Bogle Likes U.S. Stocks
(Buy American: He Is? Source: AP/Newman Communications via WBUR)
Octogenarian passive investing pioneer and Vanguard Group founder Jack Bogle, who upended the investing world a generation ago through a quasi-evangelical approach to buy-and-hold indexing, told Bloomberg that U.S. stocks are the place to be.
Bogle cited the U.S.'s advantages in technology and shrugged off valuation focused words of caution from asset management rivals like BlackRock (NYSE:BLK) and Deutsche Bank (NYSE:DB). It's an interesting bit of contrarianism:
“Every single person I think I have ever talked to tells me I am wrong in this,” Bogle said. “If you believe in the majority, you can just throw my opinion in the waste basket. But on the other hand, I was brought up in this business and I am saying ‘the crowd is always wrong.’”
Mr. Bogle apparently has not consulted the average investor, who, by most objective measures, has shown nothing but unabashed enthusiasm for U.S. stocks, as indices and many traditional valuation metrics butt up against record highs. He cites as further support the tremendous outperformance of the S&P 500 vs. other global stock indices since his last big push for U.S. stocks in 1993.
What to make of this, especially amid Friday's seeming narrative shift away from the market's tech leadership and musings about the death of value investing?
Five years ago, almost to the day, I started a summer communications and marketing MBA internship at Vanguard. Beyond gaining a large amount of respect for the firm and the people who work there, I also got a thorough immersion in the company's core philosophy, which drives every single decision its employees makes and enables Bogle's pronouncement from this past weekend.
If you believe, as Vanguard does, that markets are efficient and short-term price movements approximate randomness and you also believe that the best decision is to invest available assets and then ignore them, then your focus will necessarily be on the long term. A single decade of outperformance by one asset class or another will register as statistical noise. You can wait for structural macro forces to mean-revert. If he's right about the U.S.'s prospects for sustained dominance (and why wouldn't he be?), then this is a good call.
But it's a little bit of a mismatch to set Bogle's pronouncement against sell-side research or other companies' predictions. I'd be willing to bet that a few of those on the contra side have explicit shorter-term time horizons. Similarly, if Europe starts outperforming the U.S. and we ask Bogle what he thinks, he can probably wave the action off as short-term gyrations. In other words, if Bogle's pronouncement looks wrong, the long term isn't here yet.
On the other hand (and it's a substantial "on the other hand"): Bogle is one of the greatest investment minds ever, Warren Buffett voices perennial optimism about America's exceptional economic virtues, and there's probably some benefit to adopting a long-term efficient markets approach for at least a substantial portion of any portfolio. Just because something is simple to the point of being axiomatic doesn't mean it's wrong.
Tempting though it is, there's no need to soak the following news items in purple ink. They're intrinsically interesting as straight-ahead statements:
- Travis Kalanick appears ready to start a leave of absence from his post as CEO of Uber (UBER).
- Jeff Immelt is leaving General Electric (NYSE:GE).
The simultaneity is worth noting. GE and Uber are two companies at opposite ends of the corporate life cycle (though arguably Uber should be a few notches further along in its corporate maturation).
What can investors take away from this?
Allegations of a toxic corporate culture have muddied broader questions about Uber's intrinsic economics. GE seems to have the opposite problem. It can't manage what appear to be well established and viable businesses efficiently enough for its investors. Maybe that's the conclusion. A short checklist of critical management qualities:
- A minimum standard of professionalism and reputation management
- A vision for the business's long term viability
- A plan for rewarding investors when things go right
If your CEO is missing one of these attributes, prepare to read a few profiles in the business press describing management as colorful and quirky. If he or she is missing two, get ready to do some close reading of every conference call transcript. If you wake up one morning and your CEO lacks all three, call an emergency board meeting if you can, or failing that you might want to just sell.
See also: Jaguar invests $25M in Lyft
- modest proposal (@modestproposal1) samples from a few years of reporting and commentary about venture-backed businesses, noting a few key pitfalls of the model along the way.
- I'veBeenHad (@IveBeenHad) looks at 1960s Warren Buffett shareholder letters, including comments Buffett made amid liquidation of his partnership in 1969.
- Don't forget to compare yourself to a chimp, is what I take away from this Tren Griffin (@trengriffin) Tweet.
- If you want pragmatism from your regional Federal Reserve Banks, you'll love new Atlanta Fed president Raphael Bostic, via WSJ Central Banks (@WSJCentralBanks).
- Market breadth or FANG, who ya got?, via Barry Ritholtz (@ritholtz)
- schadenfraud (@schadenfraud) is looking for cryptocurrency derivatives. Separately, Quantian (@quantian1) says there are "futures," but watch the contango.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.