【The Little Book of Common Sense Investing is a Winner's Game】Quote Highlights ① Recommended for Learning About Asset Management

Hello, this is FP Hasegawa!

Today, I would like to introduce a book recommended for studying investment and asset management: “The Little Book of Common Sense Investing”.

The author, John C. Bogle, is the founder of The Vanguard Group, one of the world’s largest asset management companies, and is known as the father of the index fund.

If you want to build your assets steadily over the long term, please be sure to read this book.

By reading this book, you will understand the best way to implement an extremely simple investment strategy.

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The strategy for success in stock investing is to own all the stocks of publicly traded companies in the United States at an extremely low cost.

As the world’s leading investor, Warren Buffett, has stated, the success or failure of an investment is determined by simple things. However, it is not necessarily easy for investors.

By doing this, you can capture almost all of the returns that companies provide in the form of dividends and profit growth.

An index fund is, in short, a basket (portfolio) filled with a large number of eggs (stocks) aimed at tracking the performance of the U.S. stock market (or any financial market or market sector).

For example, an index fund linked to the S&P 500 stock index is like a variety pack containing 500 major U.S. companies. Since you can invest in 500 companies that drive the global economy all at once, you can expect high growth rates and broad risk diversification.

By investing in index funds, you avoid the hassle and risks associated with selecting individual stocks, concentrating on specific market sectors, or choosing investment management companies.

As a result, the only risk the investor takes on is the risk of the stock market itself.

You cannot expect short-term, exciting, explosive profits from index funds. On the other hand, the returns generated by holding them semi-permanently demonstrate wonderful productivity over the long term.

The returns earned over many years become astonishing wealth thanks to the power of compound interest.

Do not underestimate the power of compounding the large returns that companies provide. The magic of compound interest is truly a miracle.

For example, assuming an index fund return of 7%, 1 million yen will double to approximately 2 million yen in 10 years. It becomes approximately 4 million yen in 20 years, 7.5 million yen in 30 years, 15 million yen in 40 years, and 30 million yen in 50 years.

Capitalism generates wealth thanks to the growth, productivity, ingenuity, and innovation of the companies held in index funds. The returns generated by companies are ultimately converted into returns for the stock market.

Moreover, index funds are managed at extremely low costs. Since dividends are reinvested internally, they are not subject to taxes. This allows for the efficient compounding of stock market returns (in a nearly zero-sum game), making index investing a winner’s game.

Trying to beat the market after deducting the costs of investing is a loser’s game.

With Wall Street management firms collecting high fees while managing trillions of dollars in assets, it is the management firms, not the client investors, that reap the large profits.

In a casino, the house always wins. In horse racing, the racetrack wins, and in the lottery, the organizers—the local government or banks—win. In the game of investing, the financial industry’s gatekeepers always win, and investors as a group lose.

Therefore, succeeding in investing means minimizing the share that goes to management firms and maximizing the share that goes to the investors.

However, many investors do not realize the high cost of managing mutual funds; they try to select superior funds by comparing recent performance and the like. But that is a mistake.

Over the past decade, the costs paid to management firms have amounted to $565 billion annually. Such costs can be minimized simply by buying low-cost S&P 500 index funds and the like. The profits remaining for investors are then reinvested within the index fund, and the compounding effect gradually increases.

Therefore, to increase the probability of investment success, it is important not to pay any unnecessary costs.

Simple, but not easy

The method for investment success is to buy low-cost index funds, which is extremely simple. However, continuing to do so over the long term is not easy.

This is because many investors become enthusiastic about stock investing and want to invest in more productive ways.

However, no matter how much the stock market repeatedly surges or crashes, it tends to revert to an average growth rate in the long run. Therefore, it is important to continue long-term investing without being swayed by the market, remembering to hold index funds forever and enhance the compounding effect.

Summary 【Index Investing is a Winner’s Game】 Quote Selection ①

In this post, I introduced quote ① from ‘Index Investing is a Winner’s Game’.

Index investing is the best strategy for succeeding in investing. By continuing to reinvest internally without paying unnecessary costs or taxes, you can expect significant compounding effects over the long term.

However, long-term investing is not easy. This is because you rarely feel the benefits of investing, and it is just a series of boring days. But compound interest is a force beyond imagination, and in the long run, it creates astonishing wealth.

Let’s simply continue with index investing! Because that is the best strategy for winning at investing ⚡️

There are still many more quotes to come, but I will introduce them in another article ☺️

For more details, please read this book!

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