Bogle on Mutual Funds: New Perspectives for the Intelligent Investor.

• Author: Moy, Ronald L.

As the title suggests, John Bogle has written a book that he hopes will do for mutual fund investing what Benjamin Graham's classic The Intelligent Investor [1] did for security analysis. Bogle, the founder and chairman of the Vanguard Group of Investment Companies, has written a book that is quite unique. One would expect Bogle to write a book that would outline the basic tenets of mutual fund investing and to use the opportunity to plug the Vanguard family of mutual funds. Fortunately, this is not the case. Except for the preface, no mention of the Vanguard Group or any other mutual fund group is made in the book. The majority of the book is an academically oriented study that would be expected from a Roger Ibbotson rather than from the chairman of Vanguard. From a stylistic point, this book may remind readers of Burton Malkiel's widely regarded A Random Walk Down Wall Street [2], with its honest look at the mutual fund industry. However, like A Random Walk Down Wall Street, this book requires some background in financial theory, which makes it ideally suited as a supplemental reading in investments and portfolio management courses.

The book is filled with numerous graphs and tables that show the historical returns for the S&P 500, long-term bonds, and cash reserves beginning as early as 1871. In addition, the book also references numerous important topics usually omitted by other popular investment books including duration, portfolio betas and alphas, "exmark" (which stands for explained by the market, actually the [R.sup.2] from the market model regression), stock market volatility, use of derivatives, survivorship bias, regression towards the mean, portfolio turnover and market efficiency.

Specifically, the book is divided into four parts. The first three parts of the book use historical data to show the rates of return and risk for different securities and different types of mutual funds. Only in the final part of the book does Bogle provide general guidelines for mutual fund investing. However, unlike other popular investment books, Bogle points out the logic that drives his rules of thumb. Bogle is also quick to note that investors should consider modifications to his guidelines based on their own personal situations.

The first part discusses the building blocks of investing. Chapters 1 and 2 cover the returns and risks of investing. Chapter 1 uses historical returns for common stocks, long-term bonds and cash reserves to illustrate...