March 8 (Bloomberg) -- It's hard to argue with the eloquent logic of John C. Bogle's latest ode to index funds, ``The Little Book of Common Sense Investing.'' Yet I feel compelled to try.

Bogle is the founder of index-fund pioneer Vanguard Group Inc. He's an evangelist for the belief that most investors should give up stock picking, shun actively managed funds and sock their savings into funds that track broad market indexes. He argues his case well, quantifying how rapacious fund fees devour nest eggs and turn ``the magic of compounding returns'' into ``the tyranny of compounding costs.''

Saint Jack, as he's sometimes called, has unfortunately become a zealot. He's so ``determined to change the very way that you think about investing,'' as he puts it, that he devotes one chapter to attacking a school of investors who beat the market by heeding the precepts of value investor Benjamin Graham.

Graham was the man who taught Warren Buffett to buy good companies at bargain prices, often when they've fallen from favor with the fickle market. Bogle's assault is worth parsing, and not just because value investing turned a kid from Omaha into the world's second-wealthiest man.

Indexers are sensible sheep; they follow the herd up vertiginous mountains and down steep canyons, earning what the market does, minus costs. Value investors are passive-aggressive; they ignore the mob and purchase unpopular companies.

Wrong Target

Bogle's ``Little Book'' is part of a series of investment primers published by John Wiley & Sons Inc. whose authors include value investors Joel Greenblatt of Gotham Capital and Christopher Browne of Tweedy Browne Co. Bogle should praise their method, not bury it. Yet he contends that most of us don't have the time (fair enough) or the smarts (thanks, bud) to do what Graham, Buffett, Greenblatt and Browne do.

He makes this argument in the most disturbing manner imaginable, by speculating about what Graham would have thought about indexing. That's impossible to ascertain, given that Graham died in 1976, the year the world's first mutual index fund (now called the Vanguard 500 Index Fund) was offered to the public.

Bogle is right in asserting that Graham was more than a value investor. Graham's classic text, ``The Intelligent Investor,'' promotes some of Bogle's favorite themes, including the need to behave defensively, diversify and form rational, long-term expectations.

Buffett Endorsement?

Indexers are defensive investors, Bogle argues, ergo Graham would have approved. Bogle says Buffett endorses this view: ``A low-cost index fund is the most sensible equity investment for the great majority of investors,'' Buffett is quoted as saying. ``My mentor, Ben Graham, took this position many years ago and everything I have seen convinces me of its truth.''

Again, fair enough. Then Bogle overplays his hand. Citing an interview published in the last year of Graham's life, Bogle quotes ``this remarkable concession'' from Graham:

``I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, but the situation has changed a great deal since then.''

The situation has changed even more in the 30 years since Graham made that remark. Gone are the days when value investors had to slog through the Standard & Poor's and Moody's manuals to find stocks selling below book value. These days, they can use computer search engines to ``screen the entire world to find investment candidates that fit our criteria,'' as Browne explains in his own ``Little Book.''

`Financial Croupiers'

What hasn't changed is the impressive record of value investors such as Buffett, who turned his talent for finding bargains into a $165 billion holding company, Berkshire Hathaway Inc.

Don't get me wrong. Bogle's ``Little Book'' offers much exemplary advice, and I cheer when he wags a meaty finger at money managers and other middlemen -- ``our financial croupiers'' -- who rake in high fees for meager returns.

Amen. I just wish Bogle would lay off a time-proven system of sensible investing and stick to his indexes.

``The Little Book of Common Sense Investing'' is from Wiley (216 pages, $19.95). Other books in the series include Greenblatt's ``The Little Book That Beats the Market'' (176 pages, $19.95) and Browne's ``The Little Book of Value Investing'' (180 pages, $19.95).

(James Pressley is an editor for Bloomberg News. The opinions expressed are his own.)

To contact the writer of this story: James Pressley in Brussels at jpressley@bloomberg.net.

Last Updated: March 8, 2007 03:45 EST