Author Topic: Jack Bogle: ‘Be realistic’  (Read 3691 times)

AdrianC

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Jack Bogle: ‘Be realistic’
« on: April 14, 2017, 07:29:10 AM »
Jack Bogle on how to invest in a time of Trump: ‘Be realistic’

http://www.marketwatch.com/story/jack-bogle-on-how-to-invest-in-a-time-of-trump-be-realistic-2017-04-13

“So we’re having a battle between the short run and the long run. The short run is bullish, the long run more bearish.”

Given that, Bogle doesn’t see the next few years bringing stock gains anything like the average 11% rise across his own career. Instead, investors should expect annual returns of around 4% for equities, he said. For bonds, returns could be even lower.

“We are not going to have Nirvana. We are going to have — I’m quite sure — profits and returns on stocks and bonds over the next decade. But they will be low,” he said.

“I don’t mean to be downbeat. I mean to be realistic,” he added.


Predictions are garbage, of course. Still, in investing, as in marriage, it's good to have realistic expectations.


Peony

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Re: Jack Bogle: ‘Be realistic’
« Reply #1 on: April 14, 2017, 10:24:35 AM »
Thanks for posting. I agree with him that wider wealth disparity and more racial division seem like they'll be bad for the economy, long-term. And who the hell knows what this administration will do? But, one foot in front of the other.

checkedoutat39

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Re: Jack Bogle: ‘Be realistic’
« Reply #2 on: April 14, 2017, 12:45:35 PM »
Bill Gross lectured us about the "new normal" in 2009. S&P has tripled since then. 16-17% total return including dividends.

MustacheAndaHalf

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Re: Jack Bogle: ‘Be realistic’
« Reply #3 on: April 14, 2017, 07:28:45 PM »
Bill Gross lectured us about the "new normal" in 2009. S&P has tripled since then. 16-17% total return including dividends.
Any reason you fail to mention the 2008 crisis?

Since 2008 the S&P 500 hasn't even doubled, because that data includes the 2008 financial crisis.  Including the recovery in your data, but not the crash, biases the numbers.

dixonge

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Re: Jack Bogle: ‘Be realistic’
« Reply #4 on: April 14, 2017, 07:54:16 PM »
Gross' comments were three months after the market bottomed out in 2009. He was predicting forward. 2008 isn't relevant to his prediction.

MustacheAndaHalf

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Re: Jack Bogle: ‘Be realistic’
« Reply #5 on: April 14, 2017, 09:29:38 PM »
Gross' comments were three months after the market bottomed out in 2009. He was predicting forward. 2008 isn't relevant to his prediction.
The earlier poster cited stock market performance in their post, which was the topic of my post.

checkedoutat39

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Re: Jack Bogle: ‘Be realistic’
« Reply #6 on: April 14, 2017, 10:54:00 PM »
Earliest source for Gross' comment is May 28, 2009. S&P close was at 906.83. So 7.9 years later we're 2329, annualized price return is 12.7%, plus 2% dividends takes you to 14.7% CAGR.

OK, I forgot exactly when he said it so was a couple points high but my point stands.

If it's not clear, the patron saint of "just index and don't worry about people's opinions of the market" is giving us an opinion of the market.

Monkey Uncle

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Re: Jack Bogle: ‘Be realistic’
« Reply #7 on: April 15, 2017, 04:26:37 AM »
I have a lot of respect for Jack Bogle, but his crystal ball is no clearer than anyone else's.  The article doesn't provide any data or express any clear rationale to support Bogle's "feeling" that returns are going to be anemic going forward.  And I'm quite surprised to hear Bogle saying (or at least the article attributing this to him, without quotation marks):

Quote
The Vanguard veteran said investors should always be prepared for the market to fall by as much as 20% to 30% — or even more. Right now, U.S. stocks SPX, -0.68% are up nearly 15% over the past 12 months and close to record highs. Given that they’re fully valued, a slump could come this year or next, Bogle suggests.
That sounds like something straight out of the Red Dow thread.

Bottom line for me: more meaningless chatter to be ignored.

JAYSLOL

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Re: Jack Bogle: ‘Be realistic’
« Reply #8 on: April 15, 2017, 07:42:59 AM »
Even if his predictions are true (corrections I don't doubt, but 4% going forward I do), people have a need to invest in something, and the resulting returns somewhere are going to increase in response.  US Stock market is flat? People will pour money into international funds, the bond market, real estate market, precious metals, or whatever else.  There will be money to be made somewhere.  I'm not worried. 

AdrianC

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Re: Jack Bogle: ‘Be realistic’
« Reply #9 on: April 16, 2017, 08:06:56 AM »
I have a lot of respect for Jack Bogle, but his crystal ball is no clearer than anyone else's.  The article doesn't provide any data or express any clear rationale to support Bogle's "feeling" that returns are going to be anemic going forward.  And I'm quite surprised to hear Bogle saying (or at least the article attributing this to him, without quotation marks):

Quote
The Vanguard veteran said investors should always be prepared for the market to fall by as much as 20% to 30% — or even more. Right now, U.S. stocks SPX, -0.68% are up nearly 15% over the past 12 months and close to record highs. Given that they’re fully valued, a slump could come this year or next, Bogle suggests.
That sounds like something straight out of the Red Dow thread.

Bottom line for me: more meaningless chatter to be ignored.

Bogle has laid out his thinking previously and it's been posted here. Iirc it's the Gordon equation:

Long term Return = yield + growth + change in valuation.

Yield is about 2% (assume this rises with inflation)
Real Growth is about 2% (unless you can make a good case for higher growth)

http://www.multpl.com/us-real-gdp-growth-rate

Assume valuation remains at a "permanently high plateau".

Long term Return = 4% real.

That's fine. Jack would say: stay the course, keep investing, but be realistic.

Huge returns of recent memory were partly due to valuation change. That can't go on forever.


NathanDrake

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Re: Jack Bogle: ‘Be realistic’
« Reply #10 on: April 16, 2017, 01:18:56 PM »
Sure, be realistic if you're ONLY investing in US Stocks...

Global stocks look very undervalued. Which is strange since John Bogle isn't a fan. Using his gordon equation, expected returns for international are more in line with the historical norm or better.

Monkey Uncle

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Re: Jack Bogle: ‘Be realistic’
« Reply #11 on: April 16, 2017, 01:43:34 PM »
I have a lot of respect for Jack Bogle, but his crystal ball is no clearer than anyone else's.  The article doesn't provide any data or express any clear rationale to support Bogle's "feeling" that returns are going to be anemic going forward.  And I'm quite surprised to hear Bogle saying (or at least the article attributing this to him, without quotation marks):

Quote
The Vanguard veteran said investors should always be prepared for the market to fall by as much as 20% to 30% — or even more. Right now, U.S. stocks SPX, -0.68% are up nearly 15% over the past 12 months and close to record highs. Given that they’re fully valued, a slump could come this year or next, Bogle suggests.
That sounds like something straight out of the Red Dow thread.

Bottom line for me: more meaningless chatter to be ignored.

Bogle has laid out his thinking previously and it's been posted here. Iirc it's the Gordon equation:

Long term Return = yield + growth + change in valuation.

Yield is about 2% (assume this rises with inflation)
Real Growth is about 2% (unless you can make a good case for higher growth)

http://www.multpl.com/us-real-gdp-growth-rate

Assume valuation remains at a "permanently high plateau".

Long term Return = 4% real.

That's fine. Jack would say: stay the course, keep investing, but be realistic.

Huge returns of recent memory were partly due to valuation change. That can't go on forever.

That would make sense if the article had actually said that (might not happen that way, because there are a million things that could affect those three components, but at least it's a rational argument).  I'll give Bogle the benefit of the doubt and blame the journalist for not properly articulating the argument.