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Vanguard's Bogle on Bankers, Buffett, Obama

Stocks in this article: GOOG GS JPM BAC

VALLEY FORGE, Pa. ( TheStreet) -- Last year capped a decade that ended as tumultuously as it started. Stocks, as measured by the S&P 500 Index, made no progress. Bankers at Goldman Sachs (GS), JPMorgan (JPM) and Bank of America (BAC) are getting billions in bonuses even after Wall Street imploded. Low interest rates, which led to the real estate bubble and financial crisis, are at historic lows once again.

John Bogle
Bogle: 'It's highly likely that stocks will outpace bonds in the decade that just began.'

When things are at their craziest, you can always count on Jack Bogle for common sense.

A lot has happened in the decade since the Vanguard Group founder wrote Common Sense on Mutual Funds including two bubbles and the so-called Great Recession. Now the index-mutual-fund guru is back with an updated 10th anniversary edition of his investment classic. Bogle, 80, spoke with about the highs and lows of the past 10 years, and what he expects in the coming decade.

Stock prices finished the decade below where they started, so it was a tough 10 years for investors. What happened?

Bogle: What happened over the last 10 years were two things, and one of which we have never encountered before. The 17% returns we had over the two previous consecutive decades, the '80s and the '90s, were born largely on ascending price-earnings multiples. If the price-to-earnings ratio goes from 8 to 16 in one decade, and then to 32 in the next decade, that accounts for 7% per year of that 17% return. So the market was driven by the revaluation of corporate America and that just can't keep recurring at those rates. I projected in the original book that the price-earnings multiple might get down below 20, which is exactly what it's done, so that was fairly predictable.

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