Jack Bogle Interview - Jan 2017

An interesting interview with Bogle. The mention of dividends caught my eye as I'm so used to Bogleheads focusing on capital drawdown in retirement. Of course with his wealth there's no need to draw down capital. The articles a great read.

The man who transformed investing for Main Street sees a bleak future for Wall Street's money managers

 

"talent is hard to identify and talent is hard to tell from luck"

 

Hey Austin,

How much did your income from dividends drop across your portfolio during GFC?

From what I've read so far, most investors' capital base was halved whereas the income only dropped by 15% or so.

 

I gotta tell you that Bogle's argument becomes more convincing to me each year. It is backed by cold hard facts, vs. marketing. A plate of Bogle, a side of Ellis and Malkiel, a bit of Marks, some Buffet and Munger, a sprinkling of Taleb, a dash of Galbraith, Keynes and Adam Smith is a pretty good recipe!

 

Or is confused with factor exposure.

 

With that recipe what's the portfolio going to look like?

 

This is not about being told how to think ; ie. how you should construct your portfolio....but to get you to think deeply about what YOU should do

 

I have no idea, it didn't affect me. But given most of the portfolio is LICs it didn't drop as much as the market. LICs have the ability to smooth dividends.

I think the market fall in dividends was around 30%? Similar to the Great Depression from memory. Allow for a worse case scenario of 30% cut in dividends when planning. A cash buffer can be used to top up dividend shortfall if required until dividends recover.

Actually this talk about market crashes / dividend cuts is all rubbish. It's simply reversion to the mean, irrational exuberance being brought back to reality.

Look at the dividend history in the chart below before / after the GFC. Was it a case of dividends dropping Or just being brought back to their long term trend:

 

Thank Christ for that.

 

Looking at Bogle topic's.... you must've gone from homebrew to the hard stuff

 

30% drop in income, that's heaps

 

He he. I've always had a lot of admiration for Bogle. I was one on the earliest Investors in STW after it was listed.

Note that the older LICs which are the bulk of our portfolio are akin to index proxies but with less rubbish and greater focus on dividend reliability not to mention the wonderful opportunity of getting them periodically at a discount.

However as an income growth investor I'm not a fan of bonds.

 

Did you read all of my post? Was it a drop or just reversion to the mean? LICs smoothing dividends. Dividends contining to rise in line with their long term trend after irrational exuberance brought back to reality. Cash buffer.

Read with thinking cap on, not just what catches your eye / emotions.

 

That is the degustation menu right there.

Deliciou$

 

Looks delicious to me too. However for a beginning investor looking at it all they can probably see is indigestion.

 

Keeping in mind Bogle is very US centric

John Bogle's View on Dividend Investing

Bogle separates stock market returns into fundamental returns and speculative returns. The fundamental return is the sum of two different factors: a stock's dividend yield and the company's earnings growth expressed as a percentage. Speculative returns come from varying opinions on what to pay for a company's earnings. In his opinion, over time, the fundamental return, which includes dividends, is the true driver of market value.

To Bogle, dividends aren't just a part of what drives the long-term value of a stock -- they form the main component of stock returns. Of the stock market's 9.6 percent total return over the 20th century, 4.5 percent came from dividend yields while 5 percent came from earnings growth, with 0.1 percent coming from adjustments in market price-to-earnings ratios. However, the dividends could be reinvested in interest-bearing accounts that would protect against inflation while the earnings growth was in non-inflation indexed dollars. When you subtract the impact of inflation from the earnings growth, dividends accounted for 75 percent of the market's growth.

Bogle also encourages investors to focus on investment vehicles that generate cash returns. For the equity portion of a cash-generating portfolio, he recommends dividend-bearing stocks because they provide a stream of income that can be used for living expenses. To him, the income stream can be more important than the fluctuating value of the stock that pays it. He also recommends capitalizing the value of fixed-income streams so that they can be treated as equivalent to fixed-income investments and included in an overall portfolio. For example, he thinks that the typical retiree already has $300,000 to $350,000 in fixed income investment based on the value that he places on the cashflow from Social Security.

Legends Of Indexing: John Bogle

Oversimplifying, what you want to do when you retire is walk out to the mailbox on Social Security day and on dividend payment day for the funds—assuming they’re the same day—and make sure you have two envelopes out there. One is your fund dividend and the other is your Social Security check. The Social Security will keep up with inflation year after year, and dividends are likely to increase year after year.

Bet on the dividends, and not on the market price. You’ve got those two envelopes and that’s your retirement. If you have a pension plan (one that is not likely to go bankrupt—and a lot of them are likely to) that is a third envelope. You want to be concerned about whether you have enough income to pay utility bills, pay for your food, pay your rent or your mortgage, whatever it might be, every month. You want income to help you pay those bills. And in the retirement stage, that’s what investing should be about—regular checks from dividends and/or from Social Security and/or from a pension account.

 

More Jack on dividends, I'm excited:


Great articles especially the second one. Thanks.

 

Today:
Smart investor chart of the moment: Why returns on US shares could fall to 4 pc

 

Video Bogle: Target-Date Funds Have a Flaw

The Vanguard founder says many target-date vehicles are underallocated to equities, and investors need to consider combinations of dividends and other retirement income when setting a specific target date.

 

Reminds me of the '87 "crash".
Everyone bangs on about the 50% drop but no one talks about the circa 80% run up prior.
Reversion to the mean, print that and stick it on ya mirror - we are all just average!