John Bogle on Common Investor Mistakes

In a 2014 interview with AAII Journal, Vanguard founder John Bogle outlined common investor mistakes and other thoughts about the market. Here are some highlights:

“The biggest mistake investors make is looking backward at performance and thinking it’ll recur in the future,” says Bogle, citing the importance of reversion to the mean. “The winners in decade one tend to be the losers in decade two,” he says, and vice versa.

Considering returns in “nominal dollars.” Investors, he says, should account for inflation and fund expenses when evaluating investment income. “Indexing works,” he says, “because the math is correct, and that’s all there is to it. ”

On high frequency traders, Bogle shares what he sees as the systemic risks: “Technological risk is high, and that’s a problem, a real problem. The cancellation of orders is a real problem. The lack of public information and the lack of transparency are big problems.”

In Bogle’s book The Clash of the Cultures, the article says, he discusses the problems inherent in the structure of mutual fund companies as for-profit organizations. “There can be no conflict greater than in this mutual fund system, where you have to represent one set of shareholders or the other, but you can’t represent both. And it’s pretty obvious that it’s the shareholders of the management company itself that have become the first priority of the fund directors, who also control the management company.”