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John Bogle on the Market’s Decline

Last week I wrote that, yes, our economy is obviously ailing. However, the primary cause of the current plummet in the market is simply investor fear. Our economy hasn’t declined anywhere near the amount it would have to in order to justify a 40% market drop.

And just the day after writing that post, I came across this interview with John Bogle, founder of Vanguard. (Update: Unfortunately, this video has been taken down from the Forbes website.)

It looks like Bogle agrees with me. 🙂 Here’s what he says:

I don’t think the value of corporate America has dropped by almost half. I mean, these are companies with capital – they make useful products and services, they’re efficient, competitive, innovative. Does anybody really think the value of American business changes by a trillion dollars a day? Well, they may, but I don’t.

Exactly. If shares of stock are shares of ownership in real companies–and they are–then what could we possibly be seeing in the economy that would make us think that these companies are worth only 60% of what they were worth a few months ago?

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  1. He’s almost certainly right. There are *some* reasons to be fearful and there are *some* reasons for Treasuries to yield c.3% on a 30-year view.

    But as ever it’s all about probabilities. There are *plenty more* reasons to think that on any long-term view we’ll get out of this in one piece.

    But what are you doing reading about the current market? I’d have thought your philosophy would be to ignore even a crash as noise on a 30-year view? 😉

    (Only joking, no offence meant!)

  2. Well said, Monevator. And yep, I do frankly see it as noise. 🙂

    Makes it a lot easier to stay sane when you see most of this stuff (such as the market decline, not things like job losses) as irrelevant.

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