Excerpted from Common Sense on Mutual Funds by John C. Bogle, pages 4-6

Might some unforeseeable economic shock trigger another depression so severe that it would destroy our faith in the promise of investing? Perhaps. Excessive confidence in smooth seas can blind us to the risk of storms. History is replete with episodes in which the enthusiasm of investors has driven equity prices to - and even beyond - the point at which they are swept into a whirlwind of speculation leading to unexpected losses. There is little certainty in investing. As long-term investors however, we cannot afford to let the apocalyptic possibilities frighten us away from the markets. For without risk there is no return.

Another word for risk is chance. And in today's high-flying, fast-changing, complex world, the story of Chance the gardener contains an inspirational message for long-term investors. The seasons of his garden find a parallel in the cycles of the economy and the financial markets, and we can emulate his faith that their patterns of the past will define their course in the future.

Chance is a man who has grown to middle age living in a solitary room in a rich man's mansion, bereft of contact with other human beings. He has two all-consuming interests: watching television and tending the garden outside his room. When the mansion's owner dies, Chance wanders out on his first foray into the world. He is hit by the limousine of a powerful industrialist who is an adviser to the President. When he is rushed to the industrialist's estate for medical care, he identifies himself only as Chance the gardener. In the confusion, his name quickly becomes Chauncey Gardiner.

When the President visits the industrialist, the recuperating Chance sits in on the meeting. The economy is slumping; America's blue-chip corporations are under stress; the stock market is crashing. Unexpectedly, Chance is asked for his advice:

Chance shrank. He felt the roots of his thoughts had been suddenly yanked out of their wet earth and thrust, tangled, into the unfriendly air. He stared at the carpet. Finally, he spoke: 'In a garden,' he said, 'growth has its season. There are spring and summer, but there are also fall and winter. And then spring and summer again. As long as the roots are not severed, all is well and all will be well.'

He slowly raises his eyes, and sees that the President seems quietly pleased - indeed, delighted - by his response.

'I must admit, Mr. Gardiner, that is one of the most refreshing and optimistic statements I've heard in a very, very long time. Many of us forget that nature and society are one. Like nature, our economic system remains, in the long run, stable and rational, and that's why we must not fear to be at its mercy.... We welcome the inevitable seasons of nature, yet we are upset by the seasons of our economy! How foolish of us.'

This story is not of my making. It is a brief summary of the early chapters of Jerzy Kosinski's novel Being There, which was made into a memorable film starring the late Peter Sellers. Like Chance, I am basically an optimist. I see our economy as healthy and stable. It is still marked by seasons of growth and seasons of decline, but its roots have remained strong. Despite the changing seasons, our economy has persisted in an upward course, rebounding from the blackest calamities.

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Figure 1.1 chronicles our economy's growth in the twentieth century. Even in the darkest days of the Great Depression, faith in the future has been rewarded. From 1929 to 1933, the nation's economic output declined by a cumulative 27 percent. Recovery followed, however, and our economy expanded by a cumulative 50 percent through the rest of the 1930s. From 1944 to 1947, when the economic infrastructure designed for the Second World War had to be adapted to the peacetime production of goods and services, the U.S. economy tumbled into a short but sharp period of contraction, with output shrinking by 13 percent. But we then entered a season of growth, and within four years had recovered all of the lost output. In the past five decades, our economy has evolved from a capital-intensive industrial economy, keenly sensitive to the rhythms of the business cycle, to an enormous service economy, less susceptible to extremes of boom and bust.


Long-term growth, at least in the United States, seems to have defined the course of economic events. Our real gross national product (GNP) has risen, on average, 3-1/2 percent annually during the twentieth century, and 2.9 percent annually in the half-century following the end of World War II - what might be called the modern economic era. We will inevitably continue to experience seasons of decline, but we can be confident that they will be succeeded by the reappearance of the long-term pattern of growth.