Jan 9, 2017 05:12 PM

John Bogle: Godfather of Index investing

Dear Traders,

In the end of 1999 widely known Fortune Magazine named this man as "one of the four investment giants of the XX century" and later on Times proclaimed him as “one of world’s 100 most powerful and influential people”, and to be honest it is pretty hard to disagree with it.

Earlier Bogle’s biographer Robert Slater described his life as "evolutionary, iconoclastic and uncompromisingly committed to his founding principles of putting the interests of the investor first and constructively criticizing the fund industry for practices that run counter to low-cost, client-oriented mutual fund investing".  Sounds like a good example of a perfect trader but what makes him such an exceptional investor?

John Bogle was born in 1929 and his childhood was clouded with the events of the Great Depression. During these cruel years his family has lost their inheritance and broke up. Despite of the hard circumstances, John was an excellent student with a bright talent for math as numbers and calculations have always fascinated him. At Princeton University Bogle studied economics and investment and chose mutual funds as his major subject, which has not been well developed before.

In 1974 John Bogle founded Vanguard Company which has been considered by economists as the one of the most respected investment companies ever since. It wasn’t the end of Bogle’s creativeness and in 1975 Vanguard 500 Index fund was created and it is considered as first index mutual fund. The main idea was to lower the current prices and make the index fund copy the index performance over the long run. Due to this plan, with the lower costs the better money management system could be easily implemented.

One of the most important moments of Bogle’s strategy is a strict line between investment and speculation, which lies within the time limits. According to these views, investment is considered with the long term operations only, whereas short term trading is about speculation mostly. John Bogle seems to believe in the thought through technical analysis, while speculation has already affected financial market grandly. In his trading life Bogle hold on to the 8 rules, which can be extremely useful for every professional trader:

  • Select low-cost funds

  • Consider carefully the added costs of advice

  • Do not overrate past fund performance

  • Use past performance to determine consistency and risk

  • Beware of stars (as in, star mutual fund managers)

  • Beware of asset size

  • Don't own too many funds

  • Buy your fund portfolio - and hold it

Becoming the great trader is not a destination but a long path and there are can be different obstacles on it. Be ready to adjust your trading style to the always changing conditions and look at the example of pro traders from time to time - you can learn so much from them.

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Sincerely yours,

Ayrex Team.