BOGLE ON MUTUAL FUNDS INTRODUCINGWILEYINVESTMENTCLASSICS There are certain books that have redefined the way we see the worlds offinanceandinvesting—booksthatdeserveaplaceoneveryinvestor’s shelf. Wiley Investment Classics will introduce you to these memorable books,whicharejustasrelevantandvitaltodayaswhentheywerefirst published. Open a Wiley Investment Classic and rediscover the proven strategies, market philosophies, and definitive techniques that continue tostandthetestoftime. Booksintheseriesinclude: OnlyYesterday:AnInformalHistoryofthe1920’sbyFrederickLewisAllen LombardStreet:ADescriptionoftheMoneyMarketbyWalterBagehot TheGo-GoYears:TheDramaandCrashingFinaleofWallStreet’sBullish 60sbyJohnBrooks FiftyYearsinWallStreetbyHenryClews ValueAveraging:TheSafeandEasyStrategyforHigherInvestmentReturns byMichaelE.Edleson Common Stocks and Uncommon Profits and Other Writings by Philip A. Fisher PathstoWealththroughCommonStocksbyPhilipA.Fisher Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay and Confusion de Confusio´nes by Joseph de la Vega by Martin S.Fridson,Ed. WheretheMoneyGrowsandAnatomyoftheBubblebyGaretGarrett TheStockMarketBarometerbyWilliamPeterHamilton Manias, Panics, and Crashes: A History of Financial Crises by Charles P. KindlebergerandRobertAliber ReminiscencesofaStockOperatorbyEdwinLefe´vre TheBattleforInvestmentSurvivalbyGeraldM.Loeb A Fool and His Money: The Odyssey of an Average Investor by John Rothchild TheCommonSenseofMoneyandInvestmentsbyMerryleStanleyRukeyser Where are the Customers’ Yachts?or A Good Hard Look at Wall Streetby FredSchwed,Jr. TheAlchemyofFinancebyGeorgeSoros The Aggressive Conservative Investor by Martin J. Whitman and Martin Shubik SupermoneybyAdamSmith Bogle on Mutual Funds: New Perspectives for the Intelligent Investor by JohnC.Bogle JohnBogleonInvesting:TheFirst50YearsbyJohnC.Bogle BOGLE ON MUTUAL FUNDS New Perspectives for the Intelligent Investor John C. Bogle Coverdesign:Wiley Copyright©2015byJohnC.Bogle.Allrightsreserved. PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey. ADellTradePaperbackeditionwaspublishedbyDellPublishing©1994. PublishedsimultaneouslyinCanada. 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Wileypublishesinavarietyofprintandelectronicformatsandbyprint-on-demand.Somematerial includedwithstandardprintversionsofthisbookmaynotbeincludedine-booksorin print-on-demand.IfthisbookreferstomediasuchasaCDorDVDthatisnotincludedintheversion youpurchased,youmaydownloadthismaterialathttp://booksupport.wiley.com.Formoreinformation aboutWileyproducts,visitwww.wiley.com. ISBN:978-1-119-08833-2(Hardcover) ISBN:978-1-119-10956-3(ePDF) ISBN:978-1-119-10957-0(ePub) PrintedintheUnitedStatesofAmerica 10 9 8 7 6 5 4 3 2 1 Dedication Tomyparents,forsettingmyvalues. Tomybrothers,fortheirsacrifices. ToEve,mybelovedwife,forherdevotion,patience,andsupport. Tomychildren,fortheirunderstandingandpride. 2015 Introduction to the Classic Edition of Bogle on Mutual Funds: New Perspectives for the Intelligent Investor How Bogle on Mutual Funds Became a Classic PERSISTENCE AND PUBLICATION TheveryexistenceofBogleonMutualFunds:NewPerspectivesforthe Intelligent Investor depended largely on some remarkable persistence, first by Amy Hollands, then senior editor for Irwin Professional Pub- lishing (later part of McGraw-Hill Publishing). Amy stopped in at my ValleyForgeofficeinNovember1990andtoldmethatIrwinwaseager to publish a book aimed at helping mutual fund investors achieve their financial goals. Based on her numerous high-level contacts around the financial community, she reported that almost every person with whom she discussed the need for a solid book on mutual funds had suggested thatIshouldbetheauthor. “ThanksAmy,butmaybelater,”Itoldher.ForatthattimeIwasquite overwhelmed with the task of building Vanguard—the fund complex thatIhadfoundedin1974,beginningwithsome$1.4billionofinvestor assets—and managing the explosive growth that would carry our assets to more than $100 billion by 1993. At that time, we had just begun to emerge as an industry leader, and cash flow from net investments by shareholders had been growing at an amazing 20% annual rate for a decade. “I’d love to do it. And I know that I can do it,” I told her, “but rightnowIcan’tpossiblyfindthetimetowriteabook.” So, Amy came back a year later with the same plea. And then again a year after that. When she dropped by in the spring of 1992, however, my schedule had eased (a bit!). At the same time, the serious heart problemsthatIhadbeenplaguedwithsince1960,alleviatedbythecare of my fabulous cardiologist Dr. Bernard Lown, began to return. While vii viii 2015IntroductiontotheClassicEdition I’m generally not much of a worrier, I did begin to wonder about how muchtimeIhadremainingonthisearth. So,ItoldAmy,“Maybeit’snowornever.I’llwritethebook.”Ibegan the task on Labor Day 1992, seated at the desk in my den at our family retreat in the Adirondacks. I wrote the preface, and the outline of my workfellquicklyintoplace: PartI.BUILDINGBLOCKS—threechaptersontherewardsandrisks of investing, and on the principles, practicalities, and performance ofmutualfunds. PartII.MUTUALFUNDSELECTION—fourchapterscoveringhow to select a stock fund, a bond fund, a money market fund, and a balanced fund, plus a fifth chapter describing reliable sources of fundinformation. Part III. NEW PERSPECTIVES ON THREE KEY ISSUES—one chapter each on emerging issues in mutual fund investing: index funds,fundcosts,andtaxconsiderations.(Yes,upuntil1992,these issueshadrarelybeenexploredintheinvestmentliterature.) Part IV—PRACTICAL APPLICATION OF INVESTMENT PRINCIPLES—three chapters, one on asset allocation, one providing model portfolios for various types of investors, and the final chapter, “A Mandate for Fund Shareholders,” describing the pitfallsthatthefundindustryhadcreatedforitsshareholders. I closed with an Epilogue—TWELVE PILLARS OF WISDOM— settingforthwhatIregardedasadozeneternalprinciplesofsoundinvest- ing,principlesthatwouldenableinvestorstoavoidthemanychallenges facing mutual fund investors, presented with a sort-of-philosophical theme. OPPORTUNE TIMING, POWERFUL ENDORSEMENTS Now my own persistence came into play. Over the ensuing six months, I spent the lion’s share of my free time writing and—with the help of a handfuloffriendswhowereexperts—editingmywork.Itwaspublished inSeptember1993.Thetimingwasopportune. First, thanks to strong markets in stocks and bonds, the mutual fund industry was about to enjoy a remarkable surge in growth. Industry