Book Review: The Little Book of Common Sense Investing

Posted on September 5, 2007 , filed under Stocks | Print This Post

I picked up this book a while ago and have been meaning to give it a quick mention on Raw Greed.

Purchase a copy from Amazon and remember to “add to cart” before navigating away.

What if I told you there was an investment that could return over 10% annually, almost double current CD rates, with minimal long-term downside risk? The Little Book of Common Sense Investing presents this possibility by investing in corporate growth through Index Funds. The author John C. Bogle is the founder of the Vanguard Group and makes the argument that passive investing has a far better chance of delivering consistent gains than actively managed funds or individual stock picking.

John’s arguments are compelling and he offers several examples of how actively manged funds failed to deliver consistent long-term gains. Index Funds hold a basket of stocks designed to mimic the overall performance of the financial market or a particular sector. I won’t give away too many details since The Little Book of Common Sense Investing is small and can be finished in a few hours.

While reading The Little Book of Common Sense Investing, I couldn’t help thinking that John presents a great place to park your cash during periods of economic distress and crises. There are moments when investors are waiting on the sidelines to see if a market plunge persists. The most recent .com crash provides a great example. As an investor, I had no idea when a broad market recovery would take place.

If I parked my money in an Index Fund I would have minimized my risk to individual stock picking while participating in the first leg of a major rally. Once a recovery was fully underway I could have moved my money out of an Index Fund and back into individual stock picking. This seems quite basic in retrospect, but like many others at the time I simply stayed in cash.

My summary is that The Little Book of Common Sense Investing provides valuable and practical advice on Index Fund investing. I recommend picking up a copy today.

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2 Comments »

Comment by Ray

2007-09-05 10:43:52

I´m definitely going to pick up a copy. I´ve been meaning to buy introductory stock market books for a while and had my sights on the Dummies series and Little Book that beats the market with reservations over the Graham one . Thanks for the tip Andy! I love your site!

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Comment by Andy

2007-09-05 23:20:01

The Little Book of Common Sense Investing is a great short read. I’ll try and recommend a few other books in the next few months. Thanks for reading my blog.

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