At 1 am Mumbai Time,just a half hour ago,I got to see on CNBC TV 18,two of my favourites,John Bogle,founder of Vangaurd Group of Mutual Funds and a staunch advocate of Index Investing over specific Stock Selection and Jeremy Seigel.Professor at the University of Pennsylvania and a strong advocate of Stocks
Both made some very interesting arguments
Bogle said that Fund Managers had not been doing a good job at all…sometimes one strategy or sector works well and at other times they are failures…there is no way to know in advance what will work….He hates strategies in Equities and Index Investing is the way to go…15 Years and 20 years CAGR returns are postive at over 5% and over 7% respectively…Asset Allocation is important and as a thumb rule,which he has followed with great success, is that the % of Bonds Allocation in your Portfolio should be around your Age
Seigel made a strong point on Dividend Yield of S & P 500 being at 3.7%,over 1 % of Bond Yields and at it’s highest in 50 Years…so any one in Stocks,need not need any capital appreciation in them to beat the Bond Yields…Higher Dividend Yield takes care of this…when the Anchor inquired that Bear Markets in the past has seen Dividend Yields of 5% to 6% in the S & P and should not one await such levels before entering Stocks again,Seigel highlighted the fact that when these high Dividend Yields of 5% or 6% had come about the Interest Yields were higher at 8 % and 10 %…Today the Dividend Yield is higher than Interest Yield,making Equities look very attractive indeed
Countering this,Bogle states that the volatility even in Dividend Yield Stocks was very high…forget capital appreciation,there was a 20% drop in days in prices of such stocks…that’s a capital loss higher than the Dividend Yields on the Stocks !….so specific strategies and stock selections on whatever criteria don’t really work….what works is Index Investing over a long Time Frame
I’m well acquainted with both,Bogle and Seigel and regularly argue them at my workshops…but it was Great hearing these guys Live on TV now