The Relentless Rules of Humble Arithmetic

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Financial Analysts Journal
November 2005 | Vol. 61 | No. 6 | 14 pages
Source: CFA Institute
John C. Bogle

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The message of this article is simple, obvious, and almost invariably ignored by the investment community: Gross return in the financial markets minus the costs of financial intermediation equals the net return actually delivered to investors. This equation helps explain the failure of the mutual fund industry to deliver to shareholders their fair share of market returns, and it explains the enormous shortfall in the assets of the private and public retirement systems relative to their pension liabilities. It is high time for investment professionals to consider not only the “comparative advantage” of outmanaging their peers but also the “community advantage” that would result from a major reduction in the costs of our investment system.

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