John Bogle responded to controversial comments made recently by Internet billionaire and Dallas Mavericks owner Mark Cuban. Cuban recently told The Wall Street Journal that “diversification is for idiots” and “buy and hold is a crock of s**t.”
In an interview on Friday with The Journal’s Jason Zweig, Bogle (left), who is considered by many to be the father of the indexed mutual fund, responded strongly to Cuban’s comments, noting “the math has been proven over and over again. It’s not just the first thing an investor should think about, but the second, the third and probably the fourth and fifth thing investors should think about.”
Bogle used a gambling analogy, noting an investor might hit the jackpot in Las Vegas, and think betting on short odds is for idiots and only smart people bet on long odds.
“Long odds don’t pay-off very often,” he explained. “Clearly they did for Mark Cuban and more power to him, he can do it his way. But for the average investor who should not spend his life obsessed with investing, he should get a nice simple strategy [that includes] diversification not only by asset class, but by the number of stocks and bonds in each class, even a thousand if necessary. What do you get for that? You will guarantee you will get your fair share of whatever returns the bond market and stock market are generous enough to provide to us.”
Turning to buy-and-hold, Zweig noted Cuban isn’t alone in believing the investment strategy dead.
“That’s the funniest thing; as a group we are absolutely buy and hold investors,” Bogle responded. “For instance, if I sell my shares of Microsoft (although I’ve never owned it) and you buy them, the world is unchanged. But what do you mean by buy and hold? Do you mean buy and hold stocks? I would say don’t do that. I would say buy and hold stocks but buy and hold some bonds as well. Call it having a bit of dry powder to protect you from your own emotions.”
He concluded by addressing Cuban directly, although Cuban was not present for the interview.
“Buy and hold in the bond market and the stock market, absolutely the best advice you’ll ever get, Mark. Take my word for it pal, now that you’ve made it.”