Are Stocks in A Bubble? Here is Buffett’s and Bogle’s Take

There were some excellent interviews of some of the biggest names in investing this week. Here are some highlights from Jack Bogle’s interview with the Motley Fool and Warren Buffett’s interview with CBS news on the status of the stock market today (is there a bubble forming?) and general investing advice.

The S&P 500 and Dow Jones Industrials index both hit all time highs to close out this week. The market is on an absolute tear and with that comes all sorts of sensational headlines about bubbles and impending market doom.  Is the stock market in a bubble? How should investors manage their money today with the market at record highs? These questions and many more are answered by two of the best minds in investing today.




First, Jack Bogle interviewed this week by the Motley Fool:

The interview is nearly an hour long, so for those who don’t have the time to listen to the whole thing, here are some quotes that deserve your attention.

And now my own position is that stocks are more or less fairly valued — probably a little on the high side — but more like, depending on whose number you’re using, 15x to 17x earnings. Maybe 18x earnings. It’s a long way from 35x — half. And bonds are not yielding 7%. They’re yielding — depending on what you want to look at — 2.5% to 3.5% depending on corporate government mix, maturities and things of that nature. You have to think a little bit differently, but I have not done anything about that and I don’t change my portfolio.


I think the interesting question is if you want financial advice — how much should you pay for it? Let me give you an interesting piece of math. I look at the stock market investment return as a 2% dividend yield at the present time — low but not nearly as low as the 1% we warrant — and a 5% earnings growth. That’s a 7% investment return and over the next 10 years, I don’t think it’s going to go up because of higher P/Es or down because of lower P/Es (not down much, anyway) so there won’t be any speculative return by my reckoning.

So, we’ve got 7%. That’s nominal. So, we go to real. And if we’re lucky enough to get 2% inflation, that’s 5%. And a typical fund manager is taking 2%. That’s 3%. And if you give 1% to an investment advisor that’s a third of 3% and you’re down to 2%…And if you’re a fund picker, you lose around 2% by jumping on the latest bandwagon and 2% minus 2% is a number that I won’t recalculate for your audience.


I haven’t owned individual stocks since, let me say, 1960. I don’t know exactly. A long, long time. I’ve never bought anybody else’s mutual fund, although I did buy a nice back-up investment for my son John — the Bogle Small Cap Growth — and it’s done rather nicely. Of course, he’s very smart. That’s about it.


Next video is Warren Buffett’s interview with CBS (This one is only 5 minutes long):


When asked if stocks are overpriced:

“”I don’t know what stocks will do next week or next month or next year. Or five or ten years from now, I would say that they’re very likely to be higher…. I would say that they’re in a zone of reasonableness. Five years ago, I wrote an article for The New York Times that said they were very cheap. And every now and then, you can see that that they’re very overpriced or very underpriced. Most of the time, they’re in an area where maybe they’re a little high, a little low, and nobody really knows exactly. They’re definitely not way overpriced. They’re definitely not underpriced.”


“We look at owning stocks as owning parts of business, just like owning a farm or an apartment house,” he said. “And if you buy the right farm or apartment house or the right business through a stock, and you don’t try and guess whether it’s going to go up next week or next month, but you hold it for five or 10 or 20 years, you’re going to do very well.”




In an era of overblown news headlines, its nice to see some rationality every once in a while. Take heed from the 160+ years of combined knowledge of Bogle and Buffett. Stay the course and enjoy the ride!



For new investors here are some links to the definition pages for topics discussed by Bogle and Buffett.

Bogle talks about a P/E ratio – or price to earnings ratio – of the stock market, read more about that on our P/E page here.

Note that the P/E definition page talks about finding P/E ratios for specific stocks. The P/E of the market  as a whole that Bogle was discussing can be easily found here (along with a ton of other helpful data) on Noble Prize winning economist Robert Schiller’s website:

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