The Voyage of the Bogle…

The voyage of the Bogle… (incomplete with turtles..)


We have previously alluded to John Bogle of Vanguard fame. He explained stock market returns with three simple factors: dividends (currently about 2.2%); earnings growth (historically about 4.7%); and speculative return (or amount investors are willing to pay for earnings (about 23 currently).  This model looks at earnings, not  dividends, which as we all know are subject to adroit legerdemain.  If investors get excited they can always increase the multiple they are willing to pay.

Pretty simple and simply pretty. And as good a way as any to establish a fair and reasonable price for an issue.

And, like everything to do with the market the instant you have found a fair price for an issue rumors surface that the company has discovered the cure for cancer… and then…

Here is the secret of market analysis: Every moment in the market is unique, and the next moment will be unique compared to the moment we are analyzing right now. A potential infinity of variables is affecting price right now and in the next moment the new state may be affected by a new variable.

Pinning down the greased pig of prices is extremely difficult – if not impossible. And forecasting prices has all the dependability of a carnival crystal ball reader. Or Nancy Reagan’s astrologer. In this competitive struggle every analyst in the world seeks to uncover the philosopher’s stone with his own spells and incantations. Thus indicators propagate like Fibonacci’s rabbits (not one we think much of).


Sometimes this work is of interest, if not useful. And sometimes it is useful. Among the wizards who have tried to harness the market Edson Gould was famous back in medieval times. He developed a somewhat crude oscillator to measure overbought and oversold conditions in the market. He called it the Senti-Meter. By computing the cost of $1 of dividends the Senti-Meter assesses the mood of the market –from irrational exuberance to panic and gloom. At the link readers may inform themselves about this interesting method. There the Senti-Meter computes the cost of $1 in a state of enthusiasm as $33 –or a dividend yield of 3%.

Curiosity drives us to compute the present situation. Present S&P dividend yield is about 2.21%, working out to a cost of $1 of dividends of 45.98.   Disquieting? Perhaps. Our take is that the chart will tell us when to hedge or scat.  At present, in spite of the high multiple we see waiting for prices to deal with present resistance.  We do see it as positive that prices have not started a downwave after the nice run up.

Readers may read a longer piece on Gould at: gould.pdf.





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