Learnings of John Bogle

In the book “The Best Investment Advice I Ever Received”, John Bogle recounted an interesting experience at the Wellington Fund where he worked hard to pick stocks and asset allocation, but usually failed to beat the market. He concluded that most stocks are priced efficiently most of the time, and betting on the ability of a given money manager to garner a substantial and sustained edge over other managers defied powerful odds.

The point then is to 1) reduce stock risk by diversification, 2) optimize investment returns by minimizing investment costs. He noted that the overall long run stock market returns will be driven by the growth rate of corporate earnings, and dividend yields. E.g. if dividend yield today is 2%, growth rate of corporate earnings historically is around 5%, we have a good idea that the stock market would return around 7% a year.