The Little Book of Common Sense Investing by John C. Bogle

 A Parable
The Gotrocks Family

EVEN BEFORE YOU THINK about “index funds”—in their
most basic form, mutual funds that simply buy shares of
substantially all of the stocks in the U.S. stock market and 
hold them forever—you must understand how the stock
market actually works. Perhaps this folksy parable—
my version of a story told by Warren Buffett, chairman 
of Berkshire Hathaway, Inc., in the firm’s 2005 Annual 
Report—will clarify the foolishness and counterproductivity

of our vast and complex financial market system. 

Once upon a Time . . . 
 A wealthy family named the Gotrocks, grown over the

generations to include thousands of brothers, sisters, aunts, 
uncles, and cousins, owned 100 percent of every stock in 
the United States. Each year, they reaped the rewards of
investing: all of the earnings growth that those thousands 
of corporations generated and all of the dividends that 
they distributed.1
 Each family member grew wealthier at 
the same pace, and all was harmonious. Their investment 
compounded over the decades, creating enormous wealth. 
The Gotrocks family was playing a winner’s game.
 But after a while, a few fast-talking Helpers arrive on 
the scene, and they persuade some “smart” Gotrocks cousins 
that they can earn a larger share than their relatives. These 
Helpers convince the cousins to sell their shares in some of
the companies to other family members, and to buy shares 
of other companies from them in return. The Helpers handle

the transactions and, as brokers, they receive commis-

sions for their services. The ownership is thus rearranged 
among the family members. To their surprise, however, 
the family wealth begins to grow at a slower pace. Why? 
Because some of the investment return is now consumed 
by the Helpers, and the family’s share of the generous pie 

The Little Book of Common Sense Investing by John C. Bogle