Index Investing is a Winner's Game Review
I read this book for free on Prime Reading.
Overall evaluation: +1 (Recommended!)
Among the many books that recommend index investing, I think this one is particularly excellent. The author's claims are simple and principled, and the book's structure is concise and easy to read. It is especially recommended for those who want to start long-term investing but do not know where to begin.
Overview
This book is a Japanese translation of a book written by John C. Bogle, the founder of Vanguard, in 2007.
As you might expect from Vanguard, the book's claims are predictable.
The "winner" in the title refers to someone who can achieve investment returns close to the market average.
The Book's Claims
The book's claims can be summarized in three words:
" Long-term ", " Diversification ", and " Low-cost ".
- Investment targets should be held for the long term, and frequent buying and selling will only result in losses due to fees.
- Diversification allows you to approach the market average (≒ optimal performance).
- Costs will not betray you (in a bad way).
In other words, the book argues that you should not use active funds that try to beat the market through frequent trading or selecting specific investments, but instead use low-cost index funds with minimal fees and hold them for the long term.
Good Points
The book is written by the founder of Vanguard, a leading company in low-cost index funds. The author's claims are clear and concise.
This book will help you understand the advantages of low-cost index funds and how to choose the right products.
It is particularly beneficial for those who have not yet established a long-term investment style.
What sets this book apart from others is its simple and repetitive claims and practical product introductions (≒ Vanguard's advertising). This makes the book easy to read.
The book also includes some insightful phrases, such as:
Instead of aiming for high returns, you should be satisfied with the few percent returns you can get from the market average.
The book also covers portfolio creation, including how to adjust the allocation of bonds and stocks to suit your investment style.
Not-so-Good Points
While the book is overall easy to understand, there are some points that I found questionable.
I may not have fully understood the author's intentions, but I will summarize my doubts below.
Firstly, the book assumes that active funds cannot win in the long run due to mean reversion, but it is uncertain whether the market will revert to the mean during our lifetime.
Additionally, if there are funds that can utilize clear market edges and achieve long-term returns above the market average, it may be possible to achieve higher returns (although this would not be possible for individual investors).
Next, the book contains contradictory statements, such as " historical data proves that ○○ is superior " and " historical data is unreliable ".
If the book had only mentioned the importance of reducing costs, it would have been easier to read without confusion.
Finally, even if you agree with the book's claims, you need to consider the following points when putting them into practice:
- Are there more advantageous products available besides Vanguard's?
- Which index should you use - global, US, or Japan-excluded?
- Are the costs of buying US products from Japan included?
Considerations for Diversification
The book argues that diversifying into US stocks alone is sufficient.
This seems to contradict the initial claim that diversification is good, but the author explains that converting currencies would result in unnecessary costs and that US companies are global, absorbing wealth from around the world.
This means that investing in US stocks is equivalent to diversifying globally.
While this is a strong argument, it may not be suitable for everyone, and the costs of investing in US stocks from Japan should be considered.
Conclusion
Although the book has some drawbacks, such as promoting Vanguard's products and assuming a US-centric perspective, it is a good book that clearly explains the principles of long-term investing.
When putting these principles into practice, it is essential to compare and choose the best investment trusts and ETFs available in Japan.
