Jack Bogle: Expect 7% Returns Going Forward [VIDEO]

Bogle Ranks the 2013 Bull Market

The Dow is very close to adding the most points ever to start a year. Jack Bogle, The Vanguard Group and the FMHR traders discuss whether the rally has come too far too fast; and the re-launch of the first commercial flight of the 787 Dreamliner takes flight.


welcome back to the halftime report. we are watching actavis to add 30% to earnings per deal. bmo says the fit makes sense. they rate actavis at outperform. scott, back to you. josh, thanks so much. only may and yet the dow is close to adding the most points ever to start a year and some people say that the rally is too far, too fast. jack bogle seen a lot of markets in his career. the vanguard group chairman and founder joins us live from headquarters in pennsylvania. nice to have you back on the show. welcome. good to be with you. good afternoon. you know, i had somebody last week tweet out that it feels like 1999 all over, we are frothy. nasdaq’s back above 3500. the russell breaks 1,000 for the first time. the dow at a 2250 points added already. one of the best performances of a year ever and we’re only in may. what do you say? oh, well, first, comparisons with 1990 are to be quite blunt about it absurd. in late 1999, the price earnings multiple of the s&p got very close to 40 times earnings, maybe 36 times earnings. mr. bogle, forgive me for a moment. we’re following this story, as well. a first commercial flight of a dreamliner back in the air for american airlines houston to chicago. just taken off here and our own phil lebeau is on board that flight along with the ceos of united and boeing, as well. i’m sure phil will have a report later in the day when that flight lands but there it is. first commercial flight. forgive me for cutting you off. we wanted to get that piece of news on a day where that’s a great story. not a problem. boeing by the way is a great performer this year. we can talk about that, too. where are we in the markets here? well, the comparison as i mentioned i’ll just repeat it because i’m not sure when you went off with 1999 and today’s market is simply absurd. in 1999, early 2000, the price earnings multiple of s&p 500 to 36 to 40 times earnings. today, it’s give or take probably about 17 times. that would be on reported earnings for the year. i don’t see that as being — this is a valuations are twice as cheap or maybe much more accurately, nowhere near as expensive. half as expensive. so i don’t think it’s a good idea for investors to think about jumping on the bandwagon or off. if you look at the realities of investing, motion is the worst thing you can do. the more you trade, the less you make. the academic studies and warren buffett tell you the same thing. you should be — the best rule is to have a certain idea of asset allocation and more bonds as you get older and once you establish your basically stock-bond asset allocation, hang on to it. enjoy the year because you probably have 60%, 65% in stocks and even with bonds going nowhere this year, they’re having a pretty nice time. so, enjoy it. and don’t think has it gone too far? far enough? nobody knows. but, you know how people are. they see that, there was a stretch where the s&p did nothing for ten years. people trying to be more nimble if they’re in the market these years. global easing from the central banks and wondering if we have come too far too fast. whether this can go on. i mean, psyche is a real thing, right? it’s a real thing and easy to say sit there for the long term but when you look at everything at play, it’s tough to do that. well, of course it’s tough to do. and that’s why we have this huge gambling market. we trade about $33 trillion worth of stocks a year in a stock market that’s worth in round numbers say 17 trillion and all we’re doing is trading with one another. people don’t quite get, if you pour on the gasoline, pour on the speed, raise your own asset allocation, it is certain that somebody else is reducing her or her allow koigs. you’re buying stocks. they’re ing stocks. this is great for sellers and not great for buyers. that’s the eternal equation of the stock market and if people realize that, they’d stop trying to outsmart their fellow investors. joe? mr. bogle, it is joe. are you not leaving out the component of financial wherewithal to stay in the market, as an exampler, investor a with $50,000 in the market and incurs a 30% down move versus someone with $50 million in the market, propensity to stay in is far greater than the $50,000 investor and i would argue that most investors are that 50,000 to $100,000 investor and can’t financially stay in and incur 30% losses as much as you would like them to. well, you know, i would hope investors, particularly retired and older investors realize that the job is to develop an income stream. you know? once they’re no longer earning money on their own with their own human capital, they juan dividends and interest from their financial capital and a stream of dividends they get that is basically what they should be watching. that doesn’t change every day. itradually and only one exception to this since the depression, it gradually creeps upward year after year, dividends rise. so your income stream is rising. only exception is as you know is when the financial stocks basically eliminated the dividends in 2008 but that’s not going to happen again so i think investors should look forward to more income this year than last year. and that’s the important thing. mr. bogle, before we let you go, you said comparisons to 1999 are absurd. what does this market then feel like to you? what period? well, you know, i think a market is relatively fairly valued today. that’s just an opinion investors or listeners can — viewers can take it for whatever it’s worth but i think it’s quite clear there’s a very important point, probably the most important is whatever we’re saying about the stock market is it’s carrying, doing the heavy lifting for investors over the next decade. because i think we can look forward to a 7% annual report on stocks. 2% dividend yield. relatively low and maybe if we’re lucky 5% earnings growth. that’s 7% of fundamental return and bonds, we’re lucky to get 2% out of bonds. that’s roughly the present interest rate and it’s a decade opposite the previous when bonds did all the heavy lifting. but

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