John Bogle Interview Excerpts

The following are excerpts from a February 2012 interview between Vanguard founder John Bogle and the Journal of Indexes.

1. I am an optimistic conservative…As I look ahead, I think reasonable expectations are for about a 7% return on stocks and about a 3.5% return on bonds.
2. What people don’t get about gold and commodities in general is that they have no internal rate of return…Stocks have a 2% yield and earnings growing at 5% (adjusted for inflation) to deliver a 7% return….bonds have a 3.5% coupon today and that is probably 91% of their future return…When you get a commodity, there is no coupon, there is no dividend, there are no earnings. When I buy gold, I’m buying gold because I think I can sell it to someone else at a higher price. If that isn’t the ultimate in speculation, I would not know what is.
3. If you go through developed foreign markets your largest investment is Britain (23%). And I think they’re in deep trouble. Everybody knows they’re putting on heavy austerity. They’ve got terrible problems…The next one is Japan (18% of a foreign index)…They’ve got a structured society. They’ve had a lot of innovation in the past. Will that continue? I don’t know…And then you go to France, who’s next in size…they don’t work very hard over there…Next are Switzerland, Australia, and Germany. They all look pretty good.
4. People talk about double taxation as dividends; 73% of all stocks are owned by institutions that aren’t really taxable.
5. During 2011, SPY (the largest ETF that tracks the S&P 500) turned over 7,700%. It’s a trading fund, mostly for institutional trading…The original paradigm for index funds is to buy the stock market and hold it forever. That is only the paradigm for all of 1% of the ETF market.
6. The average mutual fund managers last for ~ six years. And 50% of mutual funds themselves go out of business every decade.
7. Assume that every S&P 500 company has half of its shares held by long-term investors who never trade, and half of the shares are held by short-term speculators who do trade. We know that those long-term investors as a group will capture the exact return of the S&P 500. Speculative trades will capture the exact same return because they own the same stocks. But by trading among one another, they will underperform the market by the amount of their trading costs.