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Bogle: Keep Investing

The founder and former CEO of Vanguard on why to stay the course amid the financial crisis. (9/23/08)


Christine Benz: Hi, I'm Christine Benz. I'm here at the Vanguard Diehards Conference in San Diego, and I'm happy to be sitting here with Jack Bogle, who was really the epicenter of this conference. Jack, thanks for being here.

Let's talk about the current market environment. It's crazy. Give us your take on what's going on and what do you think investors should be doing?

Jack Bogle: Well, of course, I've only been in this business for 57 years, and I have never seen anything like it in my life. I've never seen anything like the amount of speculation that's going on in the market, which is basically twice as much stock trading, twice as much turnover as we had in 1929, the previous high.

We have these frequent days, we had 37 of them in the last year, where the market has gone up or down 2% or more. When I came into this business in 1951, we might have had three or four days a year like that, 12 times as many wild-and-wooly days as history would have said.

So, we've taken the whole focus of market participation in our capitalistic system here in the U.S. from one of investment to one of speculation.

I happen to think that's a tragedy in which the investors are the losers, and which of course, somebody is a winner: Wall Street wins. They make $650 billion a year in fees and commissions and all that kind of thing, which means that investors lose that much to the market.

So, it's a system that's crying out for change, although I never would have guessed the change would be so abrupt. I never would have guessed the speculation would have been so rampant. I never would have guessed that credit would be so easy. I never would have guessed that credit standards would be so devastatingly low.

Christine Benz: So, what do you think are the solutions?

Jack Bogle: Well, unfortunately, the one solution that we're going to get is government intervention, and I don't think there are very many people that really like or look forward to government intervention.

I don't know anybody that things the government can do a better job than private enterprises out of the system. Well, in the case of the financial system, they certainly can't do a worse job, but the government is the only vehicle, the only body, the only source of liquidity we have left.

So, the government has no choice but to intervene. This is in fact the greatest financial crisis since the great depression.

Christine Benz: So, one thing I've been thinking about. If you are not a speculative investor, if you're a long-term investor, and yet there are these speculative investors buffeting your returns about, what should your reaction be? You'd be doing anything differently?

Jack Bogle: I think basically you should not be doing anything differently. I mean investment is a pretty simple thing. Investment is owning businesses, or I would say being an inveterate index fund person owning all American business.

Owning every company in America, letting capitalism do its work. Those companies will grow at probably around 7% a year. They'll pay you at about a two and a half--somewhat lower than history, but a 2.5% dividend yield.

That should over time bail you out of anything that happens, because of the wild swings. I mean if you visualize investment as growing, and it's kind of a steady line, which it does, and visualize the crazy market as being all these jags up and down around this steady line, upward, upward, always upward I think.

Then you've got to say, "I know I'm not smart enough to get out at the high. I know I'm not smart enough to get back into the low, so I'm just going to stay the course," as we would say at Vanguard, and hang on through all that.

Importantly, if I'm trying to accumulate money for retirement, or to buy a home or to educate my children, what you want to do is keep investing and say, "How could I keep investing the day if the market goes down 600 points?" That's the greatest time in the world to invest, certainly better than doing it the day before it goes down 600 points.

I think people have lost sight of the fact that a sharp market decline is--of course it's bad for sellers, but it's good for buyers. Since the stock market is the interaction of sellers and buyers, it's always good for somebody.

Christine Benz: Right. Just to switch gears a little bit, I know you have a new book coming out shortly within the next few months. It is called, Enough.

Jack Bogle: Enough.

Christine Benz: Tell us about the genesis of that book.

Jack Bogle: Well, first it's sort of my critique of American society today, my critique of how we think about money, my critique of our financial system. My critique of what we've done to business, how we conduct business. In fact, how we conduct our lives.

It's called Enough: True measures of Money, Business and Life. It's a philosophical book. Of all the books I've ever written, it was the most fun to write.

Because I have a bill of particulars out there that I back up with all the facts that I have at my command to say we need to improve our whole society, not just the financial system, but the financial system represents, in a lot of ways, the worst part of it.

The title comes from a little sort of a poem that I read in the New Yorker two or three years ago and I couldn't get out of my mind. It's a story about Kurt Vonnegut and Joe Heller, the two famous authors, when Joe Heller was still alive.

Now, since he wrote it, Kurt Vonnegut has died. They go to a party in Shelter Island, lifestyles of the rich and famous kind of place off Long Island. Kurt says to Joe, "You see that guy over there, our host, billionaire host? He made more money today Joe than you have made on every copy of Catch-22 that has ever been sold."

As you know, Catch-22 is probably the most successful book of the post war generation. So, Joe Heller looks at Kurt and says, "That's alright, because I have something he will never have. Enough."

So, it's a little bit about thinking about what's really important in our lives, thinking about service to community before service to self. Thinking about our families, which I'm certainly not good at that, but I do my best.

Thinking about trying to build a better world, thinking about the greater good, rather than accumulating all the money or all the prestige or all the wealth, fame and power, that conventional definition of success that too many people are seeking.

Christine Benz: So, teaching people how to redefine success in their own lives?

Jack Bogle: Yes.

Christine Benz: Sounds like a great lesson.

Jack Bogle: Well, it was fun to do, a lot of fun.

Christine Benz: Thanks Jack. We appreciate you spending the time with us today.

Jack Bogle: Thank you Christine, good to be with you.



Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.