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Thursday, September 20, 2012

Bogle Talks Market Volatility and Speculation

News summary by MFWire's editors

Vanguard's [profile] big man, Jack Bogle, thinks the market is more volatile than it has been in past decades. But Bogle also told Time that volatility is "less so this year" and "it always reverts to the mean." Bogle said, "Of course, it would help if we could get some of the high-frequency trading out of the markets." Asked by Time how investing has become speculative, Bogle said:
There was a big acceleration around 1980, when companies began using stock options to fund corporate compensation. We moved to a system of compensation that was based on stock prices rather than on intrinsic values. Suddenly, you are paying executives [not to run a company well but] to raise the price of their stock Ė and thatís a bad innovation. The bull market of the 1980s didnít help things, because it made it all seem so easy, and you had a lot of new mutual funds taking higher fees. If you have a 17% return, who cares if you are paying 2% fees? People just didnít worry about costs, which is a bad thing.
Read Bogle's full Q&A with Time here

Edited by: HFD


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