John Bogle: Stocks fully valued

published 13 January 2017

John "Jack" Bogle, founder of passive investment giant Vanguard Group, feels pessimistic. Inequality, protectionism and America's apparent backing away from free trade and the North American Free Trade Agreement "is, in the long run, bad for our society, bad for our economy, and bad for our stockmarket". What's more, he thinks that stocks are "at least fully valued" at today's levels. "If we are lucky", investors will get annual returns of at most 4%-5% a year from stocks. If not, they could easily see the value of their investment fall in the short run.

Even so, Bogle still thinks the S&P 500 is the best stock index for investors to track. That's because "it's weighted by the market capitalisation of each stock, so if a big stock goes up in value, you don't have to buy any more, it goes up in value by the exact same amount in the fund".

He also more controversially thinks that US investors don't need to bother with foreign stocks. After all, "almost half of the revenues and half of the earnings of those 500 corporations come from outside the US". This means the S&P is "an international portfolio it just doesn't have a stock price that floats in the international market".

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Despite his status as a passive champion, he's very critical of exchange-traded funds (ETFs), which allow investors to trade indices "all day long, in real time... clear statistical evidence has confirmed that the more investors trade, the more their returns fall short of the stockmarket". Indeed, he says, those who bought and held Vanguard's main index fund beat those who bought and traded in and out of the near-identical ETF "by around 1.6% a year".

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri