Five Principles for Investing by Jack Bogle

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John Clifton "Jack" Bogle — founder and former chief executive of The Vanguard Group — gives five simple principles for investing at the World Affairs Council of Philadelphia event in 1997.

Five Principles for Investing

  1. Invest you must.
    The biggest risk is the long term risk of not putting your money to work. Never think you know more than the market does. You're apt to be wrong if you do.

  2. Give yourself all the time you can.
    Compound interest is a miracle. Time is your friend.

  3. Have rational expectations about future returns.
    In good times and bad times alike, this too shall pass away. Your emotions can kill you. Impulse is your foe.

  4. Rely on simplicity.
    Basic investing is simple. Remember sensible asset allocation, middle-of-the-road selection, careful balancing of risks and returns, and costs (of excessive trading, active fund management etc) which can kill long-run returns.

  5. Stay the course.
    No matter what happens, stay the course.

John Bogle, World Affairs Council of Philadelphia (1997).

Bogle about Graham

In his Foreword to the 2005 reprint of The Intelligent Investor, Bogle writes of the book's author and Warren Buffett's mentor — Benjamin Graham — that:

"The basic principles of in­telligent investing that [Graham] set forth... have remained virtually intact and unassailable."

John Bogle, Foreword (2005): The Intelligent Investor by Benjamin Graham.

Parallels with Buffett and Graham

There are many similarities in the investment principles of Bogle and those of Warren Buffett, who Bogle himself refers to in the above talk; as well as those of Benjamin Graham.

For starters, Bogle and Graham have expressed very similar views on the issue of Timing vs Pricing in investing.

Index Funds — which Bogle is credited with the creation of — were also the very first of the investment strategies recommended by Graham.

Shall Pass

Interestingly, the adage in Bogle's principle #3 above is also referred to by Graham in framing his own "central concept of investment".

"In the old legend the wise men finally boiled down the history of mortal affairs into the single phrase, “This too will pass.” Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto - Margin of Safety."

Benjamin Graham, Chapter 20: “Margin of Safety” as the Central Concept of Investment, The Intelligent Investor.

Middle Path

Graham too wrote of the value of following the middle path, as mentioned in principle #4 above, that:

"When Phaëthon insisted on driving the chariot of the Sun, his father, the experienced operator, gave the neophyte some advice which the latter failed to follow—to his cost. Ovid summed up Phoebus Apollo’s counsel in three words:

Medius tutissimus ibis
You will go safest in the middle course

I think this principle holds good for investors and their security analyst advisers."

Benjamin Graham, Appendix 4: The New Speculation in Common Stocks, The Intelligent Investor.

Staying The Course

Finally, with regard to staying the course, as mentioned in principle #5 above:

"In the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand."

Benjamin Graham, Chapter 7: Portfolio Policy for the Enterprising Investor: The Positive Side, The Intelligent Investor.

"The wisdom of having courage in depressed markets is vindicated not only by the voice of experience but also by application of plausible techniques of value analysis."

Benjamin Graham, Chapter 20: “Margin of Safety” as the Central Concept of Investment, The Intelligent Investor.

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Summary
In a 1997 talk at the World Affairs Council of Philadelphia, John Bogle, founder of The Vanguard Group, outlined five key principles for investing. First, he emphasized the necessity of investing, warning against the long-term risks of inaction. Second, he highlighted the importance of time, noting that compound interest can significantly enhance returns. Third, Bogle advised maintaining rational expectations about future returns, cautioning against emotional decision-making. Fourth, he advocated for simplicity in investing, recommending sensible asset allocation and awareness of costs that can erode long-term gains. Finally, he stressed the importance of perseverance, urging investors to stay the course regardless of market fluctuations. Bogle's principles resonate with those of Benjamin Graham, his mentor, and Warren Buffett, particularly regarding the importance of a long-term perspective and the value of a balanced approach to investing. Both Bogle and Graham shared insights on the inevitability of market changes and the need for courage in the face of market downturns. Bogle's investment philosophy, rooted in simplicity and patience, continues to influence investors today.