Bogle: Market About Fairly Valued Today

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DriftingDudeSC
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Bogle: Market About Fairly Valued Today

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nisiprius
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Re: Bogle: Market About Fairly Valued Today

Post by nisiprius »

Just the kind of boring, unspectacular expert opinion that is likely to be reliable.

David Freedman, author of Wrong: Why Experts Keep Failing Us — and How to Know When Not to Trust Them, but this article says:
Bad advice tends to be simplistic. It tends to be definite, universal and certain. But, of course, that's the advice we love to hear. The best advice tends to be less certain — those researchers who say, 'I think maybe this is true in certain situations for some people.' We should avoid the kind of advice that tends to resonate the most — it's exciting, it's a breakthrough, it's going to solve your problems — and instead look at the advice that embraces complexity and uncertainty.
Bogle, yes. Meredith Whitney, no.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Dr. Gaius Baltar
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Re: Bogle: Market About Fairly Valued Today

Post by Dr. Gaius Baltar »

Did I read that correctly? Did Jack just say that people should slice their bond allocation in two, split between Total Bond Market (BND) and Long-term Corporate Bond (VCLT)?
Elysium
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Re: Bogle: Market About Fairly Valued Today

Post by Elysium »

Dr. Gaius Baltar wrote:Did I read that correctly? Did Jack just say that people should slice their bond allocation in two, split between Total Bond Market (BND) and Long-term Corporate Bond (VCLT)?
No, he did not say that, where did you read it?
hsv_climber
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Re: Bogle: Market About Fairly Valued Today

Post by hsv_climber »

S&P 500 is up by 12% over the last 2 weeks. It would be nice to know what "starting point" he was referring to. Because if he meant Oct.4 then market is overvalued today.
Dr. Gaius Baltar
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Re: Bogle: Market About Fairly Valued Today

Post by Dr. Gaius Baltar »

Dieharder:
I don't think most people can afford to settle on a 2% bond return. That would be more or less ... I guess our Total Bond Market Index Fund is around 2.3%. So, a little better because it has some corporates in there, while it’s heavily dominated by Treasuries and mortgage-backed securities, maybe 70% of the index, 65% or 70% are in those super-safe, very short, mostly very short, maturity bonds.

So I think investors are going to have to be willing to go out a little bit longer in maturity over that 10 years maybe, and a little bit down in quality, maybe investment-grade-quality bonds, which is today, according to the press, I think this is a high number, but what I read in The Times every morning, is about 4.8% for a long-term investment-grade bond.

So I think you can put together a package of bonds without taking excessive risk that will give you maybe 3.5% return over the next 10 years. Well, the math is kind of fun because 3.5% will compound to a 50% gain on bonds, and as I mentioned 7% will compound to 100% gain on stocks. So, there are going to be a lot of bumps along the way and reasonable expectations are a long way from firm predictions, but I think the stock market seems about right today.
Vanguard offers a long-term investment-grade bond fund like he's describing, VCLT.
bb
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Re: Bogle: Market About Fairly Valued Today

Post by bb »

I also noticed Jack mentioned going down on bond quality to get greater yield.
Has Jack Bogle often mentioned doing this to increase bond yields?
I don't recall him recommending that before. Is over weighting
investment grade bonds the same thing as active management
when it comes to stocks or is there a difference?
Roy
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Valuations in stocks and bonds

Post by Roy »

Bogle considers relative valuations in both stocks and bonds (yields), and always has. Thus, for the next ten years, he made a suggestion regarding the quality and maturity of bonds (as discussed above).

But he also discussed why he thought Shiller's PE/10 was a viable metric for assessing future returns, yet he did not make any suggestion to alter equity allocation in response to it. I would have asked him if he thought PE/10 should be used to adjust equity allocation just as he thinks bonds are affected by current yields and credit quality focus.
Elysium
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Re: Bogle: Market About Fairly Valued Today

Post by Elysium »

Dr. Gaius Baltar wrote:Dieharder:
I don't think most people can afford to settle on a 2% bond return. That would be more or less ... I guess our Total Bond Market Index Fund is around 2.3%. So, a little better because it has some corporates in there, while it’s heavily dominated by Treasuries and mortgage-backed securities, maybe 70% of the index, 65% or 70% are in those super-safe, very short, mostly very short, maturity bonds.

So I think investors are going to have to be willing to go out a little bit longer in maturity over that 10 years maybe, and a little bit down in quality, maybe investment-grade-quality bonds, which is today, according to the press, I think this is a high number, but what I read in The Times every morning, is about 4.8% for a long-term investment-grade bond.

So I think you can put together a package of bonds without taking excessive risk that will give you maybe 3.5% return over the next 10 years. Well, the math is kind of fun because 3.5% will compound to a 50% gain on bonds, and as I mentioned 7% will compound to 100% gain on stocks. So, there are going to be a lot of bumps along the way and reasonable expectations are a long way from firm predictions, but I think the stock market seems about right today.
Vanguard offers a long-term investment-grade bond fund like he's describing, VCLT.
Yes, Vanguard does have investment grade funds, and a high yield fund. I don't think Bogle is recommending everyone go buy one of these, he is simply answering a question on expected bond returns. If someone wants more than 2.3% return on total bond fund, then they should think about going lower on quality and bit further on duration. Of course with more risk. They could also simply accept 2.3% and take the lower risk total bond fund.
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jeffyscott
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Re: Bogle: Market About Fairly Valued Today

Post by jeffyscott »

bb wrote:Is over weighting
investment grade bonds the same thing as active management
when it comes to stocks or is there a difference?
Mr. Bogle's issue with active management is the cost. As he said:
I mean the magic of the bond market fund--and it may be you should make a variation on the actual Total Bond Market Fund because of the heavyweight in Treasuries, but when you take a tenth of 1% out of that return for costs in an index fund or two-tenths of 1% out, that's a far cry from most bond funds, which charge nine-tenths of 1%.

With Vanguard you can make that adjustment by buying VWETX, for example, at an ER of 0.12%. That cost is only 0.01% above the bond market index fund.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
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