I’ve posted Entry #594 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Before His Death, John Bogle Relaxed His Opposition to Market Timing.
Juicy Excerpt: Bogle offered some comments in an interview with the IndexUniverse.com site in the Summer of 2009 indicating that he had mellowed on the subject quite a bit. Bogle stated that: ““Big moves out of stocks should not be done at all….But tactical asset allocation — I should say strategic asset allocation rather than tactical — can be done at very rare times, so rare and so difficult to observe, maybe six times in an investor’s lifetime, three times when the market is stupidly high and three times when stupidly low.”
So Bogle agreed with you, huh? Here’s what he said about “tactical allocation” in his book Common Sense on Mutual Funds:
“Tactical asset allocation, if the strategy is to be used at all, should therefore be used only at the margin. That is, if your optimal strategic allocation is 65 percent stocks, limit any change to no more than 15 percentage points (50 to 80 percent stocks), and implement the change gradually. The prospect of having the skill, insight, and luck to eliminate your stock position overnight and restore it “when the time is right” is, in my opinion, patently absurd. Cautious tactical asset allocation may have a lure for the bold. Full-blown tactical allocation lures only the fool.”
I would take “patently absurd” and “only the fool” as less than an endorsement for going to 0% stocks for 26 years.
Bogle was not in complete agreement with me. But then Bogle was not in complete agreement with Bogle either. I heard Bogle say that not only did he not know anyone who had engaged in market timing successfully, he did not know anyone who knew anyone who had engaged in market timing successfully. Then on another occasion I heard Bogle say that he had engaged in market timing successsfully HIMSELF. Has Bogle never met himself? Did he ever consider making an introduction?
This is why I say that we need to open every discussion board and blog on the internet to honest posting re the last 41 years of peer-reviewed research in this field. without a single exception. We need to talk these things out so that we can learn what we need to learn. We need to hear from everyone and we need to ask questions of everyone. And we need to make everyone feel comfortable with posting their honest beliefs.
I don’t favor tactical asset allocation. I say that investors need to engage in market timing for STRATEGIC reasons. Shiller showed that valuations affect long-term returns. So risk is not static, it is fluid. An investor who want to maintain the same risk profile over time (to Stay the Course in a meaningful way) MUST engage in market timing. There is no other way to pull it off. Anyone who says that investors should Stay the Course but that there is no need for them to engage in market timing is talking out of both sides of his mouth. It is a logical impossibility that any investor could Stay the Course in a meaningful sense without engaging in market timing. We should all be permitted to tell people the truth re this stuff.
Rob
Bogle was consistent in what he said. You, on the other hand, spin a story to fit your agenda.
Bogle wasn’t a tiny bit consistent. Bogle endorsed Bernstein’s book. Bernstein said in his book that the 4 percent rule was off by a full two percentage points at the top of the bubble. There were millions of retirees who took that rule into consideration when planning their retirements. So they needed to know that it was in error. Bogle knew this by reading Bernstein’s book, Did he do anything to get the 4 percent rule corrected? There was a raging controversy at the Bogleheads Forum about it after I pointed out the error in the Greaney study. It would have been a HUGE help to me if Bogle had come out clearly and firmly in favor of a correction. He did not do that. Huh?
Please explain.
Rob
Jack Bogle explains why Rob Bennett is wrong:
https://www.kiplinger.com/article/investing/t052-c016-s001-resist-the-folly-of-market-timing.html
John Bogle, founder of the Vanguard Group of mutual funds, wrote of market timing: “After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know of anybody who knows anybody who has done it successfully and consistently.”
John Bogle has been consistent and Rob Bennett has been wrong about market timing.
Bogle said what you quoted him as saying.
He also said this:
“Big moves out of stocks should not be done at all. But “tactical asset allocation — I should say strategic asset allocation rather than tactical — can be done at very rare times, so rare and so difficult to observe, maybe six times in an investor’s lifetime, three times when the market is stupidly high and three times when stupidly low.”
And Bogle endorsed Bill Bernstein’s book, in which Bernstein said that the 4 percent rule was a full two percentage points off the mark at the top of the bubble. To say that valuations affect the value proposition of stocks that much is to implicitly say that market timing (going with a lower stock allocations when the value proposition of stocks is low than what you go with when the value proposition of stocks is high) always works and is always required,
Bogle was all over the map when it came to market timing. He even engaged in it himself! There was an interview in which he said that he lowered his stock allocation in 1999, in part because of the insane valuations that applied at the time, And of course he benefited from doing so. If Bogle truly believes that he has never known anyone who engaged in market timing successfully, he should have introduced himself to himself. He was a nice guy. And smart as the dickens too. I think he would have come to like himself if he has given himself half a chance.
We should all have wanted to know what a giant like Bogle truly believed about market timing. But of course to find out we would have had to have opened every site on the internet to honest posting The reason why Bogle hesitated to frequently offer his pro-market-timing views is that he was afraid of what Mel Lindauer and his Goon Squad would do to him if he spoke with complete honesty about what the last 41 years of peer-reviewed research teaches us about this important subject.
I wanted to know what Bogle thought! And I want to know what people in this field think today! So I favor opening every site to honest posting. I think that the Goon stuff is garbage. It hurts us all. It is holding us all back.
My best wishes to you.
Rob
Rob says: “ We should all have wanted to know what a giant like Bogle truly believed about market timing”
Bogle said “ After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know of anybody who knows anybody who has done it successfully and consistently.”
And that’s the bottom line.
I naturally wish you all the best that this life has to offer a person regardless of what investment strategy you elect to follow, in any event, Anonymous.
Hang in there, my old friend.
Rob
Market timing isn’t a strategy. It is a scheme.
Market timing is price discipline. Price discipline is what makes markets work. There’s never yet been a time in U.S. history when large numbers of stock investors came to be persuaded that price discipline was not required and we did not eventually see a collapse of our economic system. It’s not possible for the rational human mind to imagine such a situation ending any other way. Investing in stocks without engaging in market timing is like driving a car without brakes.
All of the confusion that we are trying to overcome today comes from the idea that the market is efficient. If the market were efficient, there could never be any overvaluation. So there would be no need for market timing. The reality is that market efficiency is an aspiration that we should all be aiming to achieve, not something that is automatically handed to us without effort. Market efficiency is achieved through market timing. There is no other way that it could be achieved. Anytime someone suggests that market timing might not be 100 percent necessary for all investors, what they are really saying is that we should forget about market efficiency and let prices get so high that we bring on another economic collapse.
The mistake was made because there was research showing that short-term market timing doesn’t work and the Buy-and-Holders jumped to the hasty conclusion that no form of market timing was required. That’s like saying that, since drunk driving is dangerous, no form of driving should be permitted. Shiller was the first researcher to examine whether long-term timing is required (by showing that valuations affect long-term returns). Every researcher who has looked at the question since has affirmed Shiller’s finding. The most in-depth research on the importance of market timing was prepared by me and Wade Pfau. We showed that, in Wade’s words, “Yes, Virginia, Valuation-Informed Indexing works!”
Now we just need to reach a point as a nation of people in which we agree to stand up to you Goons to get the message as to how stock investing works out to every investor on the planet. I believe that it will happen in the days following the next price crash, when we will all be able to see up close and personal what the effect is on human beings when we permit the widespread and relentless promotion of a pure Get Rich Quick/Buy-and-Hold (price indifferent) approach to stock investing. We’ll see.
My best wishes, etc.
Rob