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Jack Bogle's 3 Keys to a Winning Stock Strategy

Image: Jack Bogle's 3 Keys to a Winning Stock Strategy
Jack Bogle (AP)

By    |   Thursday, 31 Dec 2015 04:17 AM

 
Mutual fund legend and Vanguard founder Jack Bogle says he looks for three main factors in deciding on stocks in which to invest: starting yield, earnings growth, and speculative returns.

“You want to look at the source of the returns on stocks,” he told Bloomberg TV.

“The source of the return, I call it ‘investment return,’ which is today's dividend yield, and add to that future ‘earnings growth’ for the next 10 years. This is not a short-term thing. A dividend yield of 2%, earnings growth at 5%, 6% over the next 10 years, we could have a return of 6% to 7%,” he said.

“Then we have ‘speculative return.’ Investors can change their valuations on stocks right now, stocks are selling at 22 times earnings. If they were to drop to 17, 18 times earnings, you take that 7% return down to as little as 4% or less,” he said.

He expects “modest returns in the next 10 years compared to what we have been accustomed to.”

As for his 2016 predictions, he’s wary of forecasting only 12 months ahead of time.

“Nobody knows the future. Say, the growth of our gross domestic product, probably a 3% rate next year. I don't think a recession is very likely," he said.

"But investors have to understand that anything can happen in the economy, and anything can happen in the markets in the course of the year, so it's better to bet on the long term.”

And if you want to adhere to Bogle's long-term investing vision, US News has a pick for you: coal stocks.

"Over the long term, a small amount of exposure to the ailing U.S. coal industry might prove nice for investment portfolios," US News' Matt Whittaker writes.

"Over the last five years, the Dow Jones U.S. coal index has lost more than 95 percent as utilities switched to cheap natural gas, China has imported less than expected and India has been able to supply its own coal needs from internal production," he explained.

"The political and social environment has also not been kind to coal, as large investors such as pension funds and government organizations have committed to divesting themselves of fossil fuels," he said.

"But America's coal addiction isn't going to completely go away for some time. Last year, the commodity provided 39 percent of the nation's electricity, making it the biggest source of power in the U.S., according to the Energy Information Administration. At some point, low valuations for coal companies could become a bargain opportunity, experts say."

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Mutual fund legend and Vanguard founder Jack Bogle says he looks for three main factors in deciding on stocks in which to invest: starting yield, earnings growth, and speculative returns.
jack bogle, bloomberg tv, stock pick, strategy
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2015-17-31
Thursday, 31 Dec 2015 04:17 AM
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