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

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

PART I
BUILDING BLOCKS
Part I provides basic background information on the rewards of investing,
the risks of investing, and the principles and practicalities of investing
through mutual funds.
If you are an experienced investor, well-acquainted with the financial
markets and the mutual fund industry, you may wish merely to browse
through the material in this section. However, I believe that, even for
knowledgeable investors, each chapter will provide at least several new
perspectives on familiar financial issues.

Chapter One
The Rewards of Investing
The Magic of Compounding
“The greatest mathematical discovery of all time.” That is how Albert
Einstein is said to have described compound interest. This first chapter
emphasizes the magic of compounding—the interaction of rate of return
and time—in the search for optimum long-term rates of return on your
financial assets. I believe virtually every financial goal you may have—
building capital, obtaining income to meet your day-to-day financial needs,
saving for your child's college education, putting away money for your
retirement, or any other wealth-building purpose—can be met through a
disciplined approach to the ownership of financial instruments.
This is, first and foremost, a book about mutual funds and the mutual fund
industry. To set the stage, I will discuss the fundamentals of the different
classes of financial assets and their unique investment characteristics. While
this is not a textbook on the financial markets, I believe the intelligent, and
ultimately successful, investor must consider and understand the three
major categories of liquid financial securities: stocks, bonds, and cash
reserves.
I hope this first part helps eliminate some of the mystery of the financial
markets. This is no mean task. I have realized over the years that many
individual investors regard the financial markets as enigmatic, occult, and
driven by forces unseen. Mysterious though the markets may seem in the
short run, in the long run it is the basic fundamentals of investing that
determine the returns on financial assets. For stocks, returns are driven by
earnings and dividends; for bonds and money market instruments, by
interest coupons over specified periods. It is the reality of underlying
financial forces, not the illusion of superficial emotions—optimism and
pessimism, hope and fear, greed and satisfaction—that is at the heart of
intelligent investing.

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