(audience applauding) - All right, our next speaker today is hopefully well known to all of you. Rick Ferry, MS, CFA, is the president of the Bogle Center. He has a 35-year career as a financial advisor. He is the founder of two successful financial advisory firms. He's the author of seven books on investing.

He was a Marine, I don't hold that against him, but he was a Marine aviator. And he has made 9,547 posts on the Bogleheads forum. (audience applauding) Rick Ferry. - Thank you, Jim, and thanks everyone for being here. It's been a wonderful event. You'll hear some more remarks from me tonight during our reception.

But I wanna get right into what I have been tasked to do today, this morning, or this afternoon. And that's two things. Number one, I'm talking about never try to time the markets. And then I'm gonna roll right into the next one, which is number six, which is why you should be using index funds whenever you can.

So let's talk about timing the market. This is a picture of the market. By the way, I am a Marine, okay? We work better with pictures than words. (laughing) Like some, my son-in-law is Army, so he says, "When you went to OC yesterday, they give you a box of crayons?" Anyway, so we take a lot of Marine jokes, but we get our points across.

So this is the stock market, right? Normal market, the market fluctuates. You cannot predict the market, but you can predict that it will fluctuate. And I don't know whether tomorrow it's gonna be up or down. I don't know next month, next week, next year, whether the market's gonna be up or down, but I know it's gonna be one direction or the other because it fluctuates.

So that, we can say, is predictable. Where it's going is really not predictable. In fact, this chart is interesting because every single year, and this goes all the way back to 1980, the market both goes up and goes down. Every year, on the bottom where you see the green, that's the amount that the market went down, and on the blue, that's the amount the market went up, and then the net amount was where it ended up.

So markets go up, markets go down, okay? And who's to say during the middle of the year where it's going to go tomorrow? I don't know where it's going to go. I know there's a lot of people who say they know, but there are also people who know they don't know, and I'm in the category of knowing I don't know, and it's worked out really well for me because then I can do disciplined investing, which you've already heard about.

So every year there are rallies. Every year there are declines. We just don't know when they're gonna begin and when they're gonna end and how big they're gonna be. Other than that, investing is easy, right? Also, what is it that we do as human beings? Wherever the market has just recently been, we react to that, okay?

When the market is high, we're happy. We're happy. My former partner from years ago used to say it's odd that when something gets more expensive, people want to buy more of it, okay? But that's not true, let's say, of the housing market. Everybody's saying, oh, the price of housing is so high, you know, I don't know if I wanna buy now.

I wait 'til it comes back down. But it's funny, with the market, when things do come down, people say, oh no, I don't wanna buy now, might go lower. This is a terrible place to buy, and start panicking. So, you know, reaction to the ups and downs of the market are very emotional, right?

And you can't let your emotions drive when you're going to get in and when you're going to get out. By the way, this is from the Investors Intelligence, Bulls and Bears, and just to illustrate what I'm talking about. So, when this red line is very high, people are very bullish.

And if you were to overlay this on top of where the market is, you would see that people are very bullish about stocks after stocks have already gone up. And here we are now, this is actually the end of September, people are bearish. You look along the bottom, the average investor is very bearish after the market has already gone down.

Okay, but is this predictive of anything? The answer is no. There's no predictive value at all in this information, zero. That has been proven time and time again, where people think the market is going to go, and where it actually goes, there's zero correlation between those two factors, okay?

So, but we feel like the market's going down, and the market has gone down, therefore we believe it's going to go down. In fact, people will often say to me, "Why should I invest now, the market is going down?" And my answer is, "I don't know where it's going.

"I know where it's been, I know where it is, "but I don't know where it's going." And there's a big difference. In the long run though, if the world stays in some sort of a normal growth pattern, in the United States, if we stay in a normal growth pattern for our economy, where eventually corporations earn more money, eventually productivity increases, maybe trade increases, our GDP, which is a measure of all this, adjusted for inflation, goes up, eventually this gets reflected in the stock market.

So the only thing we really need to worry about is the world economy going up, is it going to go up over our lifetimes, our children's lifetimes, our grandchildren's lifetimes, and that I'm willing to make a bet on, because the alternative to that is not pretty. So I am gonna be optimistic and say, I believe global GDP growth will continue, I believe our growth in this country will continue, and because of that, corporations will make more money, adjusted for inflation, and because of that, that will ultimately get reflected in higher dividends, and the stock market will eventually go up, and I have to believe that, not only for myself, but I have to believe that for my children, and my grandchildren, and my great-grandchildren, and generations beyond, because if we stop believing in that then we got a problem, we're gonna have a real problem, you should be buying lead, you know, brass, things like that.

(laughs) Okay, so in the long run, equity returns do come out of this global economic growth, so even if you don't buy it at the right time, okay, if you wait a while, you'll be fine in the long run. So, great quote by Benjamin Graham, Jason Zweig knows the quote very well, because he re-edited a book, or a second edition, if you will, of a Benjamin Graham book, but in the short run, the market is a voting machine, but in the long run, it is a weighing machine, and it's again, the first part of this is talking about emotion, the second part is talking about economic growth.

In the long run, and we're all long-term investors, you have to look at it as a weighing machine, although you can use how other people are voting to your benefit, and the way you do that is simply by what you already heard Christine talk about, and others talk about up here, is you need to be diversified, and you have your diversified portfolio, you have your investment plan, as Jim talked about in the first segment, and what you want to do is just do some rebalancing.

So, if you have a portfolio that happens to be 40% US stocks, 40% international stocks, whatever I have up there, whatever that says, and it gets out of whack because stocks went up, then you would sell some and come back to your, looks like 30, whatever that says, bonds, domestic and foreign, you go back to your original plan.

And then if it goes the other way, and stocks go down, you do a rebalancing. Now, then you get back to where you want to be. This actually adds to your portfolio over time. So you have a plan, you're investing according to your plan, you're doing it with discipline, and you could be doing it through dollar cost averaging, as Christine talked about, because you may be putting more money in the market, so as you're putting more money in the market, it has dividends pay, you can use that to do this rebalancing.

And also, if you're retired and you're taking money out, and it turns out that stocks have gone up, well, you take it out of the stock side of your portfolio, and if stocks have gone down, then you take it out of the bond side. So you can use distributions, and you can use new assets going in to help you do the rebalancing as well.

Taxes are gonna play into this, and we can talk all about that at another time. So what you do is you create your plan, as Jim said, you stick with the plan, and as John Bogle put it, invest when you can, rebalance, and stay the course. That works, okay, that works.

Now, I lived through the 1970s, I was in college, I saw markets like this where interest rates went way up, and it caused the stock market to go down and all that, but guess what? Everything ended up working out just fine. It took a while, but we got back to where we were supposed to be.

My personal belief on the market right now is the problem isn't that the market went down this year, the problem is it went too darn high last year, okay? I mean, everything was expensive. In 2021 was an incredible year because you name it, it went up in value, stocks, bonds, crypto, NFTs, real estate, everything went up an awful lot last year and last year was an ideal year to be selling some of those stocks and putting it in other asset classes like cash or in bonds.

This year might be going back the other way, I don't know how the year's gonna end up, but the problem with the market today, the problem with the fact that the market went down today actually was 2021, that's where the problem began because there was so much money sloshing around, so much of a balloon in asset prices.

Now at the time, again, everybody was euphoric, it looked great, we love this, let's put more in, right? You know, you see these kiddies flying through the year and they're worth $250,000 on your computer, like, wow, that's great, how do I buy that? Anyway, so stay the course, come up with a plan, come up with your asset allocation, stay the course and don't try to time markets.

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