In his letter dated February 27, 2015 (for FY2014) to Berkshire Hathaway shareholders, Warren Buffett says: “Rather than listen to their (advisors’) siren songs, investors – large and small – should instead read Jack Bogle’s The Little Book of Common Sense Investing.
“Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray,” said legendary investor Warren Buffett.
“It is true, of course, that owning equities for a day or a week or a year is far riskier (in both nominal and purchasing-power terms) than leaving funds in cash-equivalents. That is relevant to certain investors – say, investment banks – whose viability can be threatened by declines in asset prices and which might be forced to sell securities during depressed markets. Additionally, any party that might have meaningful near-term needs for funds should keep appropriate sums in Treasuries or insured bank deposits.
“For the great majority of investors, however, who can – and should – invest with a multi-decade horizon, quotational declines are unimportant. Their focus should remain fixed on attaining significant gains in purchasing power over their investing lifetime. For them, a diversified equity portfolio, bought over time, will prove far less risky than dollar-based securities,” said Warren Buffett.
Who is “Jack Bogle”, the author of The Little Book of Common Sense Investing, the book which Warren Buffett was talking about?
Wikipedia says “John Clifton “Jack” Bogle is the founder and retired CEO of The Vanguard Group”. So Jack Bogle, as referred to by Warren Buffett, is John C. Bogle as seen in the cover of The Little Book of Common Sense Investing.
“Bogle founded The Vanguard Group in 1974. Under his leadership, the company grew to be the second-largest mutual fund company in the world. Influenced by the works of Eugene Fama, Burton Malkiel, and Paul Samuelson, Bogle founded the Vanguard 500 Index Fund in 1975 as the first index mutual fund available to the general public. He continues to be active in The Vanguard Group,” says Wikipedia.
An account of The Little Book of Common Sense Investing by John C. Bogle says: “Common sense tells us – and history confirms – that the simplest and most efficient investment strategy is to buy and hold all of the nation’s publicly held businesses at very low cost. The classic index fund that owns this market portfolio is the only investment that guarantees you with your fair share of stock market returns. To learn how to make index investing work for you, there’s no better mentor than legendary mutual fund industry veteran John C. Bogle.”
For reviews of the book, here is the link: The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John C. Bogle.