Ordinary investors, learning how to invest, need to distinguish investing from speculating. Smart investors own a tiny slice of all businesses that exist to create value to customers. These stocks are productive assets. Speculators buy things that they hope to resell for more than they paid for it—they are gambling on price movements. In this video, John Bogle explains why a gold commodity investment is not an investment at all, it is price speculation. This video was produced by CNN. I have created a summary and transcript to help you find spots that interest you and make the best use of your time.
Summary of video: Bogle: ‘Gold is not an investment at all!’
Key points about investing in gold commodity from this video:
- The Vanguard funds founder says gold and the stock market volatility are driven by speculators.
- Gold commodity investment is not an investment at all, it is price speculation.
- Investors should invest for the long-term and try to ignore the noise about current prices.
- Don’t attempt to buy at the bottom and sell at the top. That is simply impossible for anybody.
- We should look at the wisdom of long-term investing and just ignore the folly of short-term speculation. It’s absolutely a loser’s game!
Transcript of: Bogle: ‘Gold is not an investment at all!’
(At 00:10 CNNMoney interviews John Bogle after a volatile month on Wall Street)
John Bogle, the founder of The Vanguard Group, joins us now with his perspective. John, it has been quite a month. What’s your take on how investors should react in the aftermath?
(00:16 Bogle)
Well, first I’d like to make a distinction between an investor and a speculator. I mean this kind of volatility in the market is entirely caused by speculators—people who are trying to catch the latest waves of sentiment, the latest word of the Fed, the latest developments in Europe, the latest problems in Washington, and the latest economic data, and that has very little to do with the long-term economic plan. So I’d say, try and ignore the noise.
The rule for most things in life is: Don’t just stand there, do something!
But in these kind of circumstances, and for the long-term investor, the rule should be: Don’t do something, just stand there!
(1:02 CNNMoney)
You said earlier this month that we are likely heading into a second recession for the United States. Right? Or, that we could be?
(1:09 Bogle)
I think the chances are probably 50/50 at least, that we’re going into a double-dip
(1:16 CNNMoney)
Given that, how should investors react. Should they get out now and sell at these levels if we are falling into another recession?
(1:24 Bogle)
Well, I think you should invest for the long term. And if you’re investing for a lifetime, or for the next 15-20 years, whatever it might be, you know in that period there are going to be a certain number of recessions, a certain number of booms, a certain number of good times, and some bad times. That’s the way the markets are. And to try to get in at the bottom and out at the top is simply impossible for anybody. But it’s a very good bet that stocks will do significantly better than bonds over the coming decade.
(1:58 CNNMoney)
How would you advise investors looking at commodities right now? I mean there has been such a rush into gold, especially lately, but really over the past few years. Is gold at these levels a wise investment for an average investor?
(2:11 Bogle)
Well, I think no. And the reason I say no is: Gold is not an investment at all! Gold, to go back to where we started, is a speculation. It has absolutely no underlying intrinsic value. You know, bonds are ultimately supported by interest coupons. Stocks are supported by dividend yields and earnings growth. And gold is supported by …. Well ? The ability to think that somebody is going to take it off your hands for more than you paid for it! It doesn’t have an internal rate of return. So it’s a speculation.
Is it a good speculation today? I don’t know that I’d be much of an expert on that, but it’s gone so high, so far, that I’d be very skeptical of it. But if you are really bitten by the gold bug, and it seems like a whole lot of people have been bitten by the gold bug, and if you want to speculate, you know maybe 1 to 5% of your assets in gold is not the worst idea in the world, but I wouldn’t do it myself, and I wouldn’t advise most investors to do it.
(3:15 CNNMoney)
What about corporate bonds? What’s your take on those right now?
(3:18 Bogle)
Well I think corporate bonds, in the A to AA area, have good premium yields over the Treasuries. You want to be very diversified. And I would certainly recommend a bond index fund—a corporate bond index fund perhaps, or a total bond index fund which is dominated by Treasuries and Mortgage-backed [securities]. But diversify that corporate position, because one bond can cost you a lot if you’re on the losing side of the game.
(3:45 CNNMoney)
There is the feeling among some mainstream investors that are telling me: Look, I feel as though high-frequency trading is really taking over this market and I can’t play in that game. What would you say to them? And much of the volatility over the month of August would you attribute to high-frequency traders and what does it do to the average investor’s ability?
(4:04 Bogle)
Well, average investors shouldn’t play in that game! It’s like going to Las Vegas and gambling, and why would anyone want to do that when you know the house takes more of the winnings than the winners and losers combined? It’s not a zero sum game; it’s a loser’s game—whether you’re at the race track, state lottery, or in Las Vegas. Ultimately you lose. Pick your stock market, pick your bond market, pick your stocks even, if you buy a very diversified list, and then get out of the game! Because you can’t play it. The cards are really stacked against you with this high-frequency trading, and we should look at the wisdom of long-term investing and just ignore the folly of short-term speculation. It’s absolutely a loser’s game!
You might also like: When to invest in gold? Learn why John Bogle and Warren Buffett urge you not to invest in gold. Choose productive assets and get your asset allocation right. Gold is not investing.
Footnotes and Credits
This video was produced by CNN and published on YouTube Aug 30, 2011 on their channel CNNMoney.
I watched this interview and I totally agree with Bogle.