We Know Jack

Jonathan Clements

THE BOGLEHEADS HAD their annual conference this week in the Philadelphia area, where Vanguard Group’s headquarters is located. Devotees of Vanguard’s 88-year-old founder John C. Bogle, the Bogleheads usually meet online at what’s probably the world’s best investment forum.

The star of their annual meeting was, of course, Jack himself. His latest book, an extensive revision of The Little Book of Common Sense Investing, just came out. What was on Jack’s mind? Here are just some of his comments.

  • “Among our competitors, I think Dodge & Cox is the best. They’re in the investing business, not the marketing business.”
  • “I’m glad to see my ideas accepted by the public.” But Jack worries about Vanguard’s rapid growth and its impact on the company. Vanguard is now easily the largest fund company and manages almost a quarter of the industry’s assets.
  •  “You can’t have all the active managers winning,” regarding the risk that too many investors will index and that will make the market inefficient. Jack notes that just a quarter of the U.S. stock market is now indexed by individual and institutional investors. Meanwhile, he points out that less than 8% of actively managed stock funds outperformed their category’s benchmark index over the past 15 years.
  • “With so much money coming into index funds at high valuations, there’s a risk of large redemptions” in the next market downturn.
  • “If you’re investing for a lifetime, there’s no better way to do it,” referring to index funds that weight stocks by market capitalization. Jack expressed skepticism about index funds that weight stocks equally or based on fundamentals.
  • “People should relax about the precision of all this,” talking about when and how often to rebalance.
  • “I spend half my time worrying about why I have so much in stocks and half my time worrying about why I have so little.” Jack says his portfolio is split evenly between stocks and bonds.
  • “If you’re putting money to work today, you should want a good market decline.”
  • “It’s a nice business to be in, if you aren’t the clients,” referring to hedge funds-of-funds.
  • Jack expects stocks to return 4% a year over the next 10 years, with dividends delivering 2% and earnings climbing at 4%—but falling price-earnings ratios subtracting two percentage points. Meanwhile, he thinks a mix of corporate and government bonds might give investors 3% a year. “With that 10-year forecast, I won’t be around to know whether it’s right or wrong.”

Follow Jonathan on Twitter @ClementsMoney and on Facebook.

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