The Little Book of Common Sense Investing

Delivers the one piece of investing advice that survives all the evidence, buy the whole market cheaply and do nothing, in a couple of hours of reading. Lifetime financial value per page is probably the highest on this list for anyone with savings.

The chapter guide

Own the broad market through the lowest-cost index fund available to you, automate contributions, and stop trying to outguess prices, managers, or fashions.

1. Ch 1: A parable: The Gotrocks family

   Investors as a group receive the return earned by businesses, minus whatever intermediaries take from them.

2. Ch 2: Rational exuberance: Business reality trumps market expectations

   Long-run stock returns come from dividend yield and earnings growth, while changing valuations dominate only over shorter periods.

3. Ch 3: Cast your lot with business: Rely on Occam’s razor to win by keeping it simple

   Owning the whole market captures aggregate business growth without requiring predictions about which security will win.

4. Ch 4: How most investors turn a winner’s game into a loser’s game: “The relentless rules of humble arithmetic”

   Before costs investors collectively earn the market return, but after costs the average investor must earn less.

5. Ch 5: The grand illusion: Surprise! The returns reported by mutual funds aren’t actually earned by mutual fund investors

   Investors often earn less than their funds because they buy after rises and sell after falls.

6. Ch 6: Taxes are costs, too: Don’t pay Uncle Sam any more than you should

   Turnover and taxable distributions reduce the return an investor keeps, so tax efficiency belongs in fund selection.

7. Ch 7: When the good times no longer roll: What happens if future returns are lower?

   Current yields and valuations can imply lower future stock and bond returns, so plans should use restrained expectations.

8. Ch 8: Selecting long-term winners: Don’t look for the needle, buy the haystack

   Past evidence does not reveal future winning funds reliably, while a total-market index owns the winners automatically.

9. Ch 9: Yesterday’s winners, tomorrow’s losers: Fooled by randomness

   Exceptional recent fund performance commonly regresses, so rankings and hot records are poor guides to future returns.

10. Ch 10: Seeking advice to select funds? Look before you leap

    Advisers and fund selectors rarely identify future winners consistently, and their costs must be counted.

11. Ch 11: Focus on the lowest-cost funds: The more the managers take, the less the investors make

    Low expenses are one of the few fund characteristics known in advance and strongly shape the return investors keep.

12. Ch 12: Profit from the majesty of simplicity: Hold index funds that own the entire stock market

    A traditional total-market index fund combines diversification, low turnover, low cost, and minimal decision-making.

13. Ch 13: Bond funds and money market funds: Where those relentless rules are even more powerful

    Because bond returns are constrained, fund costs consume a particularly large share of what bond investors can earn.

14. Ch 14: Index funds that promise to beat the market: The new paradigm?

    Specialized indexes that claim superior returns reintroduce prediction, higher costs, and the risk of performance chasing.

15. Ch 15: The exchange traded fund: A trader to the cause

    An ETF can deliver low-cost indexing, but intraday trading and narrow products can turn it into a vehicle for speculation.

16. Ch 16: What would Benjamin Graham have thought about indexing? A confirmation from Mr. Buffett

    Graham’s principles and Buffett’s endorsement support low-cost indexing for investors without a durable analytical edge.

17. Ch 17: “The relentless rules of humble arithmetic”: Reprise

    A final restatement shows again that costs subtract directly from investors’ collective market return.

18. Ch 18: What should I do now? Funny money, serious money, and investment strategy

    Separate speculation from serious assets, choose a simple allocation, and hold diversified low-cost index funds for the long term.

Scorecard

Universality

3 of 5

Evidence

5 of 5

Reread value

2 of 5