Bogle's 10-Year Forecast

[NW-Bound]

I think Bogle runs into trouble, even among his followers, when making a forecast because it seems to contradict what he is well known for saying: "You cannot time the market".

There are many ways to time the market, but the one that makes the most sense to me is to use a metric like P/E. But Bogle seemed to say that one could not even do that. What did Bogle say in the heat of the 2000 dot-com bubble? Does anyone recall if he said it was OK to sell? However, I remember that in the recent crash of 2008-2009, Bogle was not advocating buying either.

Bogle is not really my hero. I do not consider anyone to be a saint, but will reflect on each statement they say to see if I would agree.

 

[photoguy]

I wonder if Bogle has been wrong a lot of times in the past? Just curious...

That's a good question. I was wondering how well his forecasts of expected returns have been doing since he's been making them for some time. A brief search turned up:

http://johncbogle.com/wordpress/wp-content/uploads/2015/10/Bogleheads-14-2015.pdf

See slide 19

Basically he claims an R^2 of 0.65 on 10 year returns. This is actually much better forecast than I would have guessed since it's significantly better than PE10 (going by my memory PE10 has R^2 of somewhere around 0.4 to 0.5).

I don't know how exactly this was computed and I'm suspicious there might be a methodological error as his R^2 is so good.

However, there's a lot of data/models/other academics supporting his position that returns are going to be significantly lower than historical going forward.

 

[daylatedollarshort]

There is a summary version of the Triumph of the Optimists online. Since 100 years of U.S. stock market history may not be large enough dataset to make statistically valid predictions for the next 50 years, I think this is an interesting read as they looked at stocks historically and across 16 countries:

http://www.econ.uniurb.it/materiale/2781_triumph_of_the_optimists.pdf

I doubt any financial pundit 20 years ago predicted the economy we have today, so for me it is probably more helpful to look at all possible outcomes and probabilities, instead of one person's predictions. We have a spreadsheet with inflation and returns as variables and we just plug in all sorts of different scenarios and make sure we are set no matter what happens.

 

[NW-Bound]

...We have a spreadsheet with inflation and returns as variables and we just plug in all sorts of different scenarios and make sure we are set no matter what happens.

I never have any spreadsheet, and just try to keep my WR at 3.5% and off a portfolio that's reasonably balanced.

In the worst case, I often say that I have that modest class C RV that I can park on New Mexico state land for a few hundred bucks per year. It has to be really bad if it comes down to that, because with SS alone we should be able to keep our stick homes.

Do you think my above doomsday scenario bad enough? And even then, I can still enjoy life like so many boondocking RV'ers whose blogs I have read.

So, me worry?

 

[tinybro]

Peer to Peer Lending as an alternative

I think Jack Bogle gets a pass becuase he started Vanguard and he is consistent in his investing rationale. He is a pretty smart guy, not sure he's any better at it than the next "Master of the Universe".

I agree with others, plan for the worst and be happy with a better outcome.

I actually think in 10 years, once the awful Boomers (of which I'm one) move to the sidelines, things will be much, much better.

The economy will shift away from crazy consumption to some other calmer, kinder more sustainable place....A discussion for another day.

Shifting the conversation slightly and hopefully not being a hog, has anyone tried peer to peer (P2P) lending (Lending Tree/ Prosper)?

I dropped $10K into Lending Tree 15 months ago and have been very pleased (8.7% net return).

Has anyone partnered with these entities long term & could they indicate results.

I don't like that it's quite illiquid (you can sorta trade notes). I haven't cared near term (reinvesting).

I also agree that the market is a casino, if P2P lending has legs, I might stick more $$ there.

Not meant to be a shill for P2P lending & if I'm off topic, my apologies.

Thanks

 

[NW-Bound]

P2P is way off topic, so you can search the forum for "P2P" and "Lending Tree" to see the many threads on it in the past. I recall one whose discussions did not end well.

 

[daylatedollarshort]

And even then, I can still enjoy life like so many boondocking RV'ers whose blogs I have read.

Like the old saying - Freedom is low overhead. Our plan B is to downsize to a condo in a retirement village. Plan C is solar cabin guy -

 

[NW-Bound]

All right! I think happiness is mostly a state of mind, and that once one has a full stomach and is out of the cold, the rest is not essential.

That's a good question. I was wondering how well his forecasts of expected returns have been doing since he's been making them for some time. A brief search turned up:

http://johncbogle.com/wordpress/wp-content/uploads/2015/10/Bogleheads-14-2015.pdf

See slide 19

Basically he claims an R^2 of 0.65 on 10 year returns. This is actually much better forecast than I would have guessed since it's significantly better than PE10 (going by my memory PE10 has R^2 of somewhere around 0.4 to 0.5)...

I do not understand this data. Has Bogle been making annual predictions and is now scoring the result? I believe he does not make short-term predictions, the same way Buffett does not.

Anyway, I think Bogle is trying to reduce expectations because many pension funds are still using high returns in their planning. Now, that is going to hurt, compared to individuals like us who can manage to cut back our spending if it does not work out as well as we thought.

 

[photoguy]

For as long as I can remember, Bogle has been estimating the long term returns of stocks as the sum of dividend yield + earnings growth + change in PE ratio (may be positive or negative). I'd assume that since the slide deck is his own, that he considers 10 years to be a reasonable long-term holding period (instead of short term).

But I have no idea of whether his chart is based on the prediction he made in those past years (i.e. what he actually said in 1990 etc.) or if he just took his formula and applied it to historical data. Also it's unclear what he used for the change in PE ratio (speculative return as he calls it). I think I've seen him plug in various values which vary from a partial to complete reversion to the historical mean.

Perhaps somebody who reads his books / attended his talks might know the answer here.

 

[samclem]

Bogle is not really my hero.

Well, we can debate about definitions, but that guy has made great contributions to the happiness and financial security an awful lot of people. And he's had a big hand in changing the culture of an entire industry in a way that benefits a lot of folks, at the detriment to his own wealth. I don't know what the popular cutoff line for "hero" is, but there seem to be a lot of "heroes" in the public media who have contributed less to the well being of others than Jack Bogle.

 

[travelover]

Well, we can debate about definitions, but that guy has made great contributions to the happiness and financial security an awful lot of people. And he's had a big hand in changing the culture of an entire industry in a way that benefits a lot of folks, at the detriment to his own wealth. I don't know what the popular cutoff line for "hero" is, but there seem to be a lot of "heroes" in the public media who have contributed less to the well being of others than Jack Bogle.

+1 Bogle has saved average investors, like me, billions.

But Kim Kardashian is my real hero.

 

[34rlsa]

If not then...then the next 20 months. Or maybe in the next five years or....

Please don't misunderstand me... I'm not a Dent supporter. He is a classic fear monger. What I should have included in my comment...

If his research is factual and true... he makes a good argument

And you are correct... whether its the next 20 months or the next this the next that...

Dent will continue to cry wolf and if there is another major correction at any time in the future he will claim he predicted it with exacting accuracy.

 

[target2019]

+1 Bogle has saved average investors, like me, billions.

But Kim Kardashian is my real hero.

Heroine. Lol. You've managed to bring together two icons in a meaningful way.

 

[Danmar]

Have no idea whether he is right or wrong but what strikes me is how we are always searching for the oracle, the wizard, the old wise one with the answers. Even though he has built his company on the premise that no one can predict the future, which company, which sector, etc. will do best, we still ask him to predict the future. Just seems a little strange to me.

Now there is no argument from me that we should prepare expecting the worst, and maybe be pleasantly surprised when things turn out better than expected. His arguments make sense, but one could equally make the argument with so much of the world exiting poverty and becoming consumers, and with unprecedented productivity potential (think robotic cars, manufacturing automation) and with all the potential of new discoveries (Recombinant DNA, medical advances, etc.) that we equally have the potential for profound growth.

I have great respect for Bogel and what he has done almost single-handedly to improve the investment options for normal people, but sometimes I think, we expect a little too much from our heroes.

Brilliant post. Just one more drop in a sea of forecasts. An opinion for every bias.

 

[purplesky]

Some of this both in the US and Europe has been caused by outsourcing production to cheaper countries like China and India. Now I'm reading about production costs in China going up quite a bit thanks to higher wages and other issues. And an old colleague of mine spoke of increasing cost of outsourcing to India.

So what would it take for companies to start moving factories back home? How far are we from this scenario? It would create an increased demand for labourers in US and Europe. Eventually wages would go up and then interest rates?

But like many of you say - nobody knows.

Some manufacturing has moved back to the United States in the South but workers are not really getting a true living wage.

H-1B guest visa tech workers are another fun issue for outsourced American tech workers. I have about 200 H-1B tech workers in my neighboring communities and these foreigners have about 3 families living in 500k to 800k Mcmansions. The home builder told me that one group from India wanted to reserve and buy one whole phase of his new subdivision.

It would appear that Companies are doing anything and everything to keep wages very low. You can't beat the big money.

 

[NW-Bound]

Well, we can debate about definitions, but that guy has made great contributions to the happiness and financial security an awful lot of people. And he's had a big hand in changing the culture of an entire industry in a way that benefits a lot of folks, at the detriment to his own wealth. I don't know what the popular cutoff line for "hero" is, but there seem to be a lot of "heroes" in the public media who have contributed less to the well being of others than Jack Bogle.

Bogle certainly has done a great service for small individual investors, and if he were a Brit national would have been knighted long ago.

A definition of "hero": a person or character who, in the face of danger and adversity or from a position of weakness, displays courage, bravery or self-sacrifice—that is, heroism—for some greater good; a man or woman of distinguished courage or ability, admired for his or her brave deeds and noble qualities.

There are many individuals whose works in science or medicine have greatly helped humanity. Same as Bogle, they are well compensated for their work, both by financial rewards and gratifying accolades. These great contributors do not act purely out of altruism. I do not think that they are heroes, let alone various sport players that are revered by the media.

I guess I may like Bogle more if his position were less rigid; I have the impression from his ardent followers that they claim the only road to financial nirvana is via indexing. Being a skeptic, I do not believe in anything absolute in life.

And about sainthood, even the Catholic Church starts the canonization only after a person has died. A humble person would not let his followers call him a saint.

 

[ERD50]

...
It would appear that Companies are doing anything and everything to keep wages very low. ...

Yep, Companies try to get the most value for their dollar - just like you and me!

You can't beat the big money.

Well, I can recall when there was high demand for tech skills, people were 'job hopping' for 20% increases, companies would train anyone who showed some proficiency with computers. So I would not say "you can't beat big money", I'd say you can't beat supply and demand.

And sometimes, the 'big-money' unions do influence supply and demand.

-ERD50

 

[audreyh1]

Please don't misunderstand me... I'm not a Dent supporter. He is a classic fear monger. What I should have included in my comment...

If his research is factual and true... he makes a good argument

And you are correct... whether its the next 20 months or the next this the next that...

Dent will continue to cry wolf and if there is another major correction at any time in the future he will claim he predicted it with exacting accuracy.

He has been spectacularly wrong in the past.....

 

[daylatedollarshort]

These great contributors do not act purely out of altruism.

I think that is one of Zvi Bodie's points on why we rarely hear individual iBonds or TIPS mentioned by mutual fund representatives. They are not going to advocate anything they do not sell and make money from. I always thought of John Bogle as a high level salesman. There is nothing wrong with salespeople of course, but their job is to sell their company's products, not give customers all the relevant facts or tell customers when a competitor product may be a better fit for their needs.

 

[dallas27]

Schroedenger's cat.

{the writer of this post does not support animal cruelty to test market hypothesis'}

Sent from my iPhone using Early Retirement Forum

 

[purplesky]

Yep, Companies try to get the most value for their dollar - just like you and me!



Well, I can recall when there was high demand for tech skills, people were 'job hopping' for 20% increases, companies would train anyone who showed some proficiency with computers. So I would not say "you can't beat big money", I'd say you can't beat supply and demand.

And sometimes, the 'big-money' unions do influence supply and demand.

-ERD50

So you are personally spending billions to influence the flow of H-1B visa tech workers to outsource American workers? WOW! Thats out of my reach.

I guess with so much cheap labor willing and able to come to America using the H-1B visas, supply will never be an issue. Thats big money controlling the supply and demand.

 

[Olbidness]

I have great respect for Jack Bogle but I'm not sure I'll postpone my retirement plans based on his gloomy stock return forecast. The level in my BS bucket is as much a driver as are the dollars in the retirement accounts. I admit I wish this was Jim Cramer's opinion we were discussing, I could use a good laugh.

 

[petershk]

The thing is... In this interview he's being ASKED his OPINION on what will happen which he gives with lots of caveats .

Separately he says "but you have to take what the market gives" so he certainly doenst suggest trying to time anything from what I can see

Sent from my HTC One_M8 using Early Retirement Forum mobile app

 

[retiredinnyc]

I don't know if your early retired or not but if you are you sure looked out much further than 10 years with your prediction

 

[retiredinnyc]

And you don't do forecasts about your retirement?

I am of the mind that the real dumb person is the one who is making a 10 year forecast. A bit ashamed of Bogle here. Maybe early onset something?

?