Bogle "Market Expectations" interview with Morningstar

[audreyh1]

2017 interview with Morningstar, an annual discussion of his expectations: Bogle's 'Reasonable Expectations' for Market Returns

He thinks what is reasonable to expect from now is:

• 4% nominal for equities which he computes from 4% growth, 2% divs, -2% valuations.
• 3% nominal for 50% 10 year Treasury + 50% corporate bond index.
• 1.5% for inflation — not clear if that's today's inflation or expected inflation.

So you can plug these into your AA and model your nominal and real inflation.

50/50 would be 3.5% nominal and 2% real. I would be more inclined to use 2% for inflation, so 1.5% real.

 

[OldShooter]

Here's another recent one: https://www.cnbc.com/2017/11/20/jack-bogles-5-bold-investment-predictions-for-2018-and-beyond.html

One of life's little mysteries for me is why Bogle and Buffet see no attraction in investing outside the US. I wonder if they do not travel and just have not seen the world. Really, one only has to go to India and China to see the immense potential. And, with the US backing away from international trade, international commerce is going to have a long term party to which we won't be invited. Among other things, this party has the potential to substantially diminish the dollar's role as a reserve currency, leading to a decline in value and consequent skyrocketing of overseas investments.

In Africa Chinese investments are everywhere. Mass transit and superhighways in Ethiopia, for example. The top three beer companies, all overseas, control 40% of the world market and they have really just started.

 

[USGrant1962]

I like the simple math that Jack uses to estimate returns. But, I've never gotten my head around why Bogle uses Dividend Yield+Earnings Growth in his estimate. Dividends are a component of earnings that a company may or may not pay out. Shouldn't it be Earnings Yield+Earnings Growth?

That would be 1/PE or 1/CAPE plus a growth estimate. So perhaps, following his logic, nominal returns on equities would be more like 5%.

Also, keep in mind that this is a 10-year estimate. It speaks to sequence of returns risk, but be careful about plugging this into a 30- or 40-year Monte Carlo.

 

[daylatedollarshort]

He was predicting nominal to zero real returns in 2015 for the coming decade:

“When you factor in the costs associated with index funds, inflation, and taxes, you are actually looking at real returns of nominal to zero,” Bogle explained."

https://www.benzinga.com/analyst-ra...anguard-founder-john-bogle-projects-nominal-t

 

[gayl]

So he's a 'day late, dollar short' or just really simplistic?

 

[joylesshusband]

One of life's little mysteries for me is why Bogle and Buffet see no attraction in investing outside the US. I wonder if they do not travel and just have not seen the world. Really, one only has to go to India and China to see the immense potential.

Not sure about Bogle, but suspect that Buffet and his aides have a distrust of the financial reporting practices and accuracy of Asian and African enterprises, and for a good reason, which makes any diligent analysis prior to investing impossible; hence they shy away.

 

[daylatedollarshort]

Here's another recent one: https://www.cnbc.com/2017/11/20/jack-bogles-5-bold-investment-predictions-for-2018-and-beyond.html

One of life's little mysteries for me is why Bogle and Buffet see no attraction in investing outside the US. I wonder if they do not travel and just have not seen the world. Really, one only has to go to India and China to see the immense potential. And, with the US backing away from international trade, international commerce is going to have a long term party to which we won't be invited. Among other things, this party has the potential to substantially diminish the dollar's role as a reserve currency, leading to a decline in value and consequent skyrocketing of overseas investments.

In Africa Chinese investments are everywhere. Mass transit and superhighways in Ethiopia, for example. The top three beer companies, all overseas, control 40% of the world market and they have really just started.

+1. International equities seem like a good way to further diversify equity risk.

 

[Nightcap]

With all respect to Mr. Bogle, his crystal ball is no better than mine. He said the same thing last year, and in 2015, and 2014, and 2013 ...

 

[CaliforniaMan]

With all respect to Mr. Bogle, his crystal ball is no better than mine. He said the same thing last year, and in 2015, and 2014, and 2013 ...

+1
As I have mentioned before, I think we often expect too much from our heroes. Jack Bogle has done a lot for us all by driving down mutual fund fees, and promoting indexed investing, but why we would expect him to be able to predict future returns is something else again. I have a lot of admiration for Mr. Bogle, but I would not be looking to him to be oracle of the future.

 

[Lsbcal]

...
50/50 would be 3.5% nominal and 2% real. I would be more inclined to use 2% for inflation, so 1.5% real.

And one assumption in this is that you invest as a buy-hold investor. The equity market returns are lumpy, not smooth. Perhaps a good reason for some sensible "tactical asset allocation" e.g. market timing?

Oops, I said it.

 

[foxfirev5]

I would not have a problem if Bogles forecast is correct. Run away inflation and negative real returns are what I fear. Remember 1973 and the WIN buttons (Whip Inflation Now)?

 

[audreyh1]

And one assumption in this is that you invest as a buy-hold investor. The equity market returns are lumpy, not smooth. Perhaps a good reason for some sensible "tactical asset allocation" e.g. market timing?

Oops, I said it.

It's assuming you rebalance. Bogle isn't that big a fan of rebalancing. He really means buy and hold.

 

[street]

It's assuming you rebalance. Bogle isn't that big a fan of rebalancing. He really means buy and hold.

Thanks for the article and I'm a believer in his method. Buy and Hold.

 

[RenoJay]

Certainly you can question Bogle’s crystal ball, but I just saw an article where Perm-Bull Jeremy Siegel said the stock market is approaching a top. I’ve never heard a bearish quip out of Siegel’s mouth before.

 

[Lsbcal]

Certainly you can question Bogle’s crystal ball, but I just saw an article where Perm-Bull Jeremy Siegel said the stock market is approaching a top. I’ve never heard a bearish quip out of Siegel’s mouth before.

Probably you are referring to this: https://www.cnbc.com/2017/11/20/longtime-bull-jeremy-siegel-says-market-near-to-a-top.html

 

[RenoJay]

Probably you are referring to this: https://www.cnbc.com/2017/11/20/longtime-bull-jeremy-siegel-says-market-near-to-a-top.html

Yes, thanks. I made my post from a phone and didn't have ready access to the article. In any case, Siegel is almost always very bullish so I was shocked at his viewpoint.

 

[NW-Bound]

Anyone who has been here a while knows that I am no Boglehead, and do not care to frequent their Web site.

However, I do pay attention to what Mr. Bogle has to say. I think he is talking about the longer term investment return, not what is going to happen next month or next year, or even the year after next. I think he and some other pundits are using the macroeconomic aspects to see the average market return for the next decade or two.

Does anyone here expect the S&P to keep rising 20%/yr like it has in the past 12 months? When the GDP grows only 3.5%/yr? You must also believe in the story of Jack and the beanstalk.

 

[audreyh1]

Yeah, I think he's talking about the next 10 years.

 

[RunningBum]

+1
As I have mentioned before, I think we often expect too much from our heroes. Jack Bogle has done a lot for us all by driving down mutual fund fees, and promoting indexed investing, but why we would expect him to be able to predict future returns is something else again. I have a lot of admiration for Mr. Bogle, but I would not be looking to him to be oracle of the future.

That's kind of my thought, though I've never really studied Bogle. I think he's a smart guy, but since his focus is low cost and indexing, is there really any proof he's an expert on future economic trends? It seems kind of like asking Sam Walton (when he was alive, of course), another really smart guy, on fashion trends for the next 5 years.

 

[dallas27]

Anyone who has been here a while knows that I am no Boglehead, and do not care to frequent their Web site.

However, I do pay attention to what Mr. Bogle has to say. I think he is talking about the longer term investment return, not what is going to happen next month or next year, or even the year after next. I think he and some other pundits are using the macroeconomic aspects to see the average market return for the next decade or two.

Does anyone here expect the S&P to keep rising 20%/yr like it has in the past 12 months? When the GDP grows only 3.5%/yr? You must also believe in the story of Jack and the beanstalk.

Well, almost all the SP growth the last year is explained by a falling dollar and foreign markets doing well. 50% of SP revenue is foreign, so although the US is flat, they have done well.

Consequently, if the US continues to stagnate and the rest of the world kicks economic butt, The SP will do very well while the GDP stagnates.

 

[Scuba]

He was predicting nominal to zero real returns in 2015 for the coming decade:

“When you factor in the costs associated with index funds, inflation, and taxes, you are actually looking at real returns of nominal to zero,” Bogle explained."

https://www.benzinga.com/analyst-ra...anguard-founder-john-bogle-projects-nominal-t

Thanks. I was wondering about that. Just proves that even really smart and well informed people have no idea how the market will perform.

 

[Scuba]

Yes, thanks. I made my post from a phone and didn't have ready access to the article. In any case, Siegel is almost always very bullish so I was shocked at his viewpoint.

As long as there are these dire predictions, I'm not too worried. The time to worry is when everyone thinks you can't lose and it's time to buy.

 

[daylatedollarshort]

Thanks. I was wondering about that. Just proves that even really smart and well informed people have no idea how the market will perform.

Most of these predictions remind me of a joke on The Oroville. A human crew member said "I'm just talking out of my a** here" and an alien crew member who took her literally said "then please enunciate clearly."

The link below has 10 year Treasury Rates vs Historical Economic Forecasts. The forecasters always thought rates were going up, when nominal and real rates in fact have been declining for decades. Not only were their forecasts completely wrong, they failed to take into account the big picture trend, which seems pretty basic when graphed:

https://obamawhitehouse.archives.gov/blog/2015/07/14/decline-long-term-interest-rates

"The decline has come largely as a surprise. Financial markets and professional forecasters alike consistently failed to predict the secular shift, focusing too much on cyclical factors."

 

[Totoro]

Most of these predictions remind me of a joke on The Oroville.

The Orville, right?

Highly recommended for some sci-fi not so serious minded people. https://www.fox.com/the-orville/

 

[NW-Bound]

Well, almost all the SP growth the last year is explained by a falling dollar and foreign markets doing well. 50% of SP revenue is foreign, so although the US is flat, they have done well.

Consequently, if the US continues to stagnate and the rest of the world kicks economic butt, The SP will do very well while the GDP stagnates.

Whatever factors that propel the S&P to 20% rise in the last 12 months (and there's never a concensus on what those factors are), do we expect those to continue ad infinitum to drive the S&P 20%/year for decades to come?

I am reminded of that time in late 1999, when I got past the 7-figure mark and was well into it actually, I sat down to figure out when I would reach the multimillionaire status with that growth rate. Heh heh heh...

Some cataclysmic events happened to derail that projection, but even without them, one could not expect the tech boom to "boom" again and again. The Internet is great, but it could be invented only once. Need another major technical advance, and it does not come every year.

So, it took quite a few more years before I reached that mark, particularly as I lost 44% from the top in 2000/3/24 to 2002/10/09 (the NASDAQ lost 78% in the same period), and had to regain the millionaire status first. Heh heh heh...

PS. I kept a diary where I log the total value of my stash to the dollar everyday. It's so I can look back to see where I was, and try to remember what I was thinking at that point.