John Bogle interview ‘Stop Looking For The Next Apple — Buy Widely And Hold For Life’

[MBAustin]

Heard a bit of this on the radio today (I love Sirius/XM public radio!) and wanted to hear the rest:

Vanguard Founder John Bogle: ‘Stop Looking For The Next Apple — Buy Widely And Hold For Life’ | Here & Now

He's pretty feisty for someone half his age and is really annoyed at how the financial industry is making money for themselves at the expense of the rest of us. Here's a quote from the interview: "Bogle crunched the numbers for Here and Now’s Robin Young to show that active buying and selling of stocks leads to high costs and fees that over a lifetime eat up two thirds of what people earn from their investments. Bogle says the old advice, “buy and hold for life” is still best because the numbers show it works."

Has anyone read his new book “The Clash of the Cultures: Investment vs. Speculation,”?? I think I'll put in a request at the library for it.

 

[heirloom]

I didn't read it and don't have any desire to after listening to him on Closing Bell.

Not only does he want people to "invest" and not "trade", he thinks there should be a tax for every trade that is made. I think he is sounding more democratic than republican.

 

[haha]

Bogle says the old advice, “buy and hold for life” is still best because the numbers show it works."

I certainly do not disagree with Mr Bogle, after all how many people have a group dedicated to worshipping them, especially a group that call themselves "MR X Heads"? I guess Mr Pot many be the only other one.

Nevertheless, IMO Bogle gets beyond what it is possible for him or anyone else to know. His numbers, as interpreted by him, may show that "The numbers show it worked." They cannot show that it works, because we haven't lived that part yet.

Ha

 

[azphx1972]

Thanks for the link to the interview. I agree with Mr. Bogle's low cost investing philosophy; picking stocks has always seemed to be a matter of luck for the average investor like me, akin to gambling. I'm surprised by a couple of the comments on that page. I guess as someone who has an engineering background and is more math focused, I find low management fees & expense ratios to be more appealing than people who claim to have a better crystal ball than the rest of us.

 

[samclem]

. . . he thinks there should be a tax for every trade that is made. I think he is sounding more democratic than republican.

?? He's not a politician, and he's not putting himself out there as a political force. I'd argue that his life's work has, however, done more for "average Americans" than most politicians of any persuasion, and he did it without taxpayer funding.

Taxes and fees are used all the time to influence behavior. Partly this is done to make people and businesses actually pay the costs that they would otherwise foist on everyone else. If high-frequency trading is inflicting systemic costs on everyone else, then a tax could be a way of assuring those who engage in the trading pay the full cost for the risks they are imposing on everyone else. From what I've read, even a very small tax would significantly reduce the amount of this trading, as it depends on very thin margins. Such a tax would hardly be noticed by folks who trade "normal" amounts of shares at "normal" frequencies. It could even be written to not impact such people at all. I'm not arguing for such a tax, but I can see why even "conservative" folks might favor it, if it has a net positive influence on market confidence and, ultimately, the efficient allocation of investment capital. People won't go to either a vegetable market or a stock market if they fear being trampled in an unpredictable stampede.

 

[REWahoo]

...he thinks there should be a tax for every trade that is made.

To be accurate, he thinks there should be a tax on every short term/day trade, when a stock is held less than a month or two. He considers this more along the lines of gambling rather than investing and says all investors are paying a steep price for what this does to the market.

Whatever his party affiliation, he makes damn good sense.

 

[azphx1972]

Here's another interview with Mr. Bogle on CNBC this week (the video is embedded in the article):

Market Speculation Is a Bigger Threat Than "Cliff": Bogle

I don't have any problems with what he says. Speculation has caused a lot of volatility in the financial, oil, and real estate markets, and I'm for anything that discourages that kind of behavior and doesn't punish sound investors (aka Buy & Hold investors).

Even Warren Buffets backs such a tax:

Warren Buffett Backs a Transaction Tax :: The Future of Capitalism
Time for a financial transactions tax - CBS News

For the record, Mr. Bogle is a Republican but has voted for Democratic presidents in the past 3 elections:

http://www.nytimes.com/2012/08/12/b...-too-worried-to-rest.html?pagewanted=all&_r=0

 

[haha]

Here's another interview with Mr. Bogle on CNBC this week (the video is embedded in the article):

Market Speculation Is a Bigger Threat Than "Cliff": Bogle

I don't have any problems with what he says. Speculation has caused a lot of volatility in the financial, oil, and real estate markets, and I'm for anything that discourages that kind of behavior and doesn't punish sound investors (aka Buy & Hold investors).

What evidence do you summon to declare that buy and hold investors are "the only sound investors"? Or is this just your personal prejudice?

Maybe the most "sound" investors are short sellers. They usually are much better informed than buy and hold investors, and they certainly counterbalance to some small degree the blatant government and wall street manipulation to get and keep prices up.

Indexers have the world's easiest job. What they do has to be right, because they have declared it so.

But in reality, other research has shown that when stealth indexers, ie. those who index by de facto reality, are removed from the group classified as active managers, active managers overall and over time do better than even the cheapest indexers.

After all, a declared indexer that takes 0.1% has to do better than another actual but undeclared indexer that takes 1.4%, or any other % greater than the declared indexer.

Ha

 

[azphx1972]

What evidence do you summon to declare that buy and hold investors are "the only sound investors"? Or is this just your personal prejudice?

I don't mean that buy-and-hold are (the only) sound investors, but that speculators are not sound investors in the sense that they're just guessing at how the value of an asset might change based on some feeling or rumor, rather than empirical research.

 

[haha]

I don't mean that buy-and-hold are (the only) sound investors, but that speculators are not sound investors in the sense that they're just guessing at how the value of an asset might change based on some feeling or rumor, rather than empirical research.

This is a popular viewpoint, and one that is very handy for the securities industry since it supports the idea that stocks are always a buy.

But hedge fund managers, professional short sellers, and a handful of mutual fund managers do extremely careful empirical research. If they find a rumor that is not very well verified, they are more likely to fade it than follow it. Crystal balling is not at all what they do. In fact, it is what Bogle does, when he naively believes, or at least expects his customers and prospects to believe, that stock prices are generated by stationary processes. But in fact, you can only dip the same water once from a river or stream.

I am usually not this argumentative, and I apologize. But the best information is complete information, not sales propaganda.

Ha

 

[gerntz]

?? He's not a politician, and he's not putting himself out there as a political force. I'd argue that his life's work has, however, done more for "average Americans" than most politicians of any persuasion, and he did it without taxpayer funding.

Taxes and fees are used all the time to influence behavior. Partly this is done to make people and businesses actually pay the costs that they would otherwise foist on everyone else. If high-frequency trading is inflicting systemic costs on everyone else, then a tax could be a way of assuring those who engage in the trading pay the full cost for the risks they are imposing on everyone else. From what I've read, even a very small tax would significantly reduce the amount of this trading, as it depends on very thin margins. Such a tax would hardly be noticed by folks who trade "normal" amounts of shares at "normal" frequencies. It could even be written to not impact such people at all. I'm not arguing for such a tax, but I can see why even "conservative" folks might favor it, if it has a net positive influence on market confidence and, ultimately, the efficient allocation of investment capital. People won't go to either a vegetable market or a stock market if they fear being trampled in an unpredictable stampede.

One fine post. Thank you.

 

[azphx1972]

Ha, as mentioned earlier I'm coming from a viewpoint of an average investor, not the professionals you mentioned. I don't know any hedge fund managers, professional short sellers, or mutual fund managers, so I can't really comment on them. I do know amateur investors (family/friends/acquaintances) who made speculative investments in stocks/real estate/precious metals/etc. that have been burned. If people like that can be discouraged from making financial decisions based on pure speculation, then I think that is a positive thing.

 

[haha]

Ha, as mentioned earlier I'm coming from a viewpoint of an average investor, not the professionals you mentioned. I don't know any hedge fund managers, professional short sellers, or mutual fund managers, so I can't really comment on them. I do know amateur investors (family/friends/acquaintances) who made speculative investments in stocks/real estate/precious metals/etc. that have been burned. If people like that can be discouraged from making financial decisions based on pure speculation, then I think that is a positive thing.

I didn't realize that you were speaking from the POV of accident prone investors, but I understand your point now.

Ha

 

[REWahoo]

What evidence do you summon to declare that buy and hold investors are "the only sound investors"? Or is this just your personal prejudice?

Maybe the most "sound" investors are short sellers. They usually are much better informed than buy and hold investors, and they certainly counterbalance to some small degree the blatant government and wall street manipulation to get and keep prices up.

Indexers have the world's easiest job. What they do has to be right, because they have declared it so.

But in reality, other research has shown that when stealth indexers, ie. those who index by de facto reality, are removed from the group classified as active managers, active managers overall and over time do better than even the cheapest indexers.

After all, a declared indexer that takes 0.1% has to do better than another actual but undeclared indexer that takes 1.4%, or any other % greater than the declared indexer.

Ha

And to think you almost had me convinced you truly saw no purpose in having a Internet debate with those who had a different opinion...

 

[NW-Bound]

But in reality, other research has shown that when stealth indexers, ie. those who index by de facto reality, are removed from the group classified as active managers, active managers overall and over time do better than even the cheapest indexers.

I highlighted the above words. Another term I have seen used is "closet indexer".

Now, why do active MF managers do that? It's for the simple reason that they are benchmarked against the index, AND expected to beat it every quarter. That last expectation really causes an active manager to be hamstrung. He dares not deviate too far from the index.

Even if an MF manager has some reasons to bet for or against a certain portion of the market, if his timing is wrong and he is a bit too early, his perfornance will trail the market the next quarter. If his investors bail out and sell, the MF manager would have to sell his stocks low to raise cash to pay share redemption, and that would hurt his fund performance even more. Many hedge fund managers could do better than MF managers because they got the commitment of the investors to stay locked in for a period.

During the 2000 tech stock mania, many MF managers got leery of the crazy tech and internet stocks, and sold some to raise cash holdings. That caused their investors to get upset. I have read that irate fund holders called in to their MFs to tell that they expected their funds to be fully invested. "If I wanted to keep any in cash, I would not have sent it to you, and would have kept it at home", they said. Buy, buy, buy...

And then, leading to the housing bubble, many financial firms were making money over fist on subprime loans. Their stock prices kept rising, and if an MF did not have these bankers in its holding, it would trail the index. So, buy, buy, buy, until the housing bubble bursts, and the door is not wide enough for everybody to exit at once.

The above does not mean that it is not true that active funds in general trail the index. All I am trying to say is that active MF managers are not as dumb as some think they are, but are often forced to follow the flow.

If one wants active investing, he has to do it himself. An individual investor, if his timing in reading a certain trend is off, can afford to wait to be proven right. Of course he can be dead wrong and bankrupt himself if he remains stubborn. It ain't easy.

 

[heirloom]

He's not a politician, and he's not putting himself out there as a political force.

I'm not saying he is a politician....just referring to a line from the article.

Even Warren Buffets backs such a tax:

He also wants to raise taxes. After all he can deduct the huge contributions he makes so he can pay less taxes than his secretary.

Did you see this in ths WSJ??
Video - Opinion Journal: Warren Buffett's Tax Cliff -- James Freeman on Warren Buffett's stock buyback - WSJ.com

 

[george76]

Taxes and fees are used all the time to influence behavior. Partly this is done to make people and businesses actually pay the costs that they would otherwise foist on everyone else. If high-frequency trading is inflicting systemic costs on everyone else, then a tax could be a way of assuring those who engage in the trading pay the full cost for the risks they are imposing on everyone else. People won't go to either a vegetable market or a stock market if they fear being trampled in an unpredictable stampede.

Wouldn't it be more fair and simpler to just make this type of trading illegal, the same way we have made insider trading illegal?

If you are going to have a transaction tax, then everybody will have to pay. Thus, anybody with a 401k, IRA etc will have to pay this tax. It just doesn't seem right. And as for everyday folks not noticing it, I have seen proposals from 0.01% to 0.25%. People would notice a 0.25% tax. And once there is a tax in place, it can easily be raised. Especially if the government needs money.

By the way, we had a transaction tax in 1929. It didn't prevent the crash then. So, a transaction tax is not necessarily something that will solve everything. Instead, it can easily create new problems. Sweden tried a transaction tax and ended up eliminating it just a few years later when people simply moved their accounts abroad. And the people that moved their accounts were not high-frequency traders.

 

[travelover]

By the way, we had a transaction tax in 1929. It didn't prevent the crash then....

Yea, but I think using Morse code for flash trading slowed things down somewhat.

 

[NW-Bound]

Let's not forget that these high-frequency traders lose money too. Here's a firm that loses $440 million in a day!

Excerpt from this:

The latest occurred in early August in the United States, when problems with newly installed software caused the Knight Capital Group, a New Jersey broker that specializes in computer-driven trading, to lose $440 million. The problem led Knight’s computers to rapidly buy and sell millions of shares in more than 100 stocks for about 45 minutes after the markets opened on a Wednesday. Those trades pushed the price of many stocks up, and Knight lost money when it had to sell the shares back into the market at a lower price the next day.​

And if I am not a day trader, I am not a trading partner with these guys, so whether they win or lose, does it really affect me? Same as with people who go to Las Vegas, if I stay home and am far away from their poker table, do I care if someone wins or loses?

By the way, we had a transaction tax in 1929. It didn't prevent the crash then.

Look at the recent housing bubble. The lemmings went into "buy, buy, buy" mode, while wiser people could only stand back and watch.

If there were a way to short these McMansions, perhaps short sellers would have prevented the bubble from inflating in the first place.

 

[samclem]

And if I am not a day trader, I am not a trading partner with these guys, so whether they win or lose, does it really affect me?

It can. If you are a "regular" trader who uses limit orders in a very prudent way you can have your positions sold at low prices. And high-frequency traders also trade indexes, not just individual stocks--own any MFs that track indexes? One issue with the HF trading is the positive feedback loops that develop quickly as the algorithms used by the various houses feed on each other, with one inadvertent trade entry turning into a cascade of sales with no opportunity for human interaction before the damage is done.

But, from a more fundamental perspective, when tens of millions of dollars in share value is eliminated before any human could have understood what was happening and acted, the whole thing starts to look less like a market for the deliberate exchange of shares of corporate ownership and more like a casino. People don't want to put their money in a place like that. If people don't want to invest, it hurts your "buy and hold" share prices, right? And it hurts US industries.

I don't like the idea of a transaction tax, but I understand why people do. I'd prefer that the Stock Exchanges find effective ways to reduce the systemic impact of HF trading without government involvement--it would be a good way for, say, the NYSE to differentiate themselves from NASDAQ and gain more listings.

 

[NW-Bound]

...when tens of millions of dollars in share value is eliminated before any human could have understood what was happening and acted, the whole thing starts to look less like a market for the deliberate exchange of shares of corporate ownership and more like a casino. People don't want to put their money in a place like that. If people don't want to invest, it hurts your "buy and hold" share prices, right?...

Call me selfish, but if equity prices drop so that the dividend yield goes higher, I am OK with that (speaking as a guy with cash that can be deployed).

Seriously, I wonder how much money these guys as a group make. Whatever money they collectively take from the market is a drain on the capital system, and that's not good. If they make money from each other, then I do not care as much.

I have not been following, but it appears that WallSt firms have not been doing that well, what's with JP Morgan losing big bucks (in the news a few months ago), and bankers laying off a lot of their workers. Perhaps these HF trading schemes do not work as well as people fear.

 

[gomo]

Call me selfish, but if equity prices drop so that the dividend yield goes higher, I am OK with that (speaking as a guy with cash that can be deployed).


My thoughts exactly. I enjoy being able to lock in a higher yield. BTW just don't buy all at once, buy in small stages on the way down. No one can predict the bottom, or for that matter, the top.