Bogle: 'Hope Will Return'

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But on the other hand, what are you going to do next? A good bit of this decline has occurred. If you could get out and get into CDs when the market was 10% higher than it is now, that would have been a nice thing to have done. But people weren't thinking that way then. You're always bullish at the highs and bearish on the way down. So you're buying at the highs and selling at the lows. What sense does that make? I would say never do 100% of anything. An intelligent investor might take 20% out of his stock position, wait a week, and see what happens. But with these wholesale changes, you're going to get whipsawed. You're going to be in cash and the market is going to come back, and then you'll pay a higher price to get in than you got out today.

It's not a good idea to time the market. In the long run, investing is not about markets at all. Investing is about enjoying the returns earned by businesses. And the stock market is nothing but a giant distraction in that quest to acquire returns that business earns. It overmagnifies everything. Investors get scared. Their advisors get scared. And you get exactly what we're having—a bit of a mess.

How would you compare today's troubles, which are more credit-driven than stock market-driven?

You know the old saying that all happy families are alike, but all unhappy families are unhappy in their own way? The same conditions never prevail from one market to another one. This is rather serious. We know we have a world that operates on credit. Too much credit and too loose credit. So we have a price to pay for getting too irrationally exuberant.

Why wouldn't you be surprised if the stock market dropped another 15%?

The market takes on a certain momentum and it could happen. I didn't say it would happen. I said it could happen. In a stock market, believe me, anything can happen! Confidence changes. You measure confidence by the price-to-earnings multiple and it's probably gone from 18 to 16 here, down about 10%. The long-term average is around 15.

I'm an observer of this. I don't know what to do myself. But I don't feel any need. I doubt I will change my stock-bond ratio for the rest of my days.

Some people are saying we could see a repeat of what happened to the stock market in 1987. Do you think that's the case?

1987 was nothing, really. Think about it. In a short period—one day—it was pretty much all over. The market went down a little less than 25%. But by the end of the year, it was up 3%. 1987 was an up year in the market. I don't think this one will be. But if people are saying that it could be like 1987, they should pray that it is!

Are you surprised that even money-market mutual funds have been affected by this credit mess?

Not the money-market mutual funds as such. It's the ones that offer you a higher yield. Money-market funds, as far as I know, every one is still valued at a dollar. But in this business, everybody is always trying to sell you something. If money-market yields are low, then (they say) here's a money-market fund where you have a yield that's more. How do you have more? You buy lower quality paper. This is not complicated. And you pay a price. When people are gambling in their money-market fund, they've got to be very foolish.

I'm an indexer. I own the market. And I'm happy. Markets come and go. In my book, I use a quotation that I stole from Shakespeare. A day in movements of the market are like "a tale told by an idiot—full of sound and fury, signifying nothing." I'll say this seems to be signifying a final, at long last, reversal of the easy credit, and the sloppy credit analysis, that has characterized the recent era.