The Read of the Day: “Get out of the Casino”
Via Jack Bogle on Marketwatch:
“Get out of the casino, own Corporate America and hold it forever,” Bogle said during “The Big Interview” on MoneyLife with Chuck Jaffe. “No trading, no nothing. You don’t need to trade; you don’t need to worry about the market. To protect yourself from the bumps the stock market will scare you with – even though it shouldn’t scare you because there have been bumps in the market since the beginning of time – have a bond position to go along with your stock position, and have your bond position [the proportion of your assets in bonds] … have something to do with your age.”
First of all, Jack Bogle is a savior for many small investors who have been herded over the cliff by the Myth of Warren Buffett. He’s a genius and a great advocate for this type of investing approach, but I do think it’s humorous how, at the bottom of the market, everyone was saying buy and hold is dead. Early 2009 was actually one of the few times where I went out on a limb and defended buy and hold, but I still find it inappropriate to tout buy and hold strategies as some sort of holy grail. There are no holy grails in the investment world. There are no free lunches. There is no “one size fits all” approach that is going to always work. It just doesn’t exist. And the next time the world seems like it’s about to end and the market is plunging you’ll read about how certain strategies protected investors from the losses and all that….So goes the cycle of fear and greed….
Read the full article here.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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17 Comments
i´m curious what the good people of Japan think of the stocks for the long run mantra.
and with interest rates at zero, permanent QE and stressed public balance sheets many of the bull market drivers of the last 20 years are maxed out.
if you´re not a trader, then maybe the wise decision is indeed to get out of the casino – the stock market alltogether.
On the other hand, being a “die hard” contrarian, with so much energy devoted to strategies away from B&H (guess what? After the 2008 crash when it was too late), I wonder if people are just closing the door after the horse left the bar. I think B&H at proper risk level, as Bogle says, is fine for the overwhelming majority of people.
Ouch! Barn, not bar!
Cullen is “the machine” this week.
A lot of good posts this week and recognitions from a few other sites.
I like the direction the blog is presently heading.
Have a good weekend.
Nice article. And now Berkshire is much more of an operating company through the likes of Iscar, Marmon, Burlington Northern etc. The passive, “buy and hold”, investments of the past are a very small portion of underlying assets. Berk’s free cash flow is coming from the operating companies not the stakes in IBM, Wells Fargo etc. Forcing insolvent banks ( like BAC) to negotiate unimaginable warrants that the normal retail investor could not get is also a nice perk. Regardless, legendary investor but yes, misunderstood as a buy and hold firm. One can even look to Buffettology for his arbitrage/ distressed plays
Buy and hold is not the cure for buying assets in a bubble. If you buy valuable assets, then hold them. But the idea that you buy and index at any time and you hold it is the reason why many people ended up like stunned frogs when 2008 happened … sometimes you just need to use common sense and exit the market.
“. . . sometimes you just need to use common sense and exit the market.”
Good luck with market timing. You’re almost certain to under-perform.
The ironic thing about index investors is that they need the active managers to tell them what to own.
i think the best passive strategy today is probably similar to the “ivy portfolio” tracked by doug short. it probably doesn’t improve much on B&H in bull markets, but it keeps your money in bear markets. not losing money is the most important aspect needed in order to outperform markets.
No strategy can continue to excel once it becomes widely used. Not even Doug Short’s model. Of course many models look great when tested against historical data. But that historical data would look far different if those models had been widely used back then.
What Bogle is recognizing here is the underlying tendancy of the free market toward constant improvement and inovation. It is a reflection of the value of Human resources operating freely in a competitve environment.
And if placing one’s investments on the side of Capitalism is a bad bet then we are all finished.
BOGLE IS THE GUY WHO RECOMMENDED INDEX INVESTING. I WONDER HOW MUCH MONEY HE MADE SINCE 1998!HE DOES NOT SAY.
HE IS SIMPLY SELLING HIS SHOP …VANGUARD.
Indexing has actually worked reasonably well since 1998 – if you don’t take the simplistic view that the S&P500 = the market. I use small cap, value, international, and emerging market indices, along with a few bond ETFs. I’m way up over my 1998 position.
Let’s get straight exactly what the B&H indexers recommend:
1) Determine your desired ratio of stocks to bonds, i.e., how big of a loss can you stomach in a sudden market drop (typically 100 or 110 – your age)
2) Diversify your stock holdings across a range of asset classes, e.g., Large, Large value, Small, Small value, International large, Emerging, REIT’s
3) Utilize low cost indexes in order to keep more of your money, e.g., Vanguard, Fidelity, etc.
4) All on-going investments should be dollar-cost-averaged into existing funds in proportions determined by the AA.
5) Re-balance the portfolio yearly to maintain the AA. Note that this also forces a buy low, sell high discipline.
This system–if followed–results in the best performance for individuals who are doing it themselves, AND don’t want to dedicate their lives to obsessing over the stock market.
Schultheis’ Coffeehouse Portfolio (which follows the above) has the following returns:
20 years: 8.79%
10 years: 6.45%
5 years: 2.88%
3 years: 12.07%
Of course past performance does not indicate future returns.
I have done much better than those returns by buying individual stocks and holding forever.
Buy and hold presumes an upward track over time. You know, like real estate. Prices always go up for housing, right? Well, stock prices have gone nowhere for what…11 years. That’s a long time. And they would have been down big absent the massive liquidity pump.
Count me out.
On another point, I would respectfully suggest that there is something close to a holy grail of investing and that’s spread trading. It requires some active involvement…imagine that…but the odds are stacked so strongly in your favor (for each trade and over time) and the percentage returns are so great that you’d be hard pressed to lose over any buy and hold kind of time frame.
Of course this is all predicated on the belief that your broker has hypothecated or re-re-rehypothecated your shares without telling you. I’m wondering how long it takes before some large institutional house like Schwab or Fidelity gets in trouble and folks wind up with $0 in their 401k instead of just a loss. I’d consider getting a maximum loan against it, payoff my mortgage and buy physical gold and offshore real estate with the rest. Other than that, I have no opinion…
Offshore real estate?? Where? What kind? For every real estate offering outside the US, there are at least ten con men trying to separate you from your money. I know, I’ve been there and done that. I lost over $100,000 in two attempted deals, and ended up with no real estate. Put your money under your mattress where it will be safe.