Trading Like John Bogle


There’s one simple rule if you want to be a successful investor – buy low and sell high. It sounds simple enough, but it’s a lot harder to implement in practice. Fund managers constantly compete with the market in attempt to generate higher returns than the benchmark on which they are based – usually the S&P 500.

But in some circles, trying to beat the market is believed to be a futile exercise. Despite the huge market that exists for fund managers to attempt to beat indexes like the S&P 500, most fall short. In fact, if one were to have invested in the S&P 500 30 years ago and held it to today, they would up more than 844%.

With that in mind, one fund manager thought to create an investment that didn’t try to beat the market. Instead he designed the index fund – an investment vehicle that mimicked the performance of the S&P 500 following its ups and downs without any attempt at hedging risk.

Keeping a long term view

John C. Bogle was the founder of The Vanguard Group and designed the first index fund in 1975. His idea was to avoid charging investors large fees and concentrate on simply mimicking the S&P 500 instead of trying to beat it. In this way he could pass off those savings to clients and put up higher returns than most of his competitors.

It was an innovative way of looking at the market and focused on long term investment goals instead of gaming the market. His strategy held that it was better to hold on through bear markets and take full advantage of the following bull market instead of trying to avoid losses and missing out on the rebound.

John Bogle made a distinction between investment and speculation by maintaining that investors had a long term viewpoint while speculators focused on short term gains.

Bogle had four key points that needed to be considered when investing:

Don’t rebalance – Bogle held that rebalancing took away from the point of letting market fundamentals do their job.

Don’t invest overseas – Contrary to popular belief, Bogle said that investing in the US made more sense for investors instead of investing in unknown foreign companies.

Diversification means stocks and bonds – Bogle maintains that a portfolio of 60% stocks and 40% bonds is the ideal allocation for investors and should get them the best result.

Keep it simple – Like his index funds, Bogle believed investing was actually a rather simple matter of letting the market guide your investments without interference.

Final considerations

It’s important to note that Bogle’s investment strategy isn’t for everyone. Investors aren’t  able to hedge their portfolios putting them at risk for short term fluctuations. Because of this, index investing should only be done by those who have a high risk tolerance and aren’t planning to withdraw their money within the next several years. Those near retirement should keep index fund exposure to a minimum and put the majority of their portfolio in more conservative assets.