific method, Thomas L Friedman, too big to fail, transaction costs, upwardly mobile, value at risk, Vanguard fund, William of Occam, zero-sum game

The fox— artful, sly and astute— represents the financial institution that knows many things about complex markets and sophisticated marketing. The hedgehog—whose sharp spines give it almost impregnable armor when it curls into a ball—is the financial institution that knows only one great thing: longterm investment success is based on simplicity. John C. Bogle The decision-making process is just that—a process. You can’t make decisions based on what you want the outcome to be. Michael Mauboussin and Kristen Bartholdson have presented a compelling argument for “process”: “In too many cases, investors dwell solely on outcomes without appropriate consideration of process.

WTF?: What's the Future and Why It's Up to Us by Tim O'Reilly

"Friedman doctrine" OR "shareholder theory", 4chan, Affordable Care Act / Obamacare, Airbnb, AlphaGo, Alvin Roth, Amazon Mechanical Turk, Amazon Robotics, Amazon Web Services, AOL-Time Warner, artificial general intelligence, augmented reality, autonomous vehicles, barriers to entry, basic income, behavioural economics, benefit corporation, Bernie Madoff, Bernie Sanders, Bill Joy: nanobots, bitcoin, Blitzscaling, blockchain, book value, Bretton Woods, Brewster Kahle, British Empire, business process, call centre, Capital in the Twenty-First Century by Thomas Piketty, Captain Sullenberger Hudson, carbon tax, Carl Icahn, Chuck Templeton: OpenTable:, Clayton Christensen, clean water, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, computer vision, congestion pricing, corporate governance, corporate raider, creative destruction, CRISPR, crowdsourcing, Danny Hillis, data acquisition, data science, deep learning, DeepMind, Demis Hassabis, Dennis Ritchie, deskilling, DevOps, Didi Chuxing, digital capitalism, disinformation, do well by doing good, Donald Davies, Donald Trump, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, fake news, Filter Bubble, Firefox, Flash crash, Free Software Foundation, fulfillment center, full employment, future of work, George Akerlof, gig economy, glass ceiling, Glass-Steagall Act, Goodhart's law, Google Glasses, Gordon Gekko, gravity well, greed is good, Greyball, Guido van Rossum, High speed trading, hiring and firing, Home mortgage interest deduction, Hyperloop, income inequality, independent contractor, index fund, informal economy, information asymmetry, Internet Archive, Internet of things, invention of movable type, invisible hand, iterative process, Jaron Lanier, Jeff Bezos, jitney, job automation, job satisfaction, John Bogle, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John Zimmer (Lyft cofounder), Kaizen: continuous improvement, Ken Thompson, Kevin Kelly, Khan Academy, Kickstarter, Kim Stanley Robinson, knowledge worker, Kodak vs Instagram, Lao Tzu, Larry Ellison, Larry Wall, Lean Startup, Leonard Kleinrock, Lyft, machine readable, machine translation, Marc Andreessen, Mark Zuckerberg, market fundamentalism, Marshall McLuhan, McMansion, microbiome, microservices, minimum viable product, mortgage tax deduction, move fast and break things, Network effects, new economy, Nicholas Carr, Nick Bostrom, obamacare, Oculus Rift, OpenAI, OSI model, Overton Window, packet switching, PageRank, pattern recognition, Paul Buchheit, peer-to-peer, peer-to-peer model, Ponzi scheme, post-truth, race to the bottom, Ralph Nader, randomized controlled trial, RFC: Request For Comment, Richard Feynman, Richard Stallman, ride hailing / ride sharing, Robert Gordon, Robert Metcalfe, Ronald Coase, Rutger Bregman, Salesforce, Sam Altman, school choice, Second Machine Age, secular stagnation, self-driving car, SETI@home, shareholder value, Silicon Valley, Silicon Valley startup, skunkworks, Skype, smart contracts, Snapchat, Social Responsibility of Business Is to Increase Its Profits, social web, software as a service, software patent, spectrum auction, speech recognition, Stephen Hawking, Steve Ballmer, Steve Jobs, Steven Levy, Stewart Brand, stock buybacks, strong AI, synthetic biology, TaskRabbit, telepresence, the built environment, the Cathedral and the Bazaar, The future is already here, The Future of Employment, the map is not the territory, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Davenport, Tony Fadell, Tragedy of the Commons, transaction costs, transcontinental railway, transportation-network company, Travis Kalanick, trickle-down economics, two-pizza team, Uber and Lyft, Uber for X, uber lyft, ubercab, universal basic income, US Airways Flight 1549, VA Linux, warehouse automation, warehouse robotics, Watson beat the top human players on Jeopardy!, We are the 99%, web application, Whole Earth Catalog, winner-take-all economy, women in the workforce, Y Combinator, yellow journalism, zero-sum game, Zipcar

Yet REI’s growth consistently outperforms both its publicly traded competitors and the entire S&P 500 retail index. Vanguard, the second-largest financial asset manager in the United States, with more than $4 trillion under management, is owned by the mutual funds whose performance it aggregates. John Bogle, its founder, invented the index fund as a way to keep fund management fees low, transferring much of the benefit of stock investing from money managers to its customers. Despite these counterexamples, the idea that extracting the highest possible profits and then returning the money to company management, big investors, and other shareholders is good for society has become so deeply rooted that it has been difficult for too long to see the destructive effects on society when shareholders are prioritized over workers, over communities, over customers.

The Relentless Revolution: A History of Capitalism by Joyce Appleby

1919 Motor Transport Corps convoy, agricultural Revolution, Alan Greenspan, An Inconvenient Truth, anti-communist, Asian financial crisis, asset-backed security, Bartolomé de las Casas, Bear Stearns, Bernie Madoff, Bretton Woods, BRICs, British Empire, call centre, Charles Lindbergh, classic study, collateralized debt obligation, collective bargaining, Columbian Exchange, commoditize, Cornelius Vanderbilt, corporate governance, cotton gin, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, deskilling, Doha Development Round, double entry bookkeeping, epigenetics, equal pay for equal work, European colonialism, facts on the ground, failed state, Firefox, fixed income, Ford Model T, Ford paid five dollars a day, Francisco Pizarro, Frederick Winslow Taylor, full employment, General Magic , Glass-Steagall Act, Gordon Gekko, Great Leap Forward, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Hernando de Soto, hiring and firing, Ida Tarbell, illegal immigration, informal economy, interchangeable parts, interest rate swap, invention of movable type, invention of the printing press, invention of the steam engine, invisible hand, Isaac Newton, James Hargreaves, James Watt: steam engine, Jeff Bezos, John Bogle, joint-stock company, Joseph Schumpeter, junk bonds, knowledge economy, land bank, land reform, Livingstone, I presume, Long Term Capital Management, low interest rates, Mahatma Gandhi, Martin Wolf, military-industrial complex, moral hazard, Nixon triggered the end of the Bretton Woods system, PalmPilot, Parag Khanna, pneumatic tube, Ponzi scheme, profit maximization, profit motive, race to the bottom, Ralph Nader, refrigerator car, Ronald Reagan, scientific management, Scramble for Africa, Silicon Valley, Silicon Valley startup, South China Sea, South Sea Bubble, special economic zone, spice trade, spinning jenny, strikebreaker, Suez canal 1869, the built environment, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thorstein Veblen, total factor productivity, trade route, transatlantic slave trade, transcontinental railway, two and twenty, union organizing, Unsafe at Any Speed, Upton Sinclair, urban renewal, vertical integration, War on Poverty, working poor, Works Progress Administration, Yogi Berra, Yom Kippur War

Jared Diamond, Collapse: How Societies Choose to Fail or Succeed (New York, 2005). 13. Diana B. Henriques, “Madoff Scheme Kept Shipping Outward, Crossing Borders,” New York Times, December 20, 2008 14. Paul Krugman, “A Catastrophe Foretold,” New York Times, October 28, 2007. Four people—Doris Dungey, Nouriel Roubini, Brooksley Born, and John Bogle—clearly saw what was wrong with the prevailing financial incentives. See Bogle, “The Case of Corporate America Today,” Daedalus, 136 (Summer, 2007). 15. Alexei Barrionuevo, “Demand for a Say on the Way Out of Crisis,” New York Times, November 10, 2008. 16. Thomas L. Friedman, The World Is Flat: A Brief History of the Twenty-first Century (New York, 2005); Jeffrey A.

The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz

affirmative action, Affordable Care Act / Obamacare, airline deregulation, Alan Greenspan, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Bear Stearns, behavioural economics, Berlin Wall, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collapse of Lehman Brothers, collective bargaining, colonial rule, corporate governance, Credit Default Swap, Daniel Kahneman / Amos Tversky, Dava Sobel, declining real wages, deskilling, electricity market, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, framing effect, full employment, George Akerlof, Gini coefficient, Glass-Steagall Act, Great Leap Forward, income inequality, income per capita, indoor plumbing, inflation targeting, information asymmetry, invisible hand, jobless men, John Bogle, John Harrison: Longitude, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, London Interbank Offered Rate, lone genius, low interest rates, low skilled workers, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, mass incarceration, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, negative equity, obamacare, offshore financial centre, paper trading, Pareto efficiency, patent troll, Paul Samuelson, Paul Volcker talking about ATMs, payday loans, Phillips curve, price stability, profit maximization, profit motive, public intellectual, purchasing power parity, race to the bottom, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, search costs, shareholder value, short selling, Silicon Valley, Simon Kuznets, spectrum auction, Steve Jobs, stock buybacks, subprime mortgage crisis, technology bubble, The Chicago School, The Fortune at the Bottom of the Pyramid, The Myth of the Rational Market, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, Tragedy of the Commons, transaction costs, trickle-down economics, ultimatum game, uranium enrichment, very high income, We are the 99%, wealth creators, women in the workforce, zero-sum game

Edlin and Joseph E. Stiglitz, “Discouraging Rivals: Managerial Rent-Seeking and Economic Inefficiencies,” American Economic Review 85, no. 5 (December 1995): 1301–12; and Andrei Shleifer and Robert W. Vishny, “A Survey of Corporate Governance,” Journal of Finance 52, no. 2 (June 1997): 737–83. 39. John Bogle, the founder of Vanguard Group, an investment management company that manages approximately $1.6 trillion in funds, in his comments on Bebchuk and Fried, Pay without Performance. The Bogle quotation is from p. 483 of a review and summary of Bebchuk and Fried by Henry Tosi in Administrative Science Quarterly 50, no. 3 (September 2005): 483–87. 40.

Thinking, Fast and Slow by Daniel Kahneman

Albert Einstein, Atul Gawande, availability heuristic, Bayesian statistics, behavioural economics, Black Swan, book value, Cass Sunstein, Checklist Manifesto, choice architecture, classic study, cognitive bias, cognitive load, complexity theory, correlation coefficient, correlation does not imply causation, Daniel Kahneman / Amos Tversky, delayed gratification, demand response, endowment effect, experimental economics, experimental subject, Exxon Valdez, feminist movement, framing effect, hedonic treadmill, hindsight bias, index card, information asymmetry, job satisfaction, John Bogle, John von Neumann, Kenneth Arrow, libertarian paternalism, Linda problem, loss aversion, medical residency, mental accounting, meta-analysis, nudge unit, pattern recognition, Paul Samuelson, peak-end rule, precautionary principle, pre–internet, price anchoring, quantitative trading / quantitative finance, random walk, Richard Thaler, risk tolerance, Robert Metcalfe, Ronald Reagan, Shai Danziger, sunk-cost fallacy, Supply of New York City Cabdrivers, systematic bias, TED Talk, The Chicago School, The Wisdom of Crowds, Thomas Bayes, transaction costs, union organizing, Walter Mischel, Yom Kippur War

wealth from amateurs: Research on stock trades in Taiwan concluded that the transfer of wealth from individuals to financial institutions amounts to a staggering 2.2% of GDP: Brad M. Barber, Yi-Tsung Lee, Yu-Jane Liu, and Terrance Odean, “Just How Much Do Individual Investors Lose by Trading?” Review of Financial Studies 22 (2009): 609–32. underperform the overall market: John C. Bogle, Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor (New York: Wiley, 2000), 213. persistent differences in skill: Mark Grinblatt and Sheridan Titman, “The Persistence of Mutual Fund Performance,” Journal of Finance 42 (1992): 1977–84. Edwin J. Elton et al., “The Persistence of Risk-Adjusted Mutual Fund Performance,” Journal of Business 52 (1997): 1–33.

More Money Than God: Hedge Funds and the Making of a New Elite by Sebastian Mallaby

Alan Greenspan, Andrei Shleifer, Asian financial crisis, asset-backed security, automated trading system, bank run, barriers to entry, Bear Stearns, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, book value, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, currency peg, deal flow, do well by doing good, Elliott wave, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, full employment, German hyperinflation, High speed trading, index fund, Jim Simons, John Bogle, John Meriwether, junk bonds, Kenneth Rogoff, Kickstarter, Long Term Capital Management, low interest rates, machine translation, margin call, market bubble, market clearing, market fundamentalism, Market Wizards by Jack D. Schwager, Mary Meeker, merger arbitrage, Michael Milken, money market fund, moral hazard, Myron Scholes, natural language processing, Network effects, new economy, Nikolai Kondratiev, operational security, pattern recognition, Paul Samuelson, pre–internet, proprietary trading, public intellectual, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, Robert Mercer, rolodex, Savings and loan crisis, Sharpe ratio, short selling, short squeeze, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical arbitrage, statistical model, survivorship bias, tail risk, technology bubble, The Great Moderation, The Myth of the Rational Market, the new new thing, too big to fail, transaction costs, two and twenty, uptick rule

Steinhardt, Fine, Berkowitz & Company reported results for years to the end of September. To facilitate comparison, the S&P 500 numbers given here are also for the years to September. 9. See Robertson, “Hedge Fund Miseries,” p. 270. 10. Howard Berkowitz interview, August 28, 2007. Jerry Fine interview, August 29, 2007. For the Spacek quote, see John Bogle’s forward to Adam Smith, Supermoney (New York: John Wiley & Sons, 1972), p. xiii. 11. David Rocker, an analyst with Steinhardt, Fine, Berkowitz, recalls: “To make money on the short side you have to be a scrapper. The government is against you. The media was against you; it was un-American to be short.

The Signal and the Noise: Why So Many Predictions Fail-But Some Don't by Nate Silver

airport security, Alan Greenspan, Alvin Toffler, An Inconvenient Truth, availability heuristic, Bayesian statistics, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, big-box store, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, book value, Broken windows theory, business cycle, buy and hold, Carmen Reinhart, Charles Babbage, classic study, Claude Shannon: information theory, Climategate, Climatic Research Unit, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, computer age, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, Daniel Kahneman / Amos Tversky, disinformation, diversification, Donald Trump, Edmond Halley, Edward Lorenz: Chaos theory, en.wikipedia.org, equity premium, Eugene Fama: efficient market hypothesis, everywhere but in the productivity statistics, fear of failure, Fellow of the Royal Society, Ford Model T, Freestyle chess, fudge factor, Future Shock, George Akerlof, global pandemic, Goodhart's law, haute cuisine, Henri Poincaré, high batting average, housing crisis, income per capita, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Internet Archive, invention of the printing press, invisible hand, Isaac Newton, James Watt: steam engine, Japanese asset price bubble, John Bogle, John Nash: game theory, John von Neumann, Kenneth Rogoff, knowledge economy, Laplace demon, locking in a profit, Loma Prieta earthquake, market bubble, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, Monroe Doctrine, mortgage debt, Nate Silver, negative equity, new economy, Norbert Wiener, Oklahoma City bombing, PageRank, pattern recognition, pets.com, Phillips curve, Pierre-Simon Laplace, Plato's cave, power law, prediction markets, Productivity paradox, proprietary trading, public intellectual, random walk, Richard Thaler, Robert Shiller, Robert Solow, Rodney Brooks, Ronald Reagan, Saturday Night Live, savings glut, security theater, short selling, SimCity, Skype, statistical model, Steven Pinker, The Great Moderation, The Market for Lemons, the scientific method, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, Timothy McVeigh, too big to fail, transaction costs, transfer pricing, University of East Anglia, Watson beat the top human players on Jeopardy!, Wayback Machine, wikimedia commons

Sorin Sorescu and Avanidhar Subrahmanyam, “The Cross-Section of Analyst Recommendations,” Recent Work, Anderson Graduate School of Management, UC Los Angeles, January 9, 2004. http://escholarship.org/uc/item/76x8k0cc;jsessionid=5ACA605CE152E3724AB2754A1E35FC6A#page-3. 66. Floyd Norris, “Another Technology Victim; Top Soros Fund Manager Says He ‘Overplayed’ Hand,” New York Times, April 29, 2000. http://www.nytimes.com/2000/04/29/business/another-technology-victim-top-soros-fund-manager-says-he-overplayed-hand.html?pagewanted=2&src=pm. 67. John C. Bogle, “Individual Investor, R.I.P.,” Wall Street Journal, October 3, 2005. 68. Jonathan Lewellen, “Institutional Investors and the Limits of Arbitrage,” Journal of Financial Economics, 102 (2011), pp. 62–80. http://mba.tuck.dartmouth.edu/pages/faculty/jon.lewellen/docs/Institutions.pdf. 69.

Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen

Alan Greenspan, Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, behavioural economics, Bernie Madoff, Black Swan, Bob Litterman, bond market vigilante , book value, Bretton Woods, business cycle, buy and hold, buy low sell high, capital asset pricing model, capital controls, carbon credits, Carmen Reinhart, central bank independence, classic study, collateralized debt obligation, commoditize, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, deal flow, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, G4S, George Akerlof, global macro, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, information asymmetry, interest rate swap, inverted yield curve, invisible hand, John Bogle, junk bonds, Kenneth Rogoff, laissez-faire capitalism, law of one price, London Interbank Offered Rate, Long Term Capital Management, loss aversion, low interest rates, managed futures, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, Myron Scholes, negative equity, New Journalism, oil shock, p-value, passive investing, Paul Samuelson, pension time bomb, performance metric, Phillips curve, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, savings glut, search costs, selection bias, seminal paper, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, stock buybacks, stocks for the long run, survivorship bias, systematic trading, tail risk, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond, zero-sum game

In contrast, frequent performance measurement in liquid assets enables skill to be differentiated from luck over a reasonable evaluation period. Moreover, only liquid markets give investors the flexibility to terminate, at a moderate cost, a manager that has disappointed. 28.5 COSTS Cost control is important because fees and costs feed directly to the bottom line of net returns. John Bogle likes to stress that cost differences across mutual funds can explain differences in net fund returns much better than any other feature can. (Among HFs, fee differences do not explain net return differences.) I review in Section 28.1 various ways to reduce costs but I also note that the virtue can be taken too far.

The Snowball: Warren Buffett and the Business of Life by Alice Schroeder

affirmative action, Alan Greenspan, Albert Einstein, anti-communist, AOL-Time Warner, Ayatollah Khomeini, barriers to entry, Bear Stearns, Black Monday: stock market crash in 1987, Bob Noyce, Bonfire of the Vanities, book value, Brownian motion, capital asset pricing model, card file, centralized clearinghouse, Charles Lindbergh, collateralized debt obligation, computerized trading, Cornelius Vanderbilt, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, desegregation, do what you love, Donald Trump, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, Fairchild Semiconductor, Fillmore Auditorium, San Francisco, financial engineering, Ford Model T, Garrett Hardin, Glass-Steagall Act, global village, Golden Gate Park, Greenspan put, Haight Ashbury, haute cuisine, Honoré de Balzac, If something cannot go on forever, it will stop - Herbert Stein's Law, In Cold Blood by Truman Capote, index fund, indoor plumbing, intangible asset, interest rate swap, invisible hand, Isaac Newton, it's over 9,000, Jeff Bezos, John Bogle, John Meriwether, joint-stock company, joint-stock limited liability company, junk bonds, Larry Ellison, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, Marshall McLuhan, medical malpractice, merger arbitrage, Michael Milken, Mikhail Gorbachev, military-industrial complex, money market fund, moral hazard, NetJets, new economy, New Journalism, North Sea oil, paper trading, passive investing, Paul Samuelson, pets.com, Plato's cave, plutocrats, Ponzi scheme, proprietary trading, Ralph Nader, random walk, Ronald Reagan, Salesforce, Scientific racism, shareholder value, short selling, side project, Silicon Valley, Steve Ballmer, Steve Jobs, supply-chain management, telemarketer, The Predators' Ball, The Wealth of Nations by Adam Smith, Thomas Malthus, tontine, too big to fail, Tragedy of the Commons, transcontinental railway, two and twenty, Upton Sinclair, War on Poverty, Works Progress Administration, Y2K, yellow journalism, zero-coupon bond

Marcia Vickers, Geoffrey Smith, Peter Coy, Mara Der Hovanseian, “When Wealth Is Blown Away,” BusinessWeek, March 26, 2001; Allan Sloan, “The Downside of Momentum,” Newsweek, March 19, 2001. 15. As of June 2001. From the Industry Standard’s Layoff Tracker, along with the Dot-Com Flop Tracker and the Ex-Exec Tracker. 16. Buffett was not the only one concerned about the implication of this relationship. John Bogle, retired chairman of Vanguard, wrote of it in April 2001. However, he concluded that “some version of reality” had returned to the stock market. What made Buffett’s speech noteworthy was not use of this particular metric but rather his pessimistic projection of what it meant. 17. One of Buffett’s main points was that companies—many of which had been taking gains from surpluses out of their pension plans—were irresponsibly using unrealistic rates of return assumptions and would have to adjust these to reality, which would show the plans to be less well funded or even underfunded. 18.