Bogle on Buy-and-Hold Bashers, Recession, and The Bounce

In an interview with the Associated Press, John Bogle says he expects the current recession will last longer than many think, perhaps as long as two years. But despite that prediction, he says critics who have been questioning the sensibility of a buy-and-hold approach are wrong. “They’re wrong to question it,” he says. “Because for all of the last century really, stocks have gone up and down with some frequency. In fact, this is my tenth bear market, and two of them, in 1973-4, and then in 2000-2002, markets went down 50 percent – more than the current market decline.”

Bogle says he still believes in buying index funds to own the entire U.S. stock market. And he says that unless you just can’t afford any more losses, the market is still the best place to be, indicating that we’ve been seeing a lot of overselling. “The total value of the U.S. stock market had dropped from about $18 trillion dollars to about $9.5 trillion [in this bear market],” he says. “So there has been an $8.5 trillion drop in the perceived value of corporate America. I think that’s inconceivable. I don’t think the value of corporate America has dropped by almost half. I mean, these are companies with capital – they make useful products and services, they’re efficient, competitive, innovative. Does anybody really think the value of American business changes by a trillion dollars a day? Well, they may, but I don’t.”

“I would not flee the market now,” Bogle advises, and he indicates that much of the market pain may be over. “I think it’s likely – and here I’m just totally guessing – that the stock market anticipated most if not all of the decline we’re facing in the economy. It almost always moves before the economy goes up and down.”