What’s Ahead for Stocks and Bonds – And How to Earn Your Fair Share

Here is a post I made to the Diehards forum. What do you think?

Stay the Course? Efficient markets? What would Jack say?

I’ve always been a fan of Jack Bogle. I’ve always thought of him as a realist, different than many on this forum who seem dogmatic at times.

Jack recently spoke in LV, here is his closing statement:

“So do your best to minimize your investment expenses and your own emotions, rely on your own common sense, be very careful, and then stay the course.”

Sound like diehard dogma about staying the course? What about his suggestion to rely on common sense and be very careful? Why should this be relevant in the context of diehard dogma?

Here’s another quote about common sense:

“To each his own in analyzing the extent of such risks, but with problems looming in our federal deficits, mortgage financing, global instability, the war in the Middle East, and terrorism (and perhaps even avian flu), a little extra risk aversion seems little more than common sense.”

Apparently Jack doesn’t think all of this is already factored into the market, as EMH would suggest.

And here’s a summary quote:

“Conclusion: with (A) subdued returns in prospect: (B) low equity risk premiums; (C) a time of substantial risk; with (D) bond income dwarfing stock income (5 3/4% vs. 2 percent); and (E) the pleasant sensation of more safety when, and if, stocks take a tumble, carefully consider whether your own portfolio balance provides, not only adequate opportunity, but adequate protection.”

Note that each of the things he mentions involve the situation as it exists today, not 5 years ago or 10 years ago. So is he suggesting that we should be reevaluating our asset allocations in light of all of these recent developments? Of course he is. That’s what Jack Bogle (and common sense) is all about.

John