Jack Bogle founded Vanguard Group, an investment management company that manages approximately $1.7 trillion in assets.
He's long championed the low cost index method of investing for individuals using mutual funds as their investment vehicle of choice. Mr. Bogle is a smart and experienced pro who always is looking out for the best interests of the small individual investor.
So when he speaks, it's worth paying attention to what he has to say.
Forget trading, start investing has the story:
"Jack Bogle, founder of the Vanguard Group . . . says that investors
should not be shaken by the economy, the election or the fiscal cliff
and should, instead, stay focused on buying good businesses for the long
haul, regardless of market conditions.
“Get out of the casino, own Corporate America and hold it forever,” Bogle said . . . .
“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.”
Bogle said that the financial-services industry gets much of the
blame for creating the idea that there are ways to beat the market or to
avoid the bumps – or even the major market meltdowns – but noted that
individual investors share the blame.
“The system – a failed system – plays a major role in the problems
investors face, but we have to look first though, to be quite blunt, at
investors themselves,” Bogle said. “Why do they do it? … They all think
they are above average.”
Bogle pointed out that the distinction between investment and
speculation is more clear than most investors expect, and said that many
people who consider themselves investors act like speculators. He
noted that both sides have elements of buying-and-holding securities.
“The stock market is a mysterious and often misleading thing. It
creates no value, zero value, for investors. In fact … it shifts value
from investors to participants in the system, brokers, investment
bankers, money managers and things like that,” Bogle said. “Value is
created not by stock prices, but by stock intrinsic values, by
corporations that have staggering amounts of capital … they put that
money to work, they earn a return on it in a competitive world. … That’s
what investing is about, owning companies.
“Speculation is, by and large, about buying and holding stocks; the
values of stocks are ephemeral, they come and go, sometimes for no
His advice about investing is painfully simple and very true, too.
Investing is indeed about owning a piece of companies and not owning stocks as such. In other words, bet on the long term success of the company and not on the price of the company's stock at any point in time.
Of course, I own fewer bonds (actually, it's zero currently) than he would advise for an oldster like me, but then I'm comfortable doing so and still manage to sleep well at night.