Set forth below is the text of a comment that I recently put to a discussion thread at this blog:
Rob said,in February 22nd, 2013 at 2:47 pm edit
Find any investor, or any ‘stripe’, of any ‘school’, who ever purported that “Valuations don’t matter to overall returns”. Rob, there is no such person.
There are millions of such persons, Banned.
We call them Buy-and-Holders.
Jack Bogle is the King of Buy-and-Hold. I have a quote from my good friend Jack in the “People Are Talking” section of the site. He says that there are circumstances in which it is okay for an investor to change his stock allocation by 15 percent in response to extreme valuation levels.
Where did my good friend Jack get that 15 percent number? I think it would be fair to say that my good friend Jack pulled it out of his backside.
That’s blunt language.
But it is a fair statement, is it not?
Buy-and-Hold is a research-based strategy. So, if you are going to tell people how much they need to change their stock allocations at times of extreme valuation levels, you need to consult the research. The research shows that the most likely annualized 10-year return in 1982 was 15 percent real and it was a negative 1 percent real in 2000. That calls for a change of perhaps 60 percentage points (say, from 90 percent stocks to 30 percent stocks). Jacks says 15 percent. He is off by a factor of four. He is nowhere even remotely in the right neighborhood.
Why is my good friend Jack so wildly off re this one, Banned?
I say it is because he is not hearing the voices of all the many people who understand valuations (and investor emotions!) far, far better than he does. He needs to hear from Microlepsis. He needs to hear from John D. Craig. He needs to hear from Wade Pfau (and Wade needs to be permitted to post his honest beliefs). He needs to hear from Rob Bennett.
The Ban on Honest Posting is hurting Jack Bogle. It is making him appear to be dumber than he really is. He is capable of giving better advice than he gives today. But he needs to hear from the people who understand things that he does not understand to be able to achieve his potential.