Bogle on his book: "Little Book of Common Sense Investing"

My Dearest Moo Moo Cow,

Ah, I know your extreme fondness in using your cow sense in your investing reasonings. Hence, I reckon that John Bogle's book "Little Book of Common Sense Investing" should be of extreme interest to you. In fact, Mr.Bogle has an editorial on TheStreet.com talking about his book. And the following snippet is taken from the article posted here.

• One reason that I found this book so easy and rewarding to write is because it called upon two traits that have served me well during my 55-year career -- common sense, and, as one of my detractors put it, "an uncanny ability to recognize the obvious." I'm convinced that successful investing is all about common sense. Common sense, after all, tells you to keep your costs low, minimize the impact of taxes and diversify as broadly as possible.
  
  A low-cost index fund, holding all of our nation's publicly held businesses, bought and held for the long term, is the purest manifestation of such common sense and is the only way to guarantee that you earn your fair share of the returns America's corporations generate in the form of dividends and earnings growth.
  
  Through the miracle of compounding, the accumulations of wealth over the years generated by those returns have been little short of staggering. Over the past half-century, American business has produced a return of 10% per year. Compounded at that rate over five decades, each $1 invested would grow to $117.40. Surely, a strategy of investing broadly and for the long term in American business is a positive-sum game -- a winner's game.
  
  But as Warren Buffett has said, such a strategy is simple, but not easy. Why? Largely because Wall Street's great marketing machine generates a tremendous amount of noise (and little light) in its efforts to convince investors that they can outperform the market. Internet stocks, small-cap stocks, emerging-market mutual funds, hedge funds, commodity ETFs -- the styles and sectors come and go, but the message remains the same: Yes, you can beat the market, and we know how.
  
  But of course, for every winner, there must be a loser. And, as a group, all investors are -- I hope you're sitting down -- average, but only before the costs of all those investment strategies are deducted. But the deduction of all those costs (commissions, administrative and operating expenses, advisory fees, taxes and so on) turns efforts to outperform the market from a zero-sum game into a loser's game, in which the return of all investors as a group lag the market by the amount of the costs they incur.
  
  Of course, these costs can seem remarkably inconsequential in the abstract. Paying a mere 2.5% of your capital each year for expenses couldn't have that much of an impact, right? Why not judge for yourself? If we deduct 2.5% in annual expenses (a conservative estimate of the total costs incurred by the average equity investor) from that 10% long-term return on stocks, the net return is just 7.5%.
  
  As a result, a $1 investment grows to just $37.19, instead of $117.40, representing just over 30% of the return that was there for the taking. The other 70%? Paid year after year, in dribs and drabs, to Wall Street's marketers. If such an arrangement strikes you as absurd, well, chalk one up for common sense.
  
  When I created the world's first index mutual fund more than 30 years ago, it was widely derided. "Bogle's Folly" was one of the more memorable descriptions it earned. After all, it was asked, why would investors want to settle for average? Ironically, by "settling" for average performance, investors who choose what I call traditional index funds -- low-cost funds owning virtually the entire U.S. stock market -- will, over the long term, reap superior returns simply by paying a fraction of the costs that the typical investor pays.
  
  By investing and then dropping out of the system, never paying a single unnecessary cost or tax, the odds in favor of the index strategy's long-term success are staggering, simply because of what I call "the relentless rules of humble arithmetic." Success breeds success, and today individual and institutional investors alike have embraced this wonderfully simple investment concept to the tune of more than $3 trillion.
  
  Nonetheless, ever the idealist, I believe that indexing's reach remains far short of its potential. I'm convinced that if I could spread the message of common-sense investing, as I quote Michael Kelly in the book, "carefully enough, thoroughly enough, thoughtfully enough -- why, eventually everyone would see, and then everything would be fixed." And indeed, the notion of "fixing" the long-term financial security of America's 100 million investors is the ideal that drove me to write my Little Book of Common Sense Investing.