Jack Bogle slamme
d Mark Cuban’s assertion that “diversification is for idiots” and “buy and hold is a crock of shit” in an engaging interview with the Journal‘s Jason Zwieg last Friday.The Vanguard founder’s response: Investors who fail to diversify do so at their peril–unless you’re Mark Cuban.
Diversification guarantees returns.
Bogle argues that, for the average investor, diversification hedges the market:
“For the average investor that doesn’t want to spend his life consumed with investing–and should not spend his life consumed with investing–he should get a nice simple strategy of diversification, not only by asset class–that is to say, stocks and bonds largely–but by the number of stocks and bonds in each class, a thousand even. And what do you get for that? You get a guarantee that you’ll get your fair share of the market returns that the bond and stock market are generous enough to give to us.”
Investing is buy and hold.
Asked whether buy and hold is dead, Bogle laughs:
“[The market] is a buy and hold proposition … It’s a buy and hold business, as a group. There’s no way around that … If you mean buy and hold stocks, I would say, ‘Don’t do that.’ I’d say buy and hold stocks, but buy and hold some bonds as well … just to protect you from the own impact of your own emotions.“
Business Insider Editor Henry Blodget weighs in: “For ordinary investors trying to earn a return without taking huge risks, Bogle’s right: Diversification is the way to go. If you’re trying to shoot the moon or become a billionaire, then Cuban’s right–you have to make concentrated bets like founding and building a company and not selling out until it’s huge. But of course there is no free lunch. You can’t bet the farm without losing it.”
Is buy and hold dead? Let us know what you think in the comments.
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