“Buy everything and hold it forever”
He is a man whom needs no introduction. What he has done can be modestly regarded as noble, the man who made it possible for the average person to profit off the rise in the stock market with no knowledge besides faith in the ever expanding wealth of our nation. This article is to remember John C. Bogle founder of The Vanguard Group and maybe shed a little light into how he would handle this drop we’re encountering amidst uncertainty. And the truth is, it’s really rather soothing.
The following is a video from a meeting in 2001 at the National Press Club.
Video Courtesy of The Financial Review
Last month on Louis Rukiezer you summed up your investment philosophy as buy everything and hold it forever. Do you still subscribe to that in light of what the market has been doing with or would you unload some things now?
No, you know my theory is not subject to the ups and downs or the unpredictable peregrinations of the stock market. It’s painful to do but I think the idea of owning the stock market is the best approach to equity investing and perhaps I didn’t make that thoroughly clear there I have never felt that equities should be the only portion of an investor long term program, I myself am at 50% stocks 50% bonds for example. I was brought up when I came into this business 1951 with the Wellington fund which was and is and I hope always will be a conservative it’s fund but I think the idea of buying and holding forever not trying to make adjustments requires that you’ve gotten it right in the first place so you can only you can only hold tight if you bought right if you and that is to say have an asset allocation but something to do with how many years you have to accumulate money how much resources you have at stake how much income you need and how much courage you have to write out the peregrinations of the market so you got to take all that into account from that simple statement.
You are The Godfather of index funds aimed at the average investor and this questionnaire points out that actively managed funds have outperformed to into index over the last two years, is there a case then for Market timing? and what should you do with the index funds are losing money?
Well as my friend Jim Glassman quoted me in his op-ed piece in the Wall Street Journal yesterday a quote I don’t remember I made but it said I don’t know anybody who’s ever been successful in timing the market, I don’t even know anybody who knows anybody who was ever been successful in timing the market. These last two years the S&P indexes outperformed roughly half of the funds a little bit less last year, about half this year (2001). I don’t regard that as significant long-term sign at all, first of all the number of funds is not a relevant statistic we use it because it’s convenient but if you’ve got a few little funds in there that do well they count just as much as a few big funds, the reality is no matter what the statistics tell you indexing always wins, I say that because index is delivering a market return and all those investors out there are by definition getting the market return themselves less cost so statistics don’t capture an index advantage it will be corrected next year or the next year and by the way if you look at that even with the last 15 years counting those last two years and the index has outperformed more than 75% of all active managers.
Someone out there will want to take careful notes here because we’re going to go from the general to the very specific for the past 15 months I’ve been investing $1,200 per month in Schwab mutual funds a he or she doesn’t say which Schwab funds should I continue or is there a better place for that money these days.
(Laughter breaks out amongst attendees and Mr. Bogle himself)
Far be it from me to get in even more trouble with Mr Schwab that i’m in already but leaving aside the infinite variety of a stock that mutual funds can be buying through any kind of a mutual fund Marketplace like at Charles Schwab the answer is yes continue to invest. I told the young people in the office who are really petrified by this market decline that it’s the best thing that ever happened and if you think about it logically of course it’s wonderful the young man I was talking to yesterday is probably 25 or 26 years old and he’s got the rest of his life to invest and let’s suppose the markets end up at Jim Glassman’s 36,000 by the time you retire, do you want to be investing your money when the Dow is 35,000 or invest it all when it’s 9000? You want a long time to invest at low prices and it’s a frightening Advantage for those of us who have some money at work in the market today to think of this is a blessing but it is a blessing because in the long run investing depends on accumulating money at sound prices and not inflated prices like we have. I also think the general economy in the financial markets are well-served by a return to reality, when you leave reality and depart from the laws of gravity and there’s nothing but bad things that can happen and the higher you fly the more you fall, we flew quite high enough and I think it’s a blessing may be a blessing in heavy disguise blessing we come back a little bit toward the ground.
Speaking of coming back toward the ground this investor stocks are really down Doctor Koop, Just For Feet, Quickly Pharmaceuticals, Cisco, Lucent Technologies should I sell?
I haven’t heard a list like that. He even makes those tech funds I told you about seem like heroes. I don’t have any comment on those individual stocks, they are hugely depressed. I think Dr. Koop I read the other day is in danger of being delisted I think it’s sold up in the mid-30s $30 is and now is something like $0.19 and it wasn’t a good turn and it’s very painful for people for speculators or people agreed overwhelm their good judgment to get hurt but will they bounce back? I guess the answer to that group of stocks without knowing much about the quickly’s pharmaceutical and being very nervous about Doctor Koop but companies like Lucent will come back in time I don’t think so much question about that but to own a handful of individual stocks I don’t think of sound investing and of obviously to jump on the bandwagon at a silly time is well, I feel sorry for the investor but I don’t know how to help him now.
Disclaimer: This is not financial or investment advice and should never be taken as such.