Monday, March 26, 2007
The Consuelo Mack show on PBS this week featured a discussion with Jack Bogle, David Darst from the House of Morgan and John Brynjolfsson from Pimco. The focus centered around Bogle's belief that over the next ten years domestic equity returns will be below normal due mostly to lower than normal dividends. Bogle stressed his belief of how important dividends are.
He spelled out a well reasoned case for why returns will be closer to 7% and I must say I generally agree that returns will average below normal and maybe his number of 7% will be correct. But I would add a few points to this to make it more constructive.
One thing that was not mentioned is that there will be very few years where the market is up exactly 7% (assumes Bogle will be right on target). We should expect some mix of up a lot, up a little, down a little and down a lot. Further, most of the positive return for the next ten years (using Bogle's time line) will probably come from two or three big years so missing those would mean doing far worse that 7% annualized.
I wonder about Bogle's thoughts about dividends, he really hit on them in the show, and how he can be so opposed to the WisdomTree dividend funds. Yeah, yeah maybe he's talking the Vanguard book or whatever but it is difficult for me to reconcile his being so down on them. The back test for the domestic dividend funds goes back to the 1960s and the results have been better that the cap weighted S&P 500.
If we are in for a period of below average returns it would make a lot of sense to increase your portfolio's yield one way or another. There are plenty of individual stocks to also choose from, not just ETFs.
Bogle's not allowing for anything other than cap weighting, or his thinking that investors cannot possibly add value to their accounts beyond buying in and riding everything out forever strikes me, revered as he is, as short sighted. This is not to say I believe in short term trading or short term timing but a simple belief of being less than fully invested for certain parts of the stock market cycle.
On a different note, CNBC Asia has revamped everything. Now the first show to come on is Squawk Australia (a new show), followed by Asia Squawk Box (on a new set), then is a new show called Cash Flow and lastly another new show called Capital Connection.
The extra focus on Australia is a good thing but more importantly the money spent makes it unlikely that they will close up shop anytime soon. The coverage is excellent because of the depth of coverage and the time spent on each topic.
The picture above is from a website called Remember The ABA and totally unrelated to this post. It is a real hoot. The picture shows Julius Erving trying to D-up on Artis Gilmore. Great stuff.