Bogleheads® 2022 Conference – Bogleheads University

00:00:00.000 | (applause)

00:00:06.540 | All right, I'm gonna do my best to channel

00:00:07.940 | some Jack Bogle here.

00:00:09.440 | We're gonna talk about staying the course.

00:00:10.840 | I miss Jack.

00:00:12.580 | I tried to go to my first--

00:00:14.340 | or went to my first Bogle Heads meeting,

00:00:16.080 | I think it was 2008.

00:00:17.840 | So I wanted to meet Jack.

00:00:19.380 | And those who were there know he was in the hospital.

00:00:22.520 | He was in the hospital with some heart problems

00:00:24.120 | and he wasn't able to make it,

00:00:25.820 | but he called in from the hospital by video.

00:00:27.820 | So he did speak to us at that conference.

00:00:30.020 | But I had to come back to a later conference

00:00:31.500 | to actually meet Jack.

00:00:33.100 | And I wish you all were able to sit here

00:00:35.600 | and have Jack teach you this principle.

00:00:38.100 | So I'm gonna try to do the best I can in his place.

00:00:43.500 | Let's start with his words, though.

00:00:45.000 | In fact, we're mostly going to use his words

00:00:47.340 | for this section, because "stay the course"

00:00:49.380 | seems so easy that you all just wanna tune out

00:00:52.780 | and not even think about it.

00:00:53.780 | Of course, the last principle is "stay the course."

00:00:55.420 | But you know what? It's the hardest one to do.

00:00:58.420 | All the other ones are easy compared to this.

00:01:00.860 | So this is what Jack said.

00:01:02.360 | He said, "Stay the course.

00:01:04.400 | "No matter what happens, stick to your program.

00:01:07.260 | "I've said 'stay the course' 1,000 times,

00:01:10.100 | "and I meant it every time.

00:01:11.940 | "It is the most important single piece

00:01:14.240 | "of investment wisdom I can give to you."

00:01:18.380 | And he has said it so many times

00:01:20.040 | that he says it in a whole bunch of different ways.

00:01:21.820 | He says, "Press on regardless."

00:01:24.920 | He says, "Don't do something, just stand there."

00:01:27.720 | (audience laughing)

00:01:30.680 | So what does "stay the course" really mean?

00:01:34.060 | Well, I think there's about five things that it means.

00:01:37.700 | So let's talk about them, each individually.

00:01:39.860 | Here's the first one.

00:01:41.400 | "Don't change your plan based on how you feel."

00:01:45.040 | Now, these quotes you see here,

00:01:48.180 | these are all from Jack Bogle.

00:01:50.040 | He said, "Investors should keep their emotions

00:01:52.040 | "the heck out of the way."

00:01:54.500 | "Investor emotions plus fund industry

00:01:57.100 | "promotions equals trouble."

00:01:59.400 | "The greatest enemies of the investor

00:02:02.300 | "are expenses and emotions."

00:02:04.820 | "And time is your friend, impulse is your enemy."

00:02:07.520 | We all feel like the market's gonna go down

00:02:11.780 | or the market's gonna go up.

00:02:13.560 | I would challenge you to actually keep track

00:02:18.120 | of those feelings and those predictions you have.

00:02:20.560 | Get yourself a little $2 journal

00:02:22.920 | that you buy at the grocery store

00:02:24.700 | and start writing down these predictions of yours.

00:02:28.140 | It is a very enlightening exercise to do this

00:02:31.280 | over the course of a year or two or three.

00:02:34.040 | And you will be surprised by the end

00:02:38.040 | how poor you are at predicting the future

00:02:40.280 | and how wrong your feelings are quite often.

00:02:45.260 | One of my favorite books,

00:02:48.220 | I can't even remember the name of it,

00:02:49.720 | which is really sad,

00:02:51.060 | is an attorney who lived through the Great Depression.

00:02:54.960 | And he put an entry in this diary

00:02:56.860 | every two or three months throughout the 1930s

00:03:00.140 | talking about the economics of the era.

00:03:02.000 | And it's fascinating to read in real time

00:03:05.180 | the history that you now know,

00:03:07.180 | but what it was like to live through it.

00:03:10.620 | And that can be what your journal is,

00:03:12.540 | is it can help you to live through your feelings

00:03:15.720 | about the markets and your investments.

00:03:17.420 | But I can promise you this,

00:03:18.680 | if you actually keep track of them,

00:03:20.020 | you're not gonna pay any attention to them after a while

00:03:21.680 | because they are wrong, wrong, wrong.

00:03:23.720 | All right, the second thing stay in the course means

00:03:26.860 | is don't chase performance.

00:03:29.600 | Jack said buying funds based purely

00:03:31.300 | on their past performance is one of the stupidest things

00:03:33.540 | that an investor can do.

00:03:35.400 | And there's a reason they have to put that

00:03:37.000 | in every mutual fund prospectus.

00:03:39.500 | It's because it's true, it's true.

00:03:42.500 | Chasing performance is a terrible way to invest.

00:03:45.840 | You buy it right after it does great,

00:03:47.820 | right before it does poorly.

00:03:49.480 | So when you're staying in the course,

00:03:50.820 | you're not chasing performance.

00:03:52.680 | It means don't keep looking for a better plan, okay?

00:03:58.320 | Jack said the greatest enemy of a good plan

00:04:00.300 | is the dream of a perfect plan.

00:04:01.620 | Stick to the good plan.

00:04:03.060 | My wife and I, we drew up an investment plan in 2004.

00:04:07.460 | I think we made a couple of changes in 2005 or 2006.

00:04:10.740 | We made one other change in like 2016.

00:04:13.300 | And we followed that investment plan

00:04:15.380 | from being dead broke to being financially independent.

00:04:19.140 | Is it a perfect plan?

00:04:20.120 | No, it's a pretty good plan.

00:04:22.720 | It's not the best plan.

00:04:24.080 | If I'd had a crystal ball in 2005,

00:04:26.580 | the plan would look very different.

00:04:28.380 | But I did not have a crystal ball.

00:04:30.280 | We picked a good enough plan and we followed it

00:04:33.860 | and it worked amazingly.

00:04:36.100 | You funded a reasonable plan adequately

00:04:38.660 | and you will reach your financial goals.

00:04:41.300 | Okay, stay the course means to be patient.

00:04:43.560 | Jack said, rely on the ordinary virtues

00:04:46.540 | that intelligent, balanced human beings

00:04:50.540 | have relied on for centuries.

00:04:52.040 | Common sense, thrift, realistic expectations,

00:04:55.280 | patience, and perseverance.

00:04:57.820 | It's not that easy to stay with the same plan

00:05:01.820 | for 15 years, much less 60, right?

00:05:06.420 | Your investment career is probably about 60 years long.

00:05:10.160 | 30 years accumulating, 30 years distributing,

00:05:12.660 | give or take-ish.

00:05:14.460 | That's a long time to be patient with the plan,

00:05:17.300 | but that's what it requires to be successful.

00:05:19.540 | Okay, stay in the course means

00:05:21.800 | you don't sell out at market lows, right?

00:05:24.680 | Jack said, if you have trouble imagining a 20% loss

00:05:27.380 | in the stock market, you shouldn't be in stocks

00:05:30.380 | because they do that all the time.

00:05:32.620 | If you sell low just once late in your accumulation phase,

00:05:37.620 | that can be a financial catastrophe

00:05:41.660 | that keeps you from ever reaching your financial goals.

00:05:45.120 | It is so important that you do not sell out at market lows.

00:05:48.400 | It might be the most important thing about investing.

00:05:51.560 | Imagine an investor who sells out of their stocks

00:05:55.600 | at each of the following time periods

00:05:57.580 | and then buys back after the recovery to the prior high.

00:06:01.080 | Hey, if you did that in March of 2003, right?

00:06:04.120 | Stocks have been going down for three years, right?

00:06:07.120 | All these tech stocks have gone to zero.

00:06:09.920 | It's never gonna come back.

00:06:11.720 | They're flying planes into our buildings in New York City.

00:06:14.580 | Right, you remember this if you lived through it, right?

00:06:17.320 | If you sold out at that moment

00:06:19.120 | and didn't buy in until the market recovered,

00:06:21.260 | you had a 46% permanent loss of capital.

00:06:24.300 | All the money you had invested in stocks,

00:06:26.700 | 46% of it is just subtracted from your nest egg

00:06:30.100 | and never comes back.

00:06:31.640 | March, 2009, the global financial crisis.

00:06:35.340 | Money market funds are breaking the buck, right?

00:06:38.680 | Everybody's panicking.

00:06:39.940 | On the Bogleheads forum,

00:06:41.120 | everyone's talking about plan B.

00:06:43.280 | Everybody remember plan B?

00:06:44.980 | You know, as a physician, plan B

00:06:46.220 | means something very different,

00:06:47.280 | but on the Bogleheads forum,

00:06:49.420 | plan B was the idea that you bailed out

00:06:51.860 | if it got bad enough.

00:06:53.460 | And I didn't really like plan B, I wasn't a big fan,

00:06:55.660 | but I can tell you it was discussed extensively

00:06:58.160 | in 2008 and 2009 on the forum.

00:07:01.200 | If you had sold out your plan B in March of 2009,

00:07:07.480 | 62% permanent loss of capital, okay?

00:07:10.280 | Who remembers 2011?

00:07:11.340 | Nobody remembers 2011.

00:07:13.020 | It technically wasn't a bear market.

00:07:14.640 | It was only like 19% or 19 and a half percent down.

00:07:17.380 | It wasn't 20% down.

00:07:18.760 | If you sold out there though,

00:07:19.960 | 19% permanent loss of capital.

00:07:22.660 | December, 2018 is the other one everyone forgets about.

00:07:25.360 | It was down 18, 19% again that month.

00:07:28.460 | If you sold out, 18% permanent loss of capital.

00:07:31.660 | We all remember the start of the pandemic, right?

00:07:34.060 | 'Cause they shut down the NBA

00:07:35.300 | and we had nothing else to do but look at our stocks.

00:07:37.840 | 34% permanent loss of capital,

00:07:41.740 | just because you weren't patient enough

00:07:42.980 | to hold on for a few more months.

00:07:44.780 | Right now we're down what?

00:07:45.940 | I don't know, 20%, 25%, something like that.

00:07:49.220 | We don't know how bad it's gonna get,

00:07:51.480 | but if this is the bottom this month and you sell out,

00:07:54.320 | it's 25% permanent loss of capital.

00:07:57.020 | These are real situations that you gotta live through.

00:07:59.700 | You should ask yourself,

00:08:02.100 | what do I have to expect as an investor

00:08:04.200 | who's gonna be investing for 30 years as an accumulator

00:08:07.040 | and for 30 years as a decumulator, okay?

00:08:10.940 | Well, corrections, AKA a 10% drop,

00:08:14.440 | occur on average every 19 months.

00:08:17.040 | If you go back and look at all the data we have so far.

00:08:19.520 | Bear markets, which is a 20% plus drop,

00:08:22.380 | occur on average every 3.6 years.

00:08:24.820 | So with some simple division,

00:08:26.180 | I don't do algebra like Mike,

00:08:27.920 | with some simple division,

00:08:29.160 | I can tell that I'm gonna have to go through

00:08:33.020 | a bunch of these.

00:08:34.720 | Well, I'm gonna have to go through

00:08:36.000 | about 39 corrections as an investor.

00:08:39.860 | I'm gonna have to go through

00:08:40.940 | about 17 bear markets as an investor.

00:08:44.560 | This is an expected event, right?

00:08:47.540 | It's an expected event to go through a bear market.

00:08:50.000 | It shouldn't be a surprise when it happens.

00:08:52.420 | You know it's gonna happen

00:08:54.140 | every two or three or four or five years.

00:08:56.820 | Your plan should address it.

00:08:59.220 | You should plan to stay the course with your plan

00:09:02.220 | throughout these events that you plan for.

00:09:04.820 | On average, bear markets last 10 months, okay?

00:09:09.160 | Sometimes they're much shorter, right?

00:09:11.400 | That one with the pandemic, whoop, it was back, right?

00:09:14.300 | It was the fastest bear market recession

00:09:17.140 | I think we've seen in a long time.

00:09:18.740 | Although that one was in October of 1987,

00:09:21.740 | that one was pretty quick too, right?

00:09:23.480 | Huge one-day drop, biggest one-day drop ever.

00:09:26.420 | Still finished positive for the year in 1987, right?

00:09:29.640 | If you'd bailed out, permanent loss of capital.

00:09:32.780 | It's interesting, if you look at the markets,

00:09:36.820 | the history of the markets,

00:09:37.920 | and you should be a student of the markets,

00:09:40.800 | stocks have provided a positive return in 78% of years.

00:09:44.960 | That includes many of those years

00:09:47.360 | when there was a correction

00:09:48.960 | and when there was a bear market.

00:09:50.240 | I think it was Alan's slide earlier

00:09:51.840 | that he showed of all those maximum drawdowns

00:09:54.340 | that you had during a year with a positive return.

00:09:56.400 | Happens all the time.

00:09:58.640 | Okay, so here we are, Jack Vogel's advice.

00:10:01.880 | Stay the course.

00:10:03.420 | It is the most important single piece of investment wisdom

00:10:06.680 | that I can give to you.

00:10:08.180 | (upbeat music)

00:10:10.760 | [BLANK_AUDIO]

Bogleheads® 2022 Conference – Bogleheads University - Principle 10: Stay the Course

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