Bogle’s Totally Static Portfolio

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nigel_ht
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Bogle’s Totally Static Portfolio

Post by nigel_ht »

One of the other threads linked to this Forbes article:

https://www.forbes.com/global/1999/0614 ... 5484d268ff
John Bogle gave birth to the retail index fund industry by creating the Vanguard 500 Index Fund in 1975. Today this $88 billion fund’s turnover is a minuscule 6%. Its expense ratio is a rock-bottom 0.2% of assets annually.

But Bogle thinks he has a better baby, the ultimate in buy-and-hold investing. He would buy the 50 largest companies in the S&P 500 and then never buy another. If a stock were lost in a merger, Bogle would not replace it.

The Vanguard 500 Index incurs (small) transactional costs when people buy new shares or cash out. Bogle would avoid this by opening the doors only once and requiring people to take redemptions in shares in lieu of cash.

Professor Jeremy Siegel of the University of Pennsylvania’s Wharton School calculated a hypothetical return (before transaction costs) if someone had bought the 50 largest S&P 500 stocks on Dec. 31, 1950, and held on. Average annual return: 12.6%, a fraction of a point better than the entire market. He then created separate buy-and-hold portfolios for every year between 1950 to 1996. The buy-and-hold approach beat the market 75% of the time, never underperforming by more than 0.6% a year.

Bogle estimates that taxes and transaction costs skim 4.5% annually out of returns for most U.S. investors in actively managed funds, and 1.5% even for investors in an index fund. He figures his static-50 fund would cost 0.15% of assets to run. One big caution, with which Bogle agrees: All 50 top S&P 500 stocks may currently be overpriced. This matters less for long-term investors.
Anyone have any other information or maybe an interview where Bogle describes this?

Seems implementable in 2022 given fractional shares and zero trading costs…

Might be a PITA to backtest with the current set of online tools.
livesoft
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Re: Bogle’s Totally Static Portfolio

Post by livesoft »

I will just note that we have spreadsheets posted in the forum where tax costs for the past few years of index funds are not 1.5% and for some taxpayers and some ETFs are actually negative. So the 1.5% is dated. Of course, in 5 years anything calculated recently will also be dated.
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nigel_ht
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Re: Bogle’s Totally Static Portfolio

Post by nigel_ht »

For attribution purposes it was seajay that provided the link that got me interested:
seajay wrote: Sat Aug 06, 2022 4:52 pm
Market cap isn't the 'optimal' either. The more optimal is to buy a broad range of stocks in initial equal capital weight, bought and held. But that's not a viable general index, is specific to each individual/start date time-point. Such optimisation yields around 1.5%/year more than the regular Dow, so not a trivial difference. Nor is it a viable general product. https://www.forbes.com/forbes/1999/0614 ... 598b268747
Bogle recommends the ultimate in buy-and-hold investing: a completely static portfolio. He would buy the 50 largest companies in the S&P 500 and then never buy another. The portfolio would ignore the constant small adjustments that Standard & Poor's makes in the index. If a stock were lost in a merger, Bogle would not replace it.
Alas, his successor as chief executive of the nonprofit Vanguard Group, John Brennan, doesn't plan to offer the product. Creating new portfolios annually (because newcomers would not be allowed into an existing portfolio) would be an administrative headache with each distinct one lacking sufficient economies of scale, Vanguard believes.
John Mauldin noted the effect back in 2009 https://www.mauldineconomics.com/frontl ... -mwo040309
Next, we find that the S&P 500 cap-weighted index outperforms the Dow by about 0.2% annually, for a total return of 9.1%. Not much difference there.

Now we come to the interesting part. The next-to-the-top line is the original Dow 30, using a price-weighted index, just like the current Dow 30 uses. The only changes in the next 80 years are companies getting bought or dying. That "Original 30" gives us an annual return of 9.6%. Just 0.7% a year, so you might think, not much difference. But if you start with $100 and compound it for 80 years, that 0.7% becomes a quite large differential. With the Dow 30, your $100 would have grown to $96,993 as of December 2008, but the Original 30 would have grown to $161,603.

And there is an even bigger differential if you simply equal-weight the components rather than use a price-weighting methodology. Your $100 grows at a 10.4% clip and becomes $272,554, or almost three times the actual Dow 30.
LEXCX is a real world example case, that bought and held 30 stocks back in the mid 1930's, but where its relative benefit has a sizeable chunk being lost via its 0.5% relatively high fees.

If in 20, 30, whatever years time the likes of the S&P500 are no longer viewed as being the daily reference/average, but instead a 1.5% higher average index has stepped up to replace that, then back-tests using that index will obviously be inclined to overstate what average investors actually achieved who had followed a index that lagged that average by 1.5%.
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nigel_ht
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Re: Bogle’s Totally Static Portfolio

Post by nigel_ht »

livesoft wrote: Mon Aug 08, 2022 4:22 pm I will just note that we have spreadsheets posted in the forum where tax costs for the past few years of index funds are not 1.5% and for some taxpayers and some ETFs are actually negative. So the 1.5% is dated. Of course, in 5 years anything calculated recently will also be dated.
The article was in 1999 so I’m sure many numbers are now different…the strategy may not even show any benefit 20 years later…
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Re: Bogle’s Totally Static Portfolio

Post by Marseille07 »

I don't see how this is a good idea. You end up holding companies like IBM and GE forever.
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Re: Bogle’s Totally Static Portfolio

Post by seajay »

Another historic example, in addition to LEXCX and what John Mauldin noted, on the UK TMF board a similar method was formed back in 2000, called the High Yield Portfolio (HYP). Bought equal capital amounts of a diverse range of stocks/sectors, applying a degree of 'value' in the selections via buying above average dividend yielders. Just bought and held as-is, but that has seen quite a few changes via natural causes (takeovers etc.). Relative performance compared to the broader index has been OK/good. A factor however is that a smaller number of the selections have risen to being relatively highly weighted, introducing greater concentration risk. Such that the additional reward is seemingly matched with higher risk. A 1.5% additional average reward may be of little comfort if at some point a single stock perhaps weighted to 40% of the total portfolio suddenly endures considerable pain/decline.

https://markets.ft.com/data/funds/tears ... gs?s=LEXCX indicates that recently LEXCX has 38% weighting in UNP and 14% in BRK, over half of the total portfolio in just two stocks (although I guess BRK might be considered as having some qualities of a form of broader 'index' type holding, putting aside its insurance business risk factors). But I guess equally it has evolved to hold high exposure to the few stocks that did very well.
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Re: Bogle’s Totally Static Portfolio

Post by Abalyon »

I don't know if this was the case looking back 20 years from the year 1999, but this seems like it would've been a horrible idea if implemented in 1999 for obvious reasons. Even a few years after, it would have been bad. The 2000s had a lot of oil which mostly had meagre returns the last 20 years, a number of financials that literally went to 0 such as AIG and Fannie, and old technology and telecom companies that did little to drive future index returns such as AT&T and Cisco. You of course had some good holdings such as Microsoft, but most of these holdings didn't drive index growth after the GFC. I don't recall when Apple crossed into the top 50, but they were pretty far down in 2002. Guess you missed out on that.
Last edited by Abalyon on Mon Aug 08, 2022 8:16 pm, edited 1 time in total.
Topic Author
nigel_ht
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Re: Bogle’s Totally Static Portfolio

Post by nigel_ht »

seajay wrote: Mon Aug 08, 2022 6:16 pm Just bought and held as-is, but that has seen quite a few changes via natural causes (takeovers etc.). Relative performance compared to the broader index has been OK/good. A factor however is that a smaller number of the selections have risen to being relatively highly weighted, introducing greater concentration risk.
My impression is that every year you would make a new list of 50 and for that year DCA into the new list without touching what is already in there.

That should reduce the concentration a bit.
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vineviz
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Re: Bogle’s Totally Static Portfolio

Post by vineviz »

nigel_ht wrote: Mon Aug 08, 2022 4:26 pm
livesoft wrote: Mon Aug 08, 2022 4:22 pm I will just note that we have spreadsheets posted in the forum where tax costs for the past few years of index funds are not 1.5% and for some taxpayers and some ETFs are actually negative. So the 1.5% is dated. Of course, in 5 years anything calculated recently will also be dated.
The article was in 1999 so I’m sure many numbers are now different…the strategy may not even show any benefit 20 years later…
I'm doubtful it would.

Also, we have good evidence that might not have been available to Bogle that the very largest stocks subsequently under-perform the market. Without any remaining advantage from transaction costs and tax savings, I'd be shocked if this strategy could beat VTI or SPTM.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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nigel_ht
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Re: Bogle’s Totally Static Portfolio

Post by nigel_ht »

vineviz wrote: Mon Aug 08, 2022 8:21 pm
nigel_ht wrote: Mon Aug 08, 2022 4:26 pm
livesoft wrote: Mon Aug 08, 2022 4:22 pm I will just note that we have spreadsheets posted in the forum where tax costs for the past few years of index funds are not 1.5% and for some taxpayers and some ETFs are actually negative. So the 1.5% is dated. Of course, in 5 years anything calculated recently will also be dated.
The article was in 1999 so I’m sure many numbers are now different…the strategy may not even show any benefit 20 years later…
I'm doubtful it would.

Also, we have good evidence that might not have been available to Bogle that the very largest stocks subsequently under-perform the market. Without any remaining advantage from transaction costs and tax savings, I'd be shocked if this strategy could beat VTI or SPTM.
I have found it is more difficult than I thought to figure out the largest 50 stocks in the S&P Jan 1, 2000 without paying for a dataset…

I have found the constituents but not their ranking…
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Re: Bogle’s Totally Static Portfolio

Post by MarkRoulo »

Marseille07 wrote: Mon Aug 08, 2022 4:35 pm I don't see how this is a good idea. You end up holding companies like IBM and GE forever.
You also wind up holding Apple and Google forever.
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Re: Bogle’s Totally Static Portfolio

Post by JoMoney »

nigel_ht wrote: Mon Aug 08, 2022 8:38 pm
vineviz wrote: Mon Aug 08, 2022 8:21 pm
nigel_ht wrote: Mon Aug 08, 2022 4:26 pm
livesoft wrote: Mon Aug 08, 2022 4:22 pm I will just note that we have spreadsheets posted in the forum where tax costs for the past few years of index funds are not 1.5% and for some taxpayers and some ETFs are actually negative. So the 1.5% is dated. Of course, in 5 years anything calculated recently will also be dated.
The article was in 1999 so I’m sure many numbers are now different…the strategy may not even show any benefit 20 years later…
I'm doubtful it would.

Also, we have good evidence that might not have been available to Bogle that the very largest stocks subsequently under-perform the market. Without any remaining advantage from transaction costs and tax savings, I'd be shocked if this strategy could beat VTI or SPTM.
I have found it is more difficult than I thought to figure out the largest 50 stocks in the S&P Jan 1, 2000 without paying for a dataset…

I have found the constituents but not their ranking…
You can find the data in a S&P 500 mutual fund/index fund, here's the info from Vanguard's 500 fund top 50 holdings (in order of the weight)
As of DECEMBER 31, 1999
https://www.sec.gov/Archives/edgar/data ... 000244.txt

Code: Select all

   Microsoft Corp.                       43,806,241   $ 5,114,379
   General Electric Co.                  27,853,005     4,310,253
   Cisco Systems, Inc.                   27,767,465     2,974,590
   Wal-Mart Stores, Inc.                 37,790,522     2,612,270
   Exxon Mobil Corp.                     29,319,160     2,362,025
   Intel Corp.                           28,363,603     2,334,679
   Lucent Technologies, Inc.             26,598,579     1,989,906
   International Business Machines Corp. 15,303,339     1,652,761
   Citigroup, Inc.                       28,620,076     1,590,203
   America Online, Inc.                  18,978,270     1,431,673
   American International Group, Inc.    13,142,292     1,421,010
   SBC Communications Inc.               28,961,046     1,411,851
   AT&T Corp.                            27,127,702     1,376,731
   Oracle Corp.                          12,086,309     1,354,422
   Home Depot, Inc.                      19,542,971     1,339,915
   Merck & Co., Inc.                     19,843,619     1,330,763
   MCI WorldCom, Inc.                    24,087,588     1,278,148
   Procter & Gamble Co.                  11,156,691     1,222,355
   The Coca-Cola Co.                     20,969,054     1,221,447
   Nortel Networks Corp.                 11,338,719     1,145,211
   Royal Dutch Petroleum Co. ADR         18,202,667     1,100,124
   Dell Computer Corp.                   21,569,164     1,100,027
   Johnson & Johnson                     11,805,190     1,099,358
   Bristol-Myers Squibb Co.              16,840,622     1,080,957
   Pfizer, Inc.                          32,869,115     1,066,192
   Sun Microsystems, Inc.                13,261,708     1,026,953
   QUALCOMM, Inc.                         5,601,384       986,544
   Hewlett-Packard Co.                    8,650,806       985,651
   Yahoo!, Inc.                           2,234,745       966,946
   EMC Corp.                              8,638,142       943,717
   Bell Atlantic Corp.                   13,183,101       811,585
   Time Warner, Inc.                     10,919,200       790,960
   Motorola, Inc.                         5,170,680       761,383
   BellSouth Corp.                       15,979,997       748,064
   Bank of America Corp.                 14,491,510       727,293
   Morgan Stanley Dean Witter & Co.       4,727,101       674,794
   Texas Instruments, Inc.                6,808,527       659,576
   American Express Co.                   3,800,496       631,832
   Eli Lilly & Co.                        9,258,017       615,658
   Warner-Lambert Co.                     7,292,813       597,555
   E.I. du Pont de Nemours & Co.          8,867,499       584,146
   GTE Corp.                              8,249,952       582,137
   Wells Fargo Co.                       13,938,778       563,649
   Tyco International Ltd.               14,343,356       557,598
   Ford Motor Co.                        10,254,357       547,967
   The Chase Manhattan Corp.              7,000,224       543,830
   Fannie Mae                             8,701,105       543,275
   Schering-Plough Corp.                 12,471,736       526,151
   Amgen, Inc.                            8,669,407       520,706
   The Walt Disney Co.                   17,506,768    $  512,073   


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nisiprius
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Re: Bogle’s Totally Static Portfolio

Post by nisiprius »

The Voya Corporate Leaders Trust LEXCX has done something similar to Bogle's idea. Due to the legal structure of the trust, it only changes the composition of the portfolio as a result of mergers and spinoff. It has in fact done very well. Nevertheless, the result of never rebalancing is that over 40% of the fund is invested in a single stock, Union Pacific. And almost a quarter of it is in oil companies. It is hard for me to see that as adequately diversified.

My chart, from data downloaded from this source:

Image
Last edited by nisiprius on Wed Aug 10, 2022 6:36 pm, edited 1 time in total.
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Abalyon
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Re: Bogle’s Totally Static Portfolio

Post by Abalyon »

JoMoney wrote: Mon Aug 08, 2022 8:56 pm
nigel_ht wrote: Mon Aug 08, 2022 8:38 pm
vineviz wrote: Mon Aug 08, 2022 8:21 pm
nigel_ht wrote: Mon Aug 08, 2022 4:26 pm
livesoft wrote: Mon Aug 08, 2022 4:22 pm I will just note that we have spreadsheets posted in the forum where tax costs for the past few years of index funds are not 1.5% and for some taxpayers and some ETFs are actually negative. So the 1.5% is dated. Of course, in 5 years anything calculated recently will also be dated.
The article was in 1999 so I’m sure many numbers are now different…the strategy may not even show any benefit 20 years later…
I'm doubtful it would.

Also, we have good evidence that might not have been available to Bogle that the very largest stocks subsequently under-perform the market. Without any remaining advantage from transaction costs and tax savings, I'd be shocked if this strategy could beat VTI or SPTM.
I have found it is more difficult than I thought to figure out the largest 50 stocks in the S&P Jan 1, 2000 without paying for a dataset…

I have found the constituents but not their ranking…
You can find the data in a S&P 500 mutual fund/index fund, here's the info from Vanguard's 500 fund top 50 holdings (in order of the weight)
As of DECEMBER 31, 1999
https://www.sec.gov/Archives/edgar/data ... 000244.txt

Code: Select all

   Microsoft Corp.                       43,806,241   $ 5,114,379
   General Electric Co.                  27,853,005     4,310,253
   Cisco Systems, Inc.                   27,767,465     2,974,590
   Wal-Mart Stores, Inc.                 37,790,522     2,612,270
   Exxon Mobil Corp.                     29,319,160     2,362,025
   Intel Corp.                           28,363,603     2,334,679
   Lucent Technologies, Inc.             26,598,579     1,989,906
   International Business Machines Corp. 15,303,339     1,652,761
   Citigroup, Inc.                       28,620,076     1,590,203
   America Online, Inc.                  18,978,270     1,431,673
   American International Group, Inc.    13,142,292     1,421,010
   SBC Communications Inc.               28,961,046     1,411,851
   AT&T Corp.                            27,127,702     1,376,731
   Oracle Corp.                          12,086,309     1,354,422
   Home Depot, Inc.                      19,542,971     1,339,915
   Merck & Co., Inc.                     19,843,619     1,330,763
   MCI WorldCom, Inc.                    24,087,588     1,278,148
   Procter & Gamble Co.                  11,156,691     1,222,355
   The Coca-Cola Co.                     20,969,054     1,221,447
   Nortel Networks Corp.                 11,338,719     1,145,211
   Royal Dutch Petroleum Co. ADR         18,202,667     1,100,124
   Dell Computer Corp.                   21,569,164     1,100,027
   Johnson & Johnson                     11,805,190     1,099,358
   Bristol-Myers Squibb Co.              16,840,622     1,080,957
   Pfizer, Inc.                          32,869,115     1,066,192
   Sun Microsystems, Inc.                13,261,708     1,026,953
   QUALCOMM, Inc.                         5,601,384       986,544
   Hewlett-Packard Co.                    8,650,806       985,651
   Yahoo!, Inc.                           2,234,745       966,946
   EMC Corp.                              8,638,142       943,717
   Bell Atlantic Corp.                   13,183,101       811,585
   Time Warner, Inc.                     10,919,200       790,960
   Motorola, Inc.                         5,170,680       761,383
   BellSouth Corp.                       15,979,997       748,064
   Bank of America Corp.                 14,491,510       727,293
   Morgan Stanley Dean Witter & Co.       4,727,101       674,794
   Texas Instruments, Inc.                6,808,527       659,576
   American Express Co.                   3,800,496       631,832
   Eli Lilly & Co.                        9,258,017       615,658
   Warner-Lambert Co.                     7,292,813       597,555
   E.I. du Pont de Nemours & Co.          8,867,499       584,146
   GTE Corp.                              8,249,952       582,137
   Wells Fargo Co.                       13,938,778       563,649
   Tyco International Ltd.               14,343,356       557,598
   Ford Motor Co.                        10,254,357       547,967
   The Chase Manhattan Corp.              7,000,224       543,830
   Fannie Mae                             8,701,105       543,275
   Schering-Plough Corp.                 12,471,736       526,151
   Amgen, Inc.                            8,669,407       520,706
   The Walt Disney Co.                   17,506,768    $  512,073   


Here's the percentages*:

Code: Select all

8.21%	Microsoft Corp.
6.92%	General Electric Co.
4.77%	Cisco Systems, Inc.
4.19%	Wal-Mart Stores, Inc.
3.79%	Exxon Mobil Corp.
3.75%	Intel Corp.
3.19%	Lucent Technologies, Inc.
2.65%	International Business Machines Corp.
2.55%	Citigroup, Inc.
2.30%	America Online, Inc.
2.28%	American International Group, Inc.
2.27%	SBC Communications Inc.
2.21%	AT&T Corp.
2.17%	Oracle Corp.
2.15%	Home Depot, Inc.
2.13%	Merck & Co., Inc.
2.05%	MCI WorldCom, Inc.
1.96%	Procter & Gamble Co.
1.96%	The Coca-Cola Co.
1.84%	Nortel Networks Corp.
1.76%	Royal Dutch Petroleum Co. ADR
1.76%	Dell Computer Corp.
1.76%	Johnson & Johnson
1.73%	Bristol-Myers Squibb Co.
1.71%	Pfizer, Inc.
1.65%	Sun Microsystems, Inc.
1.58%	QUALCOMM, Inc.
1.58%	Hewlett-Packard Co.
1.55%	Yahoo!, Inc.
1.51%	EMC Corp.
1.30%	Bell Atlantic Corp.
1.27%	Time Warner, Inc.
1.22%	Motorola, Inc.
1.20%	BellSouth Corp.
1.17%	Bank of America Corp.
1.08%	Morgan Stanley Dean Witter & Co.
1.06%	Texas Instruments, Inc.
1.01%	American Express Co.
0.99%	Eli Lilly & Co.
0.96%	Warner-Lambert Co.
0.94%	E.I. du Pont de Nemours & Co.
0.93%	GTE Corp.
0.90%	Wells Fargo Co.
0.89%	Tyco International Ltd.
0.88%	Ford Motor Co.
0.87%	The Chase Manhattan Corp.
0.87%	Fannie Mae
0.84%	Schering-Plough Corp.
0.84%	Amgen, Inc.
0.82%	The Walt Disney Co.

Good luck backtesting it.

*for the 50 to be 100%, not the weight of the top 50 in the total S&P
Last edited by Abalyon on Mon Aug 08, 2022 9:19 pm, edited 1 time in total.
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Re: Bogle’s Totally Static Portfolio

Post by vineviz »

nigel_ht wrote: Mon Aug 08, 2022 8:38 pm
I have found the constituents but not their ranking…

Code: Select all

Ticker	Company Name	12/31/1999 WEIGHT
MSFT	Microsoft Corp.	4.9%
GE	General Electric Co	4.1%
CSCO	Cisco Systems Inc	2.9%
WMT	Wal-Mart Stores Inc	2.5%
XOM	Exxon Mobil Corp.	2.3%
INTC	Intel Corp.	2.2%
LU	Lucent Technology	1.9%
IBM	IBM Corp.	1.6%
C	Citigroup Inc.	1.5%
TWX	Time Warner Inc.	1.4%
AIG	AIG Inc.	1.4%
T	AT&T Inc.	1.4%
T (Old)	AT&T Corp. (Old)	1.3%
ORCL	Oracle Corp.	1.3%
HD	Home Depot Inc	1.3%
MRK	Merck & Co Inc	1.3%
WCOM	WorldCom Inc	1.2%
PG	Procter & Gamble Co	1.2%
KO	The Coca Cola Co.	1.2%
NT	Nortel Networks	1.1%
DELL	Dell Inc	1.1%
RD	Royal Dutch Petroleum	1.1%
JNJ	Johnson & Johnson	1.1%
BMY	Bristol-Myers Squibb Co	1.0%
PFE	Pfizer Inc.	1.0%
JAVA	Sun Microsystems	1.0%
QCOM	Qualcomm Inc	0.9%
HPQ	HP Inc	0.9%
YHOO	Yahoo! Inc	0.9%
EMC	EMC Corp.	0.9%
VZ	Verizon Communications Inc	0.8%
MSI	Motorola Solutions Inc.	0.7%
BLS	BellSouth Corp.	0.7%
BAC	Bank of America Corp.	0.7%
TWX (Old)	Time Warner Inc. (Old)	0.7%
MS	Morgan Stanley	0.6%
TXN	Texas Instruments Inc	0.6%
AXP	American Express Co	0.6%
LLY	Eli Lilly and Co.	0.6%
WLA	Warner Lambert Pharmaceutical Co	0.6%
DD (Old)	DuPont Co (Old)	0.6%
GTE (GTE)	GTE Corp.	0.6%
WFC	Wells Fargo & Co	0.5%
JCI	Johnson Controls International plc	0.5%
JPM	JPMorgan Chase & Co.	0.5%
FNMA	Fannie Mae (FNMA)	0.5%
SGP	Schering-Plough Corp.	0.5%
AMGN	Amgen Inc.	0.5%
F	Ford Motor Co	0.5%
DIS	Walt Disney Co	0.5%
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Bogle’s Totally Static Portfolio

Post by JSPECO9 »

S&P 100 has underperformed the S&P 500 since 2003.
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Re: Bogle’s Totally Static Portfolio

Post by Marseille07 »

MarkRoulo wrote: Mon Aug 08, 2022 8:55 pm
Marseille07 wrote: Mon Aug 08, 2022 4:35 pm I don't see how this is a good idea. You end up holding companies like IBM and GE forever.
You also wind up holding Apple and Google forever.
Depends on the timing. Google IPO'ed in 2004, that's after Bogle's article in 1999. I also doubt Apple was in top 50 then, as I remember they were beaten badly by Microsoft and Microsoft gave them life support.
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Re: Bogle’s Totally Static Portfolio

Post by seajay »

50 largest isn't a good choice IMO. The UK's HYP devised along similar lines as presented back in November 2001 and most recent yearly report here sought to initial equal capital weight and diversify more equally across sectors. Scanned the largest stocks in each sector, forming a set by picking one from each sector with above average value at the time as measured by relative dividend yield (but without over-stretching that i.e. excluded unusually high yields) ... repeatedly, until the desired number of stocks had been reached. So if it was desired to hold 30 stocks and there were 10 sectors you'd equal capital weight into 3 stocks from each sector. Initial equal capital weight and equal sector diversification. In effect betting on each runner equally, not attempting to predict what may be the better/worst runners, and just letting that run.

That 21st report indicates much of portfolio value being heavy into just 4 or so stocks, but where that is also reflective of the best performing stocks. Naturally directed towards high weights into winners. Those winners often surprise, for instance in HYP case as of that 21st report - a hotels group, tobacco, house builder and a mining (commodities) outfit.

If you start with 20 stocks, 5% of total capital initially invested in each, then if after 50 years one had achieved a 6.2% real rate of return then its total return/accumulation value would compare to 100% of the entire inflation adjusted original start date portfolio value. Not a particularly big-ask for one of the stocks to achieve that rate of return. Leaving all of the others as icing on the cake.
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Re: Bogle’s Totally Static Portfolio

Post by Northern Flicker »

Index funds were much smaller when that was written. The cost is so much lower today that the savings might not even compensate for the residual idiosyncratic risk in the largest 50 companies held statically, particularly without replacement.
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Re: Bogle’s Totally Static Portfolio

Post by Northern Flicker »

Here's the top 50 in 1999 when the article was written. I believe the #1 GM went to zero in the 2008 bankruptcy. Enron went to zero in 2001. Fannie Mae common stock is quite distressed. There also are some winners.

https://archive.fortune.com/magazines/f ... full/1999/
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Re: Bogle’s Totally Static Portfolio

Post by CyclingDuo »

nigel_ht wrote: Mon Aug 08, 2022 4:19 pm One of the other threads linked to this Forbes article:

https://www.forbes.com/global/1999/0614 ... 5484d268ff
John Bogle gave birth to the retail index fund industry by creating the Vanguard 500 Index Fund in 1975. Today this $88 billion fund’s turnover is a minuscule 6%. Its expense ratio is a rock-bottom 0.2% of assets annually.

But Bogle thinks he has a better baby, the ultimate in buy-and-hold investing. He would buy the 50 largest companies in the S&P 500 and then never buy another. If a stock were lost in a merger, Bogle would not replace it.

The Vanguard 500 Index incurs (small) transactional costs when people buy new shares or cash out. Bogle would avoid this by opening the doors only once and requiring people to take redemptions in shares in lieu of cash.

Professor Jeremy Siegel of the University of Pennsylvania’s Wharton School calculated a hypothetical return (before transaction costs) if someone had bought the 50 largest S&P 500 stocks on Dec. 31, 1950, and held on. Average annual return: 12.6%, a fraction of a point better than the entire market. He then created separate buy-and-hold portfolios for every year between 1950 to 1996. The buy-and-hold approach beat the market 75% of the time, never underperforming by more than 0.6% a year.

Bogle estimates that taxes and transaction costs skim 4.5% annually out of returns for most U.S. investors in actively managed funds, and 1.5% even for investors in an index fund. He figures his static-50 fund would cost 0.15% of assets to run. One big caution, with which Bogle agrees: All 50 top S&P 500 stocks may currently be overpriced. This matters less for long-term investors.
Anyone have any other information or maybe an interview where Bogle describes this?

Seems implementable in 2022 given fractional shares and zero trading costs…

Might be a PITA to backtest with the current set of online tools.
The Bogleheads Wiki page Passively managing a portfolio of individual stocks has links to various studies (with some backtesting).

https://www.bogleheads.org/wiki/Passive ... ual_stocks

Based on the studies, I wouldn't want to limit it to just the top 50. Hence, I like your idea in one of your subsequent posts of simply adding additional members to the list as they enter the top 50 each year so the number of stocks owned increases. For most, it is much easier to invest in and hold the index funds, but for others the passively managed DIY fund is an option or additional strategy alongside the index funds.

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Re: Bogle’s Totally Static Portfolio

Post by Ramjet »

Time to just accept that Bogle's suggestions don't have diversity in mind, it is just an after thought at most

S&P 500 only and now just buy the 50 largest companies and never touch them again?
Last edited by Ramjet on Tue Aug 09, 2022 8:12 am, edited 2 times in total.
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Re: Bogle’s Totally Static Portfolio

Post by Broken Man 1999 »

CyclingDuo wrote: Tue Aug 09, 2022 7:57 am
nigel_ht wrote: Mon Aug 08, 2022 4:19 pm One of the other threads linked to this Forbes article:

https://www.forbes.com/global/1999/0614 ... 5484d268ff
John Bogle gave birth to the retail index fund industry by creating the Vanguard 500 Index Fund in 1975. Today this $88 billion fund’s turnover is a minuscule 6%. Its expense ratio is a rock-bottom 0.2% of assets annually.

But Bogle thinks he has a better baby, the ultimate in buy-and-hold investing. He would buy the 50 largest companies in the S&P 500 and then never buy another. If a stock were lost in a merger, Bogle would not replace it.

The Vanguard 500 Index incurs (small) transactional costs when people buy new shares or cash out. Bogle would avoid this by opening the doors only once and requiring people to take redemptions in shares in lieu of cash.

Professor Jeremy Siegel of the University of Pennsylvania’s Wharton School calculated a hypothetical return (before transaction costs) if someone had bought the 50 largest S&P 500 stocks on Dec. 31, 1950, and held on. Average annual return: 12.6%, a fraction of a point better than the entire market. He then created separate buy-and-hold portfolios for every year between 1950 to 1996. The buy-and-hold approach beat the market 75% of the time, never underperforming by more than 0.6% a year.

Bogle estimates that taxes and transaction costs skim 4.5% annually out of returns for most U.S. investors in actively managed funds, and 1.5% even for investors in an index fund. He figures his static-50 fund would cost 0.15% of assets to run. One big caution, with which Bogle agrees: All 50 top S&P 500 stocks may currently be overpriced. This matters less for long-term investors.
Anyone have any other information or maybe an interview where Bogle describes this?

Seems implementable in 2022 given fractional shares and zero trading costs…

Might be a PITA to backtest with the current set of online tools.
The Bogleheads Wiki page Passively managing a portfolio of individual stocks has links to various studies (with some backtesting).

https://www.bogleheads.org/wiki/Passive ... ual_stocks

Based on the studies, I wouldn't want to limit it to just the top 50. Hence, I like your idea in one of your subsequent posts of simply adding additional members to the list as they enter the top 50 each year so the number of stocks owned increases. For most, it is much easier to invest in and hold the index funds, but for others the passively managed DIY fund is an option or additional strategy alongside the index funds.

CyclingDuo
It was in one of his books. Mr Bogle opined that high net-worth folks could roll their own by buying the 50 largest stocks and holding on to them.

Alas, I remember not which book!

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Re: Bogle’s Totally Static Portfolio

Post by swilgu1 »

With around 55% of the S&P 500's weight being concentrated in the top 50 names, you can do both right now!
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Re: Bogle’s Totally Static Portfolio

Post by JoMoney »

Ramjet wrote: Tue Aug 09, 2022 8:06 am Time to just accept that Bogle's suggestions don't have diversity in mind, it is just an after thought at most

S&P 500 only and now just buy the 50 largest companies and never touch them again?
In the context of an investment portfolio the word "diversification" gets thrown around as if more of it is somehow always better, without regard for what it's supposed to do for the portfolio or what the investors objective is. There's no shortage of salesman trying to push commodities, crypto, and all sorts of whacky risky things in the name of "diversification". Above all the investment industry needs you to be buying and trading their products.
To borrow a quote from Mr. Bogle, "diversification is the last refuge of the scoundrel"
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Bogle’s Totally Static Portfolio

Post by nigel_ht »

Ramjet wrote: Tue Aug 09, 2022 8:06 am Time to just accept that Bogle's suggestions don't have diversity in mind, it is just an after thought at most

S&P 500 only and now just buy the 50 largest companies and never touch them again?
I guess it depends on the sector diversity of the top 50…it may end up somewhat more diversified if you use the top 50 global although it depends…some sectors are very under represented in cap weighted funds
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Re: Bogle’s Totally Static Portfolio

Post by CyclingDuo »

Broken Man 1999 wrote: Tue Aug 09, 2022 8:10 amIt was in one of his books. Mr Bogle opined that high net-worth folks could roll their own by buying the 50 largest stocks and holding on to them.

Alas, I remember not which book!

Broken Man 1999
The Wiki link above says:

In Common Sense on Mutual Funds,[1] Jack Bogle suggests that a reasonable alternative to an index fund for some investors would be to hold a well-diversified portfolio of individual stocks, as long as they are held long-term, with a minimum of trading costs incurred.

[1] - pp. 373-401

I have not read the book, so I'm not sure if the pages footnoted in that book suggested the top 50 S&P 500 stocks or if that was a later suggestion by Bogle.

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Re: Bogle’s Totally Static Portfolio

Post by seajay »

Broken Man 1999 wrote: Tue Aug 09, 2022 8:10 am
CyclingDuo wrote: Tue Aug 09, 2022 7:57 am
nigel_ht wrote: Mon Aug 08, 2022 4:19 pm One of the other threads linked to this Forbes article:

https://www.forbes.com/global/1999/0614 ... 5484d268ff
John Bogle gave birth to the retail index fund industry by creating the Vanguard 500 Index Fund in 1975. Today this $88 billion fund’s turnover is a minuscule 6%. Its expense ratio is a rock-bottom 0.2% of assets annually.

But Bogle thinks he has a better baby, the ultimate in buy-and-hold investing. He would buy the 50 largest companies in the S&P 500 and then never buy another. If a stock were lost in a merger, Bogle would not replace it.

The Vanguard 500 Index incurs (small) transactional costs when people buy new shares or cash out. Bogle would avoid this by opening the doors only once and requiring people to take redemptions in shares in lieu of cash.

Professor Jeremy Siegel of the University of Pennsylvania’s Wharton School calculated a hypothetical return (before transaction costs) if someone had bought the 50 largest S&P 500 stocks on Dec. 31, 1950, and held on. Average annual return: 12.6%, a fraction of a point better than the entire market. He then created separate buy-and-hold portfolios for every year between 1950 to 1996. The buy-and-hold approach beat the market 75% of the time, never underperforming by more than 0.6% a year.

Bogle estimates that taxes and transaction costs skim 4.5% annually out of returns for most U.S. investors in actively managed funds, and 1.5% even for investors in an index fund. He figures his static-50 fund would cost 0.15% of assets to run. One big caution, with which Bogle agrees: All 50 top S&P 500 stocks may currently be overpriced. This matters less for long-term investors.
Anyone have any other information or maybe an interview where Bogle describes this?

Seems implementable in 2022 given fractional shares and zero trading costs…

Might be a PITA to backtest with the current set of online tools.
The Bogleheads Wiki page Passively managing a portfolio of individual stocks has links to various studies (with some backtesting).

https://www.bogleheads.org/wiki/Passive ... ual_stocks

Based on the studies, I wouldn't want to limit it to just the top 50. Hence, I like your idea in one of your subsequent posts of simply adding additional members to the list as they enter the top 50 each year so the number of stocks owned increases. For most, it is much easier to invest in and hold the index funds, but for others the passively managed DIY fund is an option or additional strategy alongside the index funds.

CyclingDuo
It was in one of his books. Mr Bogle opined that high net-worth folks could roll their own by buying the 50 largest stocks and holding on to them.

Alas, I remember not which book!

Broken Man 1999
Each change (however that is made, such as manually, or via index rules) will either see the new better or lag the former non-changed case. Perhaps broadly a neutral result excluding costs. When the 'rules' permit you to run-winners, even to extremes such as rising to being half the total portfolio value or more, then it would seem that often over time such individual stocks do shoot-the-lights-out relative to the others and leaving that as-is results in overall higher portfolio reward, but at the expense of higher single stock concentration risk. Having held high weighting in stocks that performed very well has the tendency to more than compensate for many other holdings that performed relatively poorly or even totally failed.
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Re: Bogle’s Totally Static Portfolio

Post by alex_686 »

Marseille07 wrote: Mon Aug 08, 2022 10:22 pm
MarkRoulo wrote: Mon Aug 08, 2022 8:55 pm
Marseille07 wrote: Mon Aug 08, 2022 4:35 pm I don't see how this is a good idea. You end up holding companies like IBM and GE forever.
You also wind up holding Apple and Google forever.
Depends on the timing. Google IPO'ed in 2004, that's after Bogle's article in 1999. I also doubt Apple was in top 50 then, as I remember they were beaten badly by Microsoft and Microsoft gave them life support.
Right, so no Google or Apple. But you do get AOL and Sun, so it is not like the portfolio is totally devoid of high risk tech companies. Ah, I do have fond memories of playing around with Sun computers. Never did much with AOl.
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Re: Bogle’s Totally Static Portfolio

Post by superjames1992 »

Marseille07 wrote: Mon Aug 08, 2022 4:35 pm I don't see how this is a good idea. You end up holding companies like IBM and GE forever.
Exactly. Today you have huge positions in IBM and GE and don’t have a lot of the newer tech companies. Your portfolio would literally be in shambles.
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Re: Bogle’s Totally Static Portfolio

Post by Northern Flicker »

Mr. Bogle was a smart man with a vision, and the drive to make it happen. He probably did more to help individual investors than any other single person in recent memory. We can admire what he accomplished without assuming that he was right about everything on which he opined.
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Re: Bogle’s Totally Static Portfolio

Post by Broken Man 1999 »

Northern Flicker wrote: Tue Aug 09, 2022 12:54 pm Mr. Bogle was a smart man with a vision, and the drive to make it happen. He probably did more to help individual investors than any other single person in recent memory. We can admire what he accomplished without assuming that he was right about everything on which he opined.
Not only that, but he was big enough to admit mea culpa on the bad decisions made when he was in charge.

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Re: Bogle’s Totally Static Portfolio

Post by Northern Flicker »

superjames1992 wrote: Tue Aug 09, 2022 9:13 am
Marseille07 wrote: Mon Aug 08, 2022 4:35 pm I don't see how this is a good idea. You end up holding companies like IBM and GE forever.
Exactly. Today you have huge positions in IBM and GE and don’t have a lot of the newer tech companies. Your portfolio would literally be in shambles.
IBM would have been a darling holding compared to GM, Enron, and FNMA.
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Re: Bogle’s Totally Static Portfolio

Post by GP813 »

There are companies that don't get everyday headlines and might fall out of social favor but if you had owned them for decades they give you incredible returns like Altria(Philip Morris Companies) or Exxon Mobil. Altria by some metrics is the greatest performing stock in history delivering 17.7% CAGR over 90 years. Bogle's hypothetical top 50 strategy is like any other investment strategy, the winners pay for the losers and that's why in addition to the time held and low fees/transactions costs it probably does work.
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Re: Bogle’s Totally Static Portfolio

Post by burritoLover »

Wow, Bogle was all over the map with his suggestions. Sometimes S&P 500, sometimes dividend-focused funds, sometimes passive funds, sometimes active funds, sometimes market timing based on valuations.
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Re: Bogle’s Totally Static Portfolio

Post by JSPECO9 »

GP813 wrote: Tue Aug 09, 2022 1:24 pm There are companies that don't get everyday headlines and might fall out of social favor but if you had owned them for decades they give you incredible returns like Altria(Philip Morris Companies) or Exxon Mobil. Altria by some metrics is the greatest performing stock in history delivering 17.7% CAGR over 90 years. Bogle's hypothetical top 50 strategy is like any other investment strategy, the winners pay for the losers and that's why in addition to the time held and low fees/transactions costs it probably does work.
Agree 100%. Many will keep pointing to the losers in the strategy without acknowledging the winners that carry the market.
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Re: Bogle’s Totally Static Portfolio

Post by nigel_ht »

I’m on travel so haven’t run a backtest yet :)

When I do I’ll post it…
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Re: Bogle’s Totally Static Portfolio

Post by vineviz »

nigel_ht wrote: Wed Aug 10, 2022 5:13 pm I’m on travel so haven’t run a backtest yet :)

When I do I’ll post it…
I started to do it the other day, but there were enough mergers and bankruptcies that I got bored.

Good luck.
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Re: Bogle’s Totally Static Portfolio

Post by nigel_ht »

vineviz wrote: Wed Aug 10, 2022 5:32 pm
nigel_ht wrote: Wed Aug 10, 2022 5:13 pm I’m on travel so haven’t run a backtest yet :)

When I do I’ll post it…
I started to do it the other day, but there were enough mergers and bankruptcies that I got bored.

Good luck.
The beauty is you don’t have to worry about those if you are only doing 2000…

Every year you’d need to create a new 50 though if I understand it right for that years money but if all you wanted to check was how well his 1999 advice held up in the 2000 Dot Bomb it’s just a lump sum and compare against S&P 500 as the baseline in 2019…
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Re: Bogle’s Totally Static Portfolio

Post by Taylor Larimore »

In Common Sense on Mutual Funds,[1] Jack Bogle suggests that a reasonable alternative to an index fund for some investors would be to hold a well-diversified portfolio of individual stocks, as long as they are held long-term, with a minimum of trading costs incurred. pp. 373-401
Bogleheads:

This is a correct but misleading quote. Mr. Bogle was a strong believer in index funds. On page 399 in the "10th anniversary edition of Common Sense on Mutual Funds" [/i] Mr. Bogle wrote:
"Taxable investors owe it to themselves to emphasize passive index fund, or well-manage, low-turnover, actively managed mutual funds, or funds with substantial unrealized losses on their books."
Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Deep down I remain absolutely confident that the fast majority of American families would be well served by owning their equity holding in an all-U.S. stock-market index portfolio and holding their bonds in all-U.S. bond-market index portfolio."
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Re: Bogle’s Totally Static Portfolio

Post by vineviz »

nigel_ht wrote: Wed Aug 10, 2022 6:11 pm
vineviz wrote: Wed Aug 10, 2022 5:32 pm
nigel_ht wrote: Wed Aug 10, 2022 5:13 pm I’m on travel so haven’t run a backtest yet :)

When I do I’ll post it…
I started to do it the other day, but there were enough mergers and bankruptcies that I got bored.

Good luck.
The beauty is you don’t have to worry about those if you are only doing 2000…

Every year you’d need to create a new 50 though if I understand it right for that years money but if all you wanted to check was how well his 1999 advice held up in the 2000 Dot Bomb it’s just a lump sum and compare against S&P 500 as the baseline in 2019…
I think his intent was to buy 50 stocks and never sell them, never replace the bankrupt/acquired ones, etc. Basically a zero turnover approach.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Bogle’s Totally Static Portfolio

Post by HanSolo »

MarkRoulo wrote: Mon Aug 08, 2022 8:55 pm
Marseille07 wrote: Mon Aug 08, 2022 4:35 pm I don't see how this is a good idea. You end up holding companies like IBM and GE forever.
You also wind up holding Apple and Google forever.
That could be either a good thing or a bad thing, depending on what you want to predict about the future.

Sometimes stocks that are in the top 10 in market cap don't stay there (even while some predict that they will).
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Re: Bogle’s Totally Static Portfolio

Post by MarkRoulo »

vineviz wrote: Wed Aug 10, 2022 7:13 pm
nigel_ht wrote: Wed Aug 10, 2022 6:11 pm
vineviz wrote: Wed Aug 10, 2022 5:32 pm
nigel_ht wrote: Wed Aug 10, 2022 5:13 pm I’m on travel so haven’t run a backtest yet :)

When I do I’ll post it…
I started to do it the other day, but there were enough mergers and bankruptcies that I got bored.

Good luck.
The beauty is you don’t have to worry about those if you are only doing 2000…

Every year you’d need to create a new 50 though if I understand it right for that years money but if all you wanted to check was how well his 1999 advice held up in the 2000 Dot Bomb it’s just a lump sum and compare against S&P 500 as the baseline in 2019…
I think his intent was to buy 50 stocks and never sell them, never replace the bankrupt/acquired ones, etc. Basically a zero turnover approach.
Merrill Lynch tried this around 2000. They marketed the things as HOLDRs (Holding Company Depositary Receipts) and the idea was to purchase a basket of stocks and leave it alone. HOLDRs traded on an exchange just like stocks and ETFs and had a creation/redemption mechanism to keep the price close to the price of the underlying stocks.

Merrill Lynch had HOLDRs for:
  • [*} Utilities
  • Regional Banks
  • Market 2000+ (the 50 largest by market cat, at the time, companies on the three major American exchanges)
  • Biotech
  • Europe 2001
  • Software
  • Telecom
  • Wireless
  • Internet (several flavors)
  • ... and a few more ...
Market 2000+ and Europe 2001 look very similar to what Bogle was proposing.

HOLDRs are defunct now, though.
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Re: Bogle’s Totally Static Portfolio

Post by Abalyon »

So, what is the average fate of large companies pertaining to this strategy? Everyone in this thread (including me) like to bring up the fate of companies like AIG, FNMA, Sears, etc. but is that the rule or exception? Excluding the DotCom bubble and the GFC, I would think the more usual case is large companies breaking apart, spin-offs, acquisitions, privatizations, business changes, etc. and not complete bankruptcy. Even in the case of Sears, shareholders received shares of Allstate when it was spun off and shares of other companies they split from as well. Obviously not the best case scenario with the parent going to zero, but shareholders didn't lose all of their value. And even in the case of GE, its breakup might yet provide value with its individual parts, though that's speculation at this point. Of course the past is the past and the future might result in more large companies going to zero, or less, but to me, I would think that's more the exception in the past. Seems to me this strategy might work for a few decades if you did not buy into it from say the late 90's to 2010. And who knows, FNMA and FMCC might bounce back for investors in the future since their fates are still largely unsettled :twisted: . Obviously that money would've been better placed somewhere else, but maybe not a total loss.
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Re: Bogle’s Totally Static Portfolio

Post by JoMoney »

Abalyon wrote: Sun Aug 14, 2022 1:41 pm... Even in the case of Sears, shareholders received shares of Allstate when it was spun off and shares of other companies they split from as well. Obviously not the best case scenario with the parent going to zero, but shareholders didn't lose all of their value...
The "Sears" that went bankrupt wasn't quite the same entity of old. In 2004 Sears was bought by the Kmart Holding company (that emerged from the assets left to the claims on Kmart's bankruptcy), was leveraged to the hilt with promises that the new formation was going to do something to restore it and listed under a different corporation and ticker.
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