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Mint
01-05-2025
- Business
- Mint
7 key lessons from John Bogle's classic, ‘The Little Book of Common Sense Investing'
John C. Bogle, the visionary founder of the Vanguard Group, transformed the investment world with his advocacy of low-cost index funds. In his iconic book The Little Book of Common Sense Investing, first published in 2007, Bogle discusses decades of financial wisdom into thought-provoking and enlightening guidance for both retail investors and professionals. Here are seven pivotal lessons from the book that can help investors make well-considered and prudent investment decisions. Bogle was an ardent supporter of low-cost index funds, funds that mirror the performance of the overall stock market. By minimising fees, investors can retain a larger share of returns, making index funds a reasonable and prudent choice for long-term wealth creation. Investment costs, such as management fees and transaction charges, can significantly erode returns over time. Bogle believed it was crucial to keep these expenses under control to maximise long-term investment growth. Many new retail investors across global markets lose substantial value due to frequent buying and selling, as well as high transaction costs. This is a critical consideration and should be followed diligently to avoid unnecessary losses in equity markets. Markets, much like life, are inherently unpredictable. Attempting to forecast them often leads to suboptimal and poorly informed investment decisions. Bogle advocates for a calm, disciplined and well-considered investment philosophy, one that encourages consistent investing, while avoiding short-term greed and the futile temptation to perfectly time the market. Investors must have a clear understanding of their investment holdings. This means having both a vision and a reason for including a particular company in the portfolio. Such clarity can support efficient portfolio management. Bogle encourages sincere research and comprehensive analysis of the assets within one's portfolio to make informed and educational investment decisions. Market volatility and short-term fluctuations due to global geopolitical developments are inevitable. To combat this situation, Bogle suggests maintaining a long-term perspective, allowing investments to grow over time without being swayed by transient market volatility. In fact, investors should consider market volatility a friend and look for sensible investment ideas during it to build long-term wealth. No one asset class is perfect for long-term wealth creation. Diversification reduces risk by spreading investments across various asset classes, such as equities, bonds, mutual funds, gold, etc. Bogle advocates a well-diversified portfolio to safeguard against economic downturns and deep recessions in any one asset class. The most glaring examples of this can be seen in history, when the dot-com bubble crash of 2000-01 and the housing crash of 2007-08 had serious ramifications for these asset classes. During such difficult times, if an investor is well diversified across various asset classes, then the risk of capital decimation is automatically reduced immensely. Composure and consistency are the keys to investing. Bogle advises investors to remain steadfast in their investment ideology and long-term strategy. Investors should strongly resist the urge to make impulsive changes in their investment styles and portfolios based on market conditions and trends. Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Readers are advised to consult a qualified financial advisor before making any investment decisions. First Published: 1 May 2025, 02:42 PM IST
Time of India
28-04-2025
- Business
- Time of India
Gold in locker means nothing, buy digital gold instead, says Swarup Mohanty, Vice Chairman and CEO, Mirae Asset Investment Manager
The past few years have been difficult for your equity strategies. How do you view this phase? It is a new experience for us because if you look at our track record of 16 years, for nearly 14 years we have been on the right side of the market. However, in the past two-three years, it has been a very different story. Broadly, prior to October-November last year, returns had come through owing to high active share—taking concentrated bets in certain pockets or sectors. We were not convinced about that. Our view is that the mutual fund is a diversified product. If you change the diversification , the risk profile of the product changes. So, we stuck to that and, typically, a diversified fund has not performed over the past two years. #Pahalgam Terrorist Attack India stares at a 'water bomb' threat as it freezes Indus Treaty India readies short, mid & long-term Indus River plans Shehbaz Sharif calls India's stand "worn-out narrative" With outcomes like that, return-chasing takes centrestage. However much you argue, nobody cares about risk. The problem was not that investors were chasing 50-60% in small caps . The problem was investors thinking 25% in large caps was bad. Last April, our large-cap fund was in the bottom quartile (Q4). This April, we are in the top quartile (Q1), with no change in our approach. When risks unfold, things change very quickly. To go from Q4 to Q1 without any action, just within a year, means the market has changed; we haven't. We did not even manage a small-cap fund during these two years; we were just a spectator in this space. That's how we operate. We are the risk mitigator in the market. We remain firm. This is not a business of return-chasing; it is a business of risk mitigation. So, if you check our portfolios, they remain diversified. A few of our stocks participated in the upside, but many did not because of the nature of the market. We simply didn't agree with some of the pockets that went up. Some were misses on our part, obviously. The good part is that at no point did I see our fund management unit lose its conviction. That is important to me. As we see the markets changing, hopefully, the quality of our portfolio should come through. We remain fully invested. Every rupee that comes in gets invested immediately. There are enough good stocks available now at good prices, which were not so just a year ago. So we are taking full advantage of this market. RAPID FIRE Q. What's an investment tip you'd give your younger self? Start as early as possible with any amount and stay invested. Q. What's the biggest lesson the market has taught you? Market is smarter than you, so never try to time it. Try to improve your asset allocation skills rather than market predicting skills. is your personal asset allocation right now? 70% equity; 20% debt; 10% alternatives and collectives. is a recent book you would recommend? The Little Book of Common Sense Investing by John C. Bogle. you were Sebi chief for a day, what is the one big policy change you would make? There are two types of people: law maker and law follower. I am a law follower and I would make a very bad law maker. Live Events Are you gradually bringing style diversity in your equity strategies? It was true for us before Covid that we follow one broad style. My belief is that while the basic inherent rules on stockpicking will remain, the styles must be different. If you see the styles that are emerging internally, Neelesh Surana comes with a different, diversified strategy, while Gaurav Misra, who manages the large-cap and focused strategies, has a focused approach. Varun Goel, who manages the small-cap and flexi-cap funds, is completely distinct from these two styles. The best part, which has happened in the past two-three years, is that fund houses display their styles comfortably now. That's the maturity of the industry. That's where picking funds becomes a little different from what it used to be. If you're going to pick two funds with the same style, invariably you'll end up catching the market's ups and downs together. It's now key to understand the fund manager's style. The bottom line will remain quality and diversification. We will not lose that, irrespective of the style differences our individual fund managers display. The core philosophy is very simple: buy a good business at a good price. If a great business is not available at a good price, just don't buy; wait it out. You will find a time to buy. We are getting that time now. We don't know whether this is the right price or the price will be better tomorrow. If it's better than yesterday, we buy, but we will not compromise on quality. That is why we have imposed curbs on our fund inflows twice in the past. We are comfortable sticking to quality even during times when the stocks can take a backseat. I'm pleasantly surprised that our investors were willing to wait out the lean period. Money remained invested even when our funds were in Q3 or Q4. Investors did give us that time. This tells you that once you put in a good track record, investors show conviction. You launched the small-cap fund during a challenging phase for the segment. What gives you confidence that it will deliver a good experience for your investors? We have always trailed the market in new fund offers (NFOs). We typically launch a fund when the euphoria in that pocket is over because we feel assured that the investor wouldn't have come in following the herd, rather they would have taken an informed call. We launched the small-cap fund when we knew we had the capabilities. If you look at our track record, we have proven ourselves in the large- and mid-cap pockets, but we had not demonstrated small-cap expertise. In a small-cap fund, the differentiation is clearly in the stockpicking. It's a large market. Thankfully, Varun Goel (fund manager) comes with a mid- and small-cap background, and we have an analyst team backing him up. So we have created the back-end over the past three-four years to be able to launch a small-cap fund. It's got nothing to do with market timing. Finally, it's a business of track record. If we are able to build a good track record over the next three-four years, asset gathering will happen. We believe in Varun's stock-picking ability. He is keen on the new-age businesses coming to the market and has shown a very differentiated portfolio already. Do you believe in the small-cap story? The emergence of small caps is a big unlearning for me. I was in the camp that believes there is no need for a small-cap fund, but the post-Covid democratisation of the market has been interesting. Earlier, the money power of foreign investors was so large that their flows dictated the market. Now the participation of the market is very different. The Indian market is beginning to be owned by Indians, which is how it should be. Further, most of the public issuances are now in the mid- and small-cap space. This is giving multiple opportunities to fund managers. So a lot of attention is shifting to mid- and small-cap segments. You don't have a choice not to be in that space anymore. Amid this market downturn, gold is having its moment. How are you assessing gold right now? This has been another unlearning for me. I have previously stood up on a lot of podiums and said that equity is the only growth asset class. However, the 10-year data of gold versus equity paints another picture. We have been saying for some time that one needs to question the so-called 10% allocation to gold, which is the norm. Some of the data thrown up by the multi-asset funds category just showcases this over a longer period of time; median return is probably higher in a multi-asset framework than a single-asset framework. That's where the cyclical nature of all asset classes comes out. It is better to be diversified. We have talked about it, but not done much about it. I am now in the camp that says one needs to revisit gold allocation. If you look at the fragile global scenario, the pressure for gold purchase purely from sovereigns will continue. In most of our presentations, we would maintain that gold in the locker means nothing. The day you want to buy gold, go and buy in the digital form, like gold ETFs. We are seeing that change in investors too. The recent tax changes for debt funds have prompted investors to explore hybrid alternatives. Have debt funds lost their relevance? As an industry, we have become very defensive about this taxation angle. I don't see why because the investor is still buying bank FDs worth Rs.23 lakh crore. Last year, the liquid fund average return was 7.2.%, which is as good as any FD in the market. The investor continues to invest in debt. I don't think the investor is so bothered by the taxation change as much as we talk about it. The fact that they are investing in bank FDs means that we have not been able to convince investors on the merits of our debt products. Clearly, we missed that bus. In mutual funds, the investor is favouring the so-called hybrids. As long as they are aware of change in the risk profile of the product they are investing in, it is fine, but return-chasing should not be the criterion of asset allocation. The next one-two years will be very good for debt. So why do you need to take more risk for what you are aspiring to achieve? You will achieve it by the nature of the fund itself. It's a very interesting time to be an investor. The equity markets are reasonable, tending towards becoming fair. Due to interest rate changes, long tenure debt is back in the game, and gold is looking good for the reasons we discussed earlier. Rarely do you find a space where all asset classes are in your favour. The people who had followed asset allocation would have money to buy today. Those who did not would be in losses. If you buy today at these levels, you can change the outcome of your future returns by a fair margin because of the prices you are getting now. One invariably misses such opportunities because of lack of debt allocation.
Yahoo
26-01-2025
- Business
- Yahoo
Vanguard's U.S. stock-market call is even more shocking than you realize
A previous version of this article misstated the performance of Vanguard Growth ETF since November 8, 2024. It has risen 4%. Do you and I even need to own U.S. stocks in our retirement portfolios? 'I paid for everything from day one': My husband barely worked during our marriage. Can I leave my $500,000 IRA to my son? Stocks are pricey, but these overlooked sectors may be your best bet Foreigners are chasing U.S. stocks. Historically, that's a bad sign. 'Her crooked son has taken everything': My fiancé's 100-year-old aunt was swindled out of $100,000. How can we help? 'I'm at a loss': My boyfriend of nearly 10 years is naming his elderly parents as beneficiaries and giving them power of attorney. Am I right to be upset? And if so, do we need to own the S&P 500 SPX — the benchmark index of large-company stocks that is the bedrock of almost every portfolio? Those are the shocking questions raised by the recent asset-allocation paper from Vanguard, of all firms. Not only does the firm reckon that bonds will probably do better than stocks over the next decade, but it expects that U.S. large-company stocks, and especially U.S. large-company growth stocks, will look even worse. And market developments since Vanguard ran these calculations make the numbers today even more appalling. It's especially remarkable that this should come from Vanguard, the investor-owned index-fund giant. The firm and its legendary founder, the late Jack Bogle, are famous for recommending buy-it-and-forget-it, passive, long-term investments in U.S. stocks. 'My view [is] that a U.S.-only equity portfolio will serve the needs of most investors,' Bogle wrote in 'The Little Book of Common Sense Investing.' 'Buy a fund that holds this all-market portfolio, and hold it forever.' If you want to add some stability, balance it with a low-cost bond index fund, he added. Hence the Vanguard Balanced Index Fund VBAIX, which is 60% invested in the S&P 500 and 40% in a U.S. bond index. Now look at Vanguard's latest numbers. Their 'Capital Markets Model Forecast' sees U.S. large-company stocks earning you somewhere between 2.5% and 4.5% a year, on average, for the next decade. That's before counting the costs of inflation, which Vanguard sees as averaging 1.9% to 2.9% a year over the same period. (It's also before any investment fees — and many people are paying about 1% a year.) So in 'real' or constant dollars — in other words, after deducting inflation — Vanguard's model sees big U.S. stocks earning you somewhere between 2.6% and minus 0.4% a year, on average, over the next decade. That's enough to turn $1,000 now into … somewhere between $1,300 and $960 by 2035. Booyah! Don't buy an iPhone today! Put that money aside and invest it in the S&P 500 — and in 10 years' time, if you're lucky, you'll … be able to buy an iPhone. Compare that with the record of the past century, when, on average, the S&P 500 has doubled your money over 10 years, in constant dollars. Let alone the past 10, when it's earned you more than 150%. But if the Vanguard numbers look bad, consider this: Their model implies absolute catastrophe for those who invest in large U.S. growth stocks — the kind currently dominating the market. The firm sees a passive investment in U.S. growth losing somewhere between 20% and 40% of its value in real or constant dollars over the next 10 years. (That's based on forecast nominal average returns of minus 0.4% a year to minus 1.6% a year, and their inflation estimates.) Yikes. Maybe in 2035 you won't be able to buy an iPhone. To give you an idea of how much the current market is dominated by 'growth' stocks: I used FactSet data to analyze the current constituents of the S&P 500. I split them into those trading for more than 20 times forecast per-share earnings, a reasonably lofty 'growth'-type rating, and those trading for less than 20 times, which we will call (or pretend constitutes) 'value.' Result? Those selling for price-to-earnings ratios of 20 or higher made up just under half of the stocks in the index (240) by number. But they made up nearly three-quarters of the index (73%) by value. Those expensive stocks, including megacaps like Tesla TSLA and Nvidia NVDA, boasted a total market value of around $40 trillion. All those stocks selling for less than 20 times forecast earnings? Just $15 trillion. So, just to recap, Vanguard's numbers seem to suggest anyone investing in large U.S. growth stocks might just as well set fire to some of their money now and save themselves the wait. And if you have your money invested in the S&P 500, by one measure about three-quarters of it is invested in … large U.S. growth stocks. Enjoy. No wonder the firm prefers bonds — pretty much anything looks preferable to this Bonfire of the Benjamins. Incidentally, the U.S. Treasury now tells me the 'real,' constant dollar return on 10-year inflation-protected Treasury bonds, aka TIPS, is now 2.2% a year. Which means they guarantee about a 24% rise in your purchasing power over the next decade. Or, nearly as much as the best-case scenario for the S&P 500, according to the Vanguard model, with effectively no risk. It's not all doom and gloom. Vanguard's model sees very good returns over the next decade for the stocks of international developed markets such as Europe, Japan and Australasia, and decent returns for large U.S. 'value' stocks, small U.S. stocks and even U.S. real-estate investment trusts. It also sees decent returns for emerging-market stocks. The standout in the Vanguard model is the asset class of developed international stocks. (Incidentally, Vanguard's Developed Markets Index Fund VTMGX includes Canadian stocks as well as the so-called EAFE markets, standing for Europe, Australasia and Far East.) The firm's model sees developed international markets earning you between 50% and 100% returns over the next decade in constant dollars — in other words, in real, purchasing-power terms. According to their analysis, U.S. large value stocks and U.S. small stocks — think the Vanguard Value ETF VTV and Vanguard Small-Cap ETF VB — are likely to give total returns over a decade of between 15% and 50% in real, inflation-adjusted returns, just slightly ahead of REITs. Not great, but OK. There are lots of caveats that go with all these numbers. Nobody actually knows what the next 10 years will hold — a warning that is just as true for the bulls as it is for the skeptics. Vanguard points out that its forecasts 'are not intended to imply portfolio-construction advice, which should reflect such factors as an investor's objectives and risk tolerance, as well as asset-class correlations and the dispersion of expected returns.' As everyone is supposed to understand by the time they graduate first grade, actual results may vary from expectations. If you'd sold the S&P 500 on Nov. 8, the day of Vanguard's calculations, you'd have missed out on a 50% rise. People spent the late 1990s warning that the stock market was in a bubble, only to see it keep going up and up and up. It didn't actually crash until all the bears finally got fired — which happened en masse in December 1999 and January 2000. (I am not kidding.) Vanguard honchos gave more context to their forecasts when they spoke to MarketWatch's Isabel Wang. I asked Vanguard investment strategist Todd Schlanger why, given these forecasts, anyone should own U.S. stocks as well as international stocks, growth stocks as well as value stocks, and large caps as well as small caps. His response? Never bet the house, even on a model. Best practice in portfolio construction is to avoid overly concentrated positions, he points out. Vanguard sets limits on how far it wants to deviate from a neutral position. So, for example, their 'Time Varying Asset Allocation' model won't put more than 40% of its stock-market investments in non-U.S. markets, or more than 70% in 'value' stocks. 'We believe it can be wise to establish certain constraints and risk budgets for time-varying asset-allocation strategies,' he wrote in an email. 'In the case of the TVAA strategy in the paper, we allow value/growth to allocation within a 30% to 70% range of relative allocations. We believe this allows sufficient room for the strategy to benefit from the relative attractiveness of the segment while maintaining diversification.' Schlanger also conceded that the 'primary risk' to the strategy is 'model forecast risk.' Time will tell. 'I trust that my husband isn't a gold digger': I'm inheriting millions of dollars. My husband says I'm 'selfish' to keep it. Should I share it? Why Boeing's stock isn't tumbling, even after an 'eye-watering' loss warning Beyond Big Tech: 20 stocks to ride the AI trend 'I don't want to spend my remaining days living hand to mouth': I divorced my husband and remarried. Can I claim his Social Security? 'He's twice mentioned divorce': My new husband told me he'll have $500,000 for retirement, but he's $80,000 in debt. How do I protect myself? Sign in to access your portfolio
