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Lessons From the Crisis--John Bogle

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John Bogle says the best investing advice he ever got was when, as a young man working as a “runner” in a brokerage firm, a fellow runner–”who was probably the same age I am now”–told him the secret: “Nobody knows anything.” Speaking at the 2009 Morningstar Investment Conference in Chicago on May 28 in a conversation with Morningstar’s Don Phillips, the 80-year-old Bogle, the inventor of the index mutual fund and former Vanguard chairman, gave the attendees plenty of his own advice.

Despite the sharp downturn in index funds in 2008, “I have never felt more confident about my beliefs than I do right now,” he said, arguing that “indexing produces a better investor return” than even a highly respected actively managed portfolio like Dodge & Cox Stock Fund. He warned attendees that “we give too much credence to past returns; past is not prologue,” saying instead “it’s the source of the returns” that is more important. He then quoted Samuel Taylor Coleridge that history is like “a lantern on the stern, which shines only on the waves behind us.”

Discussing investing opportunities, Bogle pooh-poohed private equity, saying that there are “a lot of sellers, but not many buyers.” He still believes that “performance chasing” is one of the most deadly of investing sins, that “I grow more concerned about target-date funds every day,” is skeptical about 130/30 funds–”it’s not that easy”–and on exchange traded funds, “my skepticism is increasing,” saying that his reading of the data shows that “ETF investors do badly relative to mutual fund investors.”

Calling for greater appreciation of standards, particularly the fidciary standard, Bogle reserved his greatest irritation for companies: “I don’t like the state of corporate stewardship today,” arguing that “compensation is totally, ridiculously out of control,” and that “money mangers should return to stewardship and trusteeship.”


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