As we celebrate Jack Bogle Day let’s assess one of his bedrock beliefs:
Don’t try to beat the market
Firstly, is the U.S. stock market any good?
We’d have to ask, compared to what?
It’s easy to calculate these annualized returns, adjusted for inflation, so let’s look at recent periods:
| Period | Years | S&P Return | Gold Return | Silver Return | 10 Year Treasury Return |
| 2018-2023 | 5 | 5% | 3% | 3.3% | -5.2% |
| 2013-2023 | 10 | 9.5% | -1.7% | -4.9% | -1.9% |
| 2008-2023 | 15 | 7% | 2.9% | 0.9% | 0.2% |
| 2003-2023 | 20 | 7% | 6.1% | 5.9% | -0.5% |
So…what would you have preferred to own over the last 5, 10, 15, or 20 years? The Stock Market won 4 out of 4 periods, sometimes by a little, sometimes by a lot.
So we can say, yes, the U.S. stock market is pretty good, compared with popular alternatives.
Why not try to beat the U.S. stock market?
It sounds attractive to “pick the next Microsoft”, doesn’t it? What happens when someone tries?
If professional fund managers picked investments at random then, on the average, 50% of managers should outperform the S&P 500 Index and 50% should underperform.
Here’s the problem for professional fund managers: someone has been keeping score:
For the first time since 2009 the professionals did almost as well as guessing randomly. They outperformed 49% of the time. Yay?
Interestingly, the professionals look even worse the closer you look. Let’s look at the % of Active Funds outperforming the U.S. Large Balanced Index across different time periods.
| Years | % Active Fund Outperformance |
| 5 | 30% |
| 10 | 13% |
| 15 | 9% |
| 20 | 8.7% |
OK, looks like random would be way better than what the professionals provide.
Why not be happy with success?
Bogle basically said, Don’t assume you’re smarter than everybody else.
What’s your position?
- You don’t have teams of analysts.
- You don’t have lightning fast programs, tested over years.
- You don’t have real time data streaming into your algorithms.
- You don’t have a supercomputer colocated in the same server rack as the stock exchange
There are people that have all of those things but they are much less successful than flipping a coin.
Why not be happy with the amazing performance of the U.S. stock market?
As Jack Bogle said, “In investing, you get what you don’t pay for. Costs matter.”
Why pay professionals to make lousy choices for you?
A simple, low cost index fund is a powerful tool that gets you your fair share of the profits of the amazing stock market.
But it’s a lot more profitable for investment managers to guess badly, and charge you for it.
Your choice.
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