The Vanguard Group's John Bogle Offers Advice For Individual Investors
Monday, September 15, 2008PAUL KANGAS: Joining me now with more about what today's developments mean for individual investors is John Bogle, the founder of the Vanguard Group. And, Jack, welcome back to NIGHTLY BUSINESS REPORT.
JOHN "JACK" BOGLE, FOUNDER, VANGUARD GROUP: Always good to be with you, Paul.
KANGAS: Jack, you and I have both been around long enough on the Street to have seen more than a few bear market sell-offs like today's. But historically the markets always seem to come back. Is this one any different?
BOGLE: Yes, it's different in a number of ways. First, Paul, I can say, this is my 10th bear market by actual count. Defined, as you know, as a market that goes down 20 percent or more. And we've had a lot worse than this. Our viewers should remember that in 1987, in a single day, the market went down 23 percent. This seems like kind of small potatoes compared to that. But what's different about this one in my recollection is that the other nine were pretty much financial market issues. You know, the market got too high, too high a price-to-earnings ratio, too high -- maybe earnings were going to decline. And it went down and it came back and was confined to the financial system. This one is spreading beyond the financial system. It's spreading in our productive system, and it's spreading into our economy. The financial side has kind of overpowered the financial banks a little bit like those levees down in New Orleans and gotten into the real economy. And you see this, of course, very clearly in things like the mortgage situation, home ownership situation. We're also going to see it in our big cities. Think of what's going to happen to New York the way the financial system is in crisis right there in that city. Financial capital of the world. So this is different and it's going to be tougher.
KANGAS: Well, with today's 500-point plunge in the Dow, some investors are downright terrified. What's your best advice to them?
BOGLE: Well, my advice to just about anybody is, times of terror or times of financial crisis are terrible times to make decisions. You know, let's be a little bit patient here. You know, the best time to buy stocks, Paul, as everybody knows, is what John Templeton calls "the time of maximum pessimism." Now I don't think we're at the time of maximum pessimism, but we've sure come a long way from that optimism of last summer through about October. The market is down 23 percent I think since then.
KANGAS: Do you see the action as suggesting some kind of a bottom is forming within the next few weeks or so or days?
BOGLE: I don't know how to guess what the market does, but the one thing I think we should be aware of is this has been a speculator-driven market. The trading volumes are unprecedented in the financial history of the country. The turnover in the stock market is double what it was in 1929. That's a different kettle of fish, Paul, from an investment market. Believe me, the value of American business, the value of the American economy did not drop by 4.5 percent today. It didn't drop at all. It might have even grown a little bit. So this is the market taking its ups and downs on expectations of what's coming next. And of course, we don't know what's coming next in the markets. And of course we ought to be aware that we're in for a tough time. But I think the best advice I could give to anybody is think about the probabilities that things will get worse or better, and then importantly, once you've tried to assess the probabilities, which I'd say are somewhat on the downside, think about the consequences to you. You know, if you're heavily leveraged today and the consequences are you'll be bankrupt tomorrow, you have no choice but to get out. But if you're a long-term investor, just think about this for a minute. If from these levels the earnings of American business or the Standard & Poor's 500 grow at 7 percent a year, they'll be twice as high 10 years from now as they are today. They'll be double what they are today. And I think that's not an unreasonable expectation. And that's what creates value in the long run.
KANGAS: That's very good advice, indeed. I appreciate it very much, Jack. And I want to thank you for taking time to be with us today.
BOGLE: My pleasure.
KANGAS: My guest, John Bogle, the founder of the Vanguard Group.
