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Bogle: Record High Stock Market Levels Are Not a Red Flag

By John Morgan   |   Thursday, 26 Sep 2013 08:52 AM

Mutual fund titan Jack Bogle says investors should disregard record highs in the stock market and not let temporary thinking affect their long-term decision making.

"I don't know exactly what to say about a record high," Bogle, founder of The Vanguard Group of financial funds, told MarketWatch, referring to the recent lofty historical levels of some major stock indexes.

"Yes, it's at a record high, there's no question about that. But dividends are at a record high ... and corporate earnings are at a record high, so it's the inter-relationship between the fundamental value and that ephemeral market price that is the important thing to think about. So record highs, I don't think about that."

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Over a longer period of time, Bogle still believes stocks will return an average of 7 percent to 7.5 percent, while bonds will produce 4.5 percent on average.

"I think stocks are in a general range of reasonable value, and by 'reasonable value' we're talking about price-earnings values," Bogle told MarketWatch.

Bogle noted that exchange-traded funds (ETFs) are not great investments for most investors because when people purchase trading vehicles, they trade them.

"There's nothing the matter with [broadly diversified index ETFs], if you buy them and hold them," he said. "The problem with ETFs is that it turns out to be a great marketing idea — certainly the greatest marketing idea of the early part of the 21st century — but it doesn't look like it's a very good investment idea."

Richard Henry Suttmeier, chief market strategy for ValuEngine.com, said investors should be conservative at current market levels, and recommended high cash positions.

"In this environment investors should not be 'all in' when it comes to investing in the stock market," he wrote in an article for Forbes. "I believe that the downside risk far exceeds the upside potential."

ValuEngine estimates 77.8 percent of all stocks are overvalued, including 45.2 percent by 20 percent or more, according to Suttmeier.

All 16 major stock sectors are overvalued, including consumer staples by 17.6 percent, retail-wholesale by 26.4 percent and utilities by 9.8 percent, he noted.

Joseph Tanious, global market strategist for J.P. Morgan Asset Management, told Bloomberg www.bloomberg.com/news/2013-09-25/u-s-stock-index-futures-little-changed-on-budget-concern.html the U.S. stock market is still in a better spot than most of the rest of the world.

"The U.S. continues to be the most resilient economy across the world and its markets have reflected that with the least amount of volatility" Tanious said.

"Earnings growth has continued to hit record highs. There is less skepticism about the long-term potential in U.S. markets."

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