VALUE OF DIVIDENDS AND STOCK PRICE FLUCTUATIONS

John Clifton “Jack” Bogle an American investor, business magnate, chief executive of The Vanguard Group, is an advocate of focusing on the dividend payments, keeping investment costs low and ignoring stock price fluctuations. He points out that the stock market is a giant distraction, and that the investors should keep an eye on the dividends, while ignoring stock prices. Share prices fluctuate greatly, since they are driven by the animal spirits of investor fear and greed. Stock crashes of 20% occur very frequently. Dividends are more stable than stock prices, follow a general smooth uptrend, and provide a source of income that historically has grown faster than inflation. This is why Bogle tells investors to ignore stock prices, and focus on dividends.

Bogle is against the widespread practice today of building portfolios that consist of 10-15 asset classes, whose sole purpose is to create complexity to generate fees for greedy asset managers. He likes to keep the investment simple that means not getting too fancy and too carried away by adding fashionable asset classes whose merits are derived from a back-tested computer model.

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