Page 47 - DIY Investor Magazine | Issue 36

INVESTING BASICS:
SEVEN TIPS FOR THE DIY INVESTOR
US entrepreneur and bestselling author John ‘Jack’ Bogle became famous as the founder of the first tracker fund. In a 2017 article for the CFA Institute, he summarised the basic rules of investment in seven short tips – by Christian Leeming.
Bogle concluded that ‘rationality beats emotionality’, adding ‘learn from the best – in investing and life.
He was certainly one of the best, nominated alongside Warren Buffett, George Soros and Peter Lynch as a ‘Giant of the
20th Century’. The ‘Father of the tracker funds’ founded the investment company ‘The Vanguard Group’, which he was president of for several years.
Today, Vanguard is the world’s second largest fund manager, with $US 4.9 trillion AUM. The group has a remarkable structure in which Vanguard’s shareholders are the Vanguard funds, respectively their investors.
Gathered in his decades of experience in the capital markets, Bogle’s most important tips are:
Invest you must. The biggest risk facing investors is not short- term volatility but the risk of not earning a sufficient return on their capital.
Time is your friend. Investing is a virtuous habit best started as early as possible to enjoy the magic of compounding returns. Even modest investments made in one’s early 20s can grow to staggering amounts over an investment lifetime.
Impulse is your enemy. Eliminate emotion from your investing; have rational expectations for future returns, and avoid changing them in response to ephemeral noise from markets. Avoid acting on ‘unique’ insights that are in fact shared by millions of others.
Basic arithmetic works. Net return is simply the gross return of your portfolio less the costs you incur. Keep your investment expenses low; the tyranny of compounding costs can devastate the miracle of compounding returns.
Stick to simplicity. Investing is simple—a sensible allocation among stocks, bonds, and cash; a diversified selection of middle-of-the-road, high-grade securities; careful balancing of risk, return, and (once again) cost.
Never forget reversion to the mean. Strong performance by
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a fund is highly likely to revert to the stock market norm—and
often below it. Matthew 20:16, King James Bible – ‘So the last
shall be first, and the first last’.
Dec 2022
DIY Investor Magazine ·
Stay the course. Stick to your investment program, regardless; changing strategy at the wrong time can be the most devastating mistake to make as an investor. Investors that moved their portfolio to cash during the depths of the financial crisis, missed out on part, or even all, of the decade-long bull market that followed. ‘Stay the course’ is the most important piece of advice I can give you.
The full article can be read in the CFA Financial Analyst Journal.
Bogle died in Pennsylvania, USA, on January 16th 2019 at the age of 89. Warren Buffett paid tribute to him in an interview on CNBC on U.S. television and said: ‘John has done more for the entirety of American investors than anyone else I know.’
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