John Bogle

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John Bogle: This Expert’s One Great Secret Of Investment Success

By Dr. Steve Sjuggerud, Advisory Panelist, Investment U
Thursday, November 7, 2002: Issue #187

According to legendary investor John Bogle: “The one great secret of investment success is that there is no secret.” John Bogle is the Founder of Vanguard Funds and has been a professional investor and analyst since 1950.

By the way, I am currently at the “Super Bowl” of investment conferences – the New Orleans Investment Conference. I take the podium in a few hours. Here, attendees have the opportunity to hear the investment “secrets” of probably over 100 presenters.

When you think about it, that’s enough to make anyone’s head spin Imagine if each “guru” gives five secrets and three stock tips. That’s 800 pieces of advice that you’ve got to consider using when you get home. I wonder if after all of that advice, attendees aren’t worse off than better off. Which brings us to

John Bogle’s Most Important Secret Of All

It may sound pompous of me, but I don’t know how else to put this. I’ve got the most important secret to share of all Out of all 800 pieces of advice, what I have to say will probably improve the most lives 10 years from now, and ruin the least. Because the one thing that I’m going to share with the audience is John Bogle’s one great secret of investment success: there is no secret.

Everybody knows this, I think. Or at least, deep down, they understand the concept that there’s no free lunch. But for the same reasons people head to Vegas, people head here. Quite frankly, they’re looking to get lucky – to get the 100%+ winner.

An Investing Case in Point

Let’s consider the fate of two folks 15 years from now – one looking for luck and the other one accepting that there is no secret and going about a sound investment plan. If both guys start with $100,000, I’d wager that the guy looking for the lucky 100% winner would have less than he started with in 15 years time, if he hadn’t inadvertently lost it all in the process. Meanwhile, the guy who invested and earned a fairly un-sexy 10% a year would likely end up with about $450,000.

John Bogle’s great secret of investment success is that there is no secret. As soon as you accept it, you won’t be snowed by “get rich quick” schemes ever again. When you get that “Turn $2,000 into $2 million in 2 years” pitch, you’ll look for the holes. And by doing this, you’ll be on your way to generating wealth the only way that we know can truly work.

Bogle has 50+ years of professional investing behind him. He woke up every day, and spent his whole day considering the craft of investing. After 50 years, he should know what he’s talking about.

I can tell you that I agree with him. I believe my experience is on par with any of the “gurus” at this conference. True, we’ve got academicians here, but

There Is No Substitute For Real World Experience

As you know, I’ve achieved as much as you can education-wise. And I keep up. I literally crunched tens of thousands of data points on Tuesday across 50 spreadsheets as part of my usual research. And I can tell you that, while this is good, this is not enough to make you a great investor. The truth is, you need real world experience.

We’ve got Wall Street pros here Having been a hedge-fund manager, having headed research departments, having been a broker, an institutional trader, and more, I’ve got the Wall Street experience as well. But even that isn’t enough. You’ve got to pound the pavement as well.

I’ve visited companies from the top of the world to the bottom of the world looking for investments. And I’ve probably stood on more stock exchange floors than anyone at this conference. I’ve visited companies in Iceland like Ossur and Decode Genetics, and bought bonds there as well (with great success for my subscribers). And I’ve visited companies at the bottom of the world in Argentina, including oil & gas (NYSE: PC) and real estate firms (NYSE: IRS). I’ve stood on stock exchange floors in Shanghai (where the traders were sleeping) and met with Central Bankers in Budapest. All in the name of finding winners.

I tell you all of this not to toot my own horn. I say it to prove beyond a shadow of a doubt that I’ve seen it all. I’ve been there. Done that. I’ve done more homework than you’ll probably have a chance to. And I’m telling you: remember John Bogle’s one great secret to investment success – there is no secret.

So – now that we’ve established that there is no magic “secret” – where do we go from here?

The Four Key Elements Of Investing

Here’s what you need to know. In essence, there are four key elements to investing:

RISK
REWARD
TIME
COST

I think that nearly all of the investors at this conference, and most investors in general, only consider reward in making their investment decisions. It’s funny then, that this is the only element that is completely out of our control yet it’s the one we focus on. Go figure.

For example, nobody knows if the Nasdaq will go to 5,000 or 500 next year. It’s true. Yet it’s all people talk about. If we accept Bogle’s concept that there is no secret, than we can go about making money much more systematically.

That’s because we can control the other three elements to investing

What We Can Control As Investors

We can control the element of TIME in our investments. We decide when we buy and when we sell a stock. Are we short-term speculators? Or long-term investors? That is in our control. When we start saving and when we start taking the money out, those are choices we make as well.
We can control COST. If you buy a mutual fund from a broker, you may pay a 4% sales charge and a total of 2% a year in fees, for a total of 6% in fees in the first year. On the other hand, if you buy an index fund from Vanguard, you’ll pay closer to 0.2%. That’s an extraordinary difference – especially when you consider that 6% a year is all Warren Buffett and Bill Gross expect stocks to return over this decade. If you accept that there is no secret, then why would you eat up your entire first year return, and a full one-third of future year returns, in COSTS when you don’t have to. You’ve got to control your costs. And you can. And this doesn’t even require much homework.
We can control how much RISK we take. We can choose to take no risk and stick our money under a mattress. We can choose to take extraordinary risks and trade some fancy options strategy. And we can choose everything in between. If we’re smart, we’ll choose to lower our risk by spreading out our assets across different investment categories (stocks, bonds, real estate, cash, etc.), thereby reducing our overall exposure to any one asset, and REDUCING OUR RISK. We can control our RISK.

The quicker you accept the Johns Bogle’s greatest secret – that there is no secret – the quicker you’ll be on the proven path to generating wealth. And the smartest way to follow that path is to concentrate on the three elements of investing that you can control, not the one that is completely out of your control.

Good investing,

Steve

Today’s Invesment U Crib Sheet

How well have you stayed in control of the three elements we can control? Have you done a good job managing your risk? Do you keep your investment costs as low as possible? And have you managed your time by sticking to your short- and long-term investment strategies? If so, chances are you’ve been successful. Remember – although the reward is the element talked about most by investors it’s also completely out of your control.
Many of today’s ideas were from the book John Bogle on Investing. The book contains 50 years worth of material from a man Fortune Magazine named one of the four investment giants of the twentieth century. Check it out from your library, it’s worth a look
A small portion of your money (say up to 10%) can be set aside as play money – to “shoot the moon.” I’m not against that. And on Saturday, I promise to share with you the person who I believe has the best shot at delivering on a “10 times your money” promise. He’s the smartest person I know, and someone I’ve known closely for about 15 years. Look out for it this Saturday.