Bogle on What “Long-Term” Really Means, and Stock-Picking Dangers

Jack Bogle covers a wide variety of topics in a recent interview with The Motley Fool, including just what the “long-term” in “long-term investing” should mean, why traders usually lose out, asset allocation, and whether the S&P 500 is a “good” index.

Bogle’s belief that that the best approach for individual investors is to hold the entire stock market for the long term through an exchange-traded fund or index fund is well known, and he reiterates it in the interview. But he also offers some other interesting takes on investment strategy and investor psychology. Here are some of his thoughts on:

The minimum holding period for stock investors: “If you are going to be in the stock market for less than 10 years, I wouldn’t do it; it is too unpredictable, too fraught with speculation.”

The dollar: “The dollar is probably in for some trouble, but don’t forget a weak dollar will create a lot of value for U.S. corporations. They will be doing more business abroad if the dollar is weak. So that should raise the value to at least some offsetting extent of the market cap of U.S. stocks in general because they do probably 40% of their business outside of the U.S., on average; the bigger companies certainly do.”

The best holding period: “You should be owning stocks — or much more accurately, owning businesses — and holding them forever, said to be Warren Buffett’s favorite holding period.”

Why the risks have never been higher for individual stock-pickers: “One, this incredible collapse of our financial system. Two, the increasing power of globalization going back for around 20 years — which means we have global competition, which will take U.S. companies out in favor of global companies. … Finally, you have this technology revolution, which means that a company that is dumb and happy when the market opens today, may be out of business at the close of the day because someone has a better idea.”

Who wins the trading game: “As a group, we are all buy-and-hold investors. That is to say, all of us together own the stock market, so we are buy and holders, but we insist on swapping back and forth with one another. This is an investment system, a marketing system in which our croupiers basically pit one investor against another, knowing that there is only one winner — and that is the croupier. One sure winner.”

Back-tested strategies that beat buy-and-holding of the broader market: “It is the easiest thing in the world to look backward on paper and pick out strategies that have won. If you can’t do that you are, for the want of a better word, a moron. (Laughter.) Right? So these back-testing things look great in retrospect. I mean, if it doesn’t look great, it isn’t in the book, right?”

The S&P 500 index: “It is a very flawed index and I can see that and then I ask this question: If it is that terrible, how the hell is it beating all these money managers all the time? (Laughter.) Think of what a good index would do, right?”

Psychology: “We have this performance-chasing bias in this business, which just kills us. And we see and we can measure this. … It is astonishing. Investors are their own worst enemies.”

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