August 2013 Interviews
The September/October 2013 issue of Journal of Indexes includes interviews with a number of well-respected investment experts. Shown below are edited versions of two of those interviews.
John Bogle, founder of The Vanguard Group
Even if current P/E ratios see a small decline, 7% is a very rational expectation for annual stock returns (2% dividend + 5% earnings growth).
When Paul Volcker was asked to name any useful innovations of the last 25 years, the best he could come up with was “the ATM.” When asked if the time frame were increased to 40 years, would his answer include the index fund, he replied, “Absolutely.”
I think indexation is extremely important. U.S. indexation began in 1780, when the Commonwealth of Massachusetts issued inflation-indexed bonds to pay soldiers fighting the war against England.
Larry Swedroe, former Yale Endowment money manager
I don’t think there ever was a “new normal.” Almost everything predicted by El-Erian and Bill Gross (PIMCO) turned out to be dead wrong in terms of investment decisions, which is a good reason why you should ignore all forecasts. These are some of the brightest men in the business. I totally ignore their forecasts because I know—I don’t guess—that they have no value.
They (Gross and El-Erian) were out of U.S. Treasury bonds and missed one of the great bond rallies of all time. They (also) predicted that due to a weak economy corporate profits would be lousy, with very sluggish growth. Corporate profits for the S&P 500 went from $60 per share to about $100 a share in the last few years.
We should focus on things we can control, such as the amount of risk one is taking, and then diversifying those risks as much as possible. Keep your costs relatively low and your tax efficiency high. Investors should stop wasting one minute of their time listening and paying attention to market or economic forecasts.
The role of fixed income in a portfolio is to dampen overall risk to an acceptable level. It is not to generate cash for returns.