Timeless Advice From Our 2009 Interview with John Bogle

You couldn't find a more devoted champion of buy-and-hold investing than John Bogle. As the founder and former chief executive of the Vanguard Group, Bogle created the first index mutual fund, Vanguard 500 Index, in 1975 as a vehicle to allow his customers to capture the market's returns at as low a cost as possible. Bogle now heads the Bogle Financial Markets Research Center.

KIPLINGER'S: Does market timing deserve another chance given the magnitude of losses we've seen recently?

BOGLE: I really don't think so. There are probably three or four times in an investor's life when the market gets so out of sync with reality that it presents an opportunity for market timing. But remember, market timing involves being right twice: You have to know when to get back in as well as when to get out.

Also, our emotions tend to lead us in the wrong direction. We are usually optimistic when the market is high and pessimistic when the market is low. So the odds of being able to time the market successfully are not good. The stock market isn't a place for betting. The place for betting is called Las Vegas.

But couldn't investors save themselves grief by taking some money off the table during turbulent times, such as the period we experienced in the past year or two?

We're facing incredibly difficult economic conditions, which the stock market either fully reflects or inadequately reflects. Nobody knows which is the case. If you literally cannot afford to lose one more penny in the stock market, then you have to get out. But if your asset allocation is okay, and you don't peek much, you should be able to bear the risk and stay the course.

So you're not ready to proclaim the death of buy-and-hold investing?

Buy and hold is never dead. Think about it this way: As a group, we are all long-term investors. There's this piece of pie, which we'll call "American business," and we stockholders all own that together. But as individuals, people trade back and forth with one another. All that trading is expensive, and it also leads to the problem of corporate governance. In an own-a-stock industry, shareholders have to care about corporate governance. But in a rent-a-stock industry, in which shareholders are speculating on price, shareholders not only don't care about governance, arguably they shouldn't care.

The moral of the story?

Down with speculation and up with investment. That would also force corporations to return to running their businesses in the long-term interests of shareholders. You'd be amazed at how much more difficult it is to build the intrinsic value of a company than it is to raise the price of its stock. The latter is pretty easy to do: Management can skip a few pension contributions, change its rate of depreciation or do a couple of mergers that muddy the water. It's just a game. Investing money is serious work, not a game.