John Bogle was interviewed at the Morningstar Investment Conference of recent and he had a few interesting things to say. Nothing he said was new, mind you, as a matter of fact he has been advocating the same pillars of investment advice since founding Vanguard in 1974, but it is of note that he sure does seem to be under attack these days.
Investment advisers are looking at the last 10 years and saying “hey look, look here, if we followed Jack and bought and held over the past 10 years, we would be down, see! he’s wrong! Buy and hold is dead!” Now they are right, market indexes are lower today then they were 10 years ago.
But, Jack responds by making an interesting point, he says: As a group we are all buy and hold investors. What is taking place is simply the swapping back and forth. For there to be a smart buyer there must be a dumb seller. For there to be a smart seller, there must be a dumb buyer. Unless you control the businesses, no one can be right consistently picking stocks or sectors from the outside. It just doesn’t happen. The only winners are those extracting management fees and transaction costs. What provides the best chance for investor success is to design a portfolio of asset classes based on one’s risk tolerance, and most importantly minimize investment costs and taxes which are the biggest killer of returns.
[youtube=http://www.youtube.com/watch?v=-tnCvi4gNAE]
The interview also reminded us that just like everything else in life, your investment choices and activities are reflections of your present philosophy. Some people day trade because they believe that they can find discrepancies or value that the market does not see. Some avoid stocks altogether because they don’t believe the market rewards adequately for the amount of risk assumed. Some buy and hold because they believe in long term appreciation through the inherent workings of capitalism. Some avoid thinking altogether and spend all of their money.
Personally, we have built our investment philosophy shadowing the advise of advisers like Bogle and others. Yes, Leslie and I are Bogleheads. Here is an outline of our philosophy:
- Save a lot
- Asset Allocation (Holding Bonds) Is Essential
- Buy Low Cost Index Funds Covering the Whole Stock Market
- Tax Efficiency Matters
- Stay the Course
Here are a few books and links we recommend from our library that have helped us overtime as we built our philosophy. It doesn’t matter what you believe, I think the real danger is not believing and thus not taking any action. To quote reading rainbow: “Don’t take our word for it.” If you don’t have a philosophy, go out and figure something out.
Save some money, read from the library first then if it really strikes a chord, consider buying it online, or even better, used online from sites like Half.com.
Check out these links:
- Bogleheads Investment Wiki
- Bogleheads Investment Forum (Extremely valuable resource)
- Investment Understanding through Mint.com
How have you built your investment philosophy? Has anything changed? Is buy and hold dead?
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