When a Respected Investor Becomes a Fearmonger

On April 5, 2018 Jack Bogle, founder of Vanguard, and a very respected investor said, “I have never seen a market this volatile to this extent in my career.”

Given his authority on investments and markets, this was a major statement to make. Especially for a guy with 66 years of experience. He has lived through lots of volatility, and as he said, “I’ve seen two 50-percent declines, I’ve seen a 25-percent decline in one day and I’ve never seen anything like this before.”

I have no clue how he could say the volatility in 2018 has been worse than Black Monday or during the financial crisis. I worked in this industry during the financial crisis; the fear and 7% daily moves were sickening. Nothing like 2018. I disagree completely.

One Month Later

Maybe his statement was taken out of context. Perhaps he was projecting into the future. Let’s look at that.

The day after making that statement, the market fell 3%. That was the lowest point in the last month. Today, the market is near the same level as when Bogle made his statement. Doesn’t look prescient…at least not yet.

A Lesson For All Investors

We humans love mental shortcuts. And one of our favorites shortcuts is to make decisions based on opinions/conclusions of others…especially if they are experts or thought leaders on the subject. And when it comes to investing, we have many experts to rely on.

Some experts have really good track records. But the disclaimer, “past performance does not guarantee future performance” is a fundamental truth of investing. And it applies here. No one is always right. Making wild statements or predictions can be exacerbated when the expert has a public persona (and ego) to protect.

Illusion of Accuracy

I have said a lot of stupid things. I have drawn many wrong conclusions. And I have been influenced by about every bias known to mankind. But I am free to acknowledge and learn from my errors.

Seldom will you hear an expert say, “I got that wrong” or “What was I smoking when I said that?” Instead, you will hear them defend their statements and predictions, often blaming circumstance. This leads to the illusion of accuracy, which can subconsciously influence investors to make decisions based on a prediction or opinion by a respected individual.

The Takeaway

We should never make decisions based on what someone says or predicts, no matter how “expert” they are, how well respected they are or how great their prior performance. Investment decisions should be made in accordance with our personal financial plan.