Invest Your Time In Latest Bogle Book
September 28, 2012
John Bogle’s latest book, as much a piece of history as is it a playbook for how to repair financial markets scarred by two bear markets in 10 years and a loss of confidence, is one of those books on finance that ought not be left unread.
“The Clash of the Cultures: Investment vs. Speculation” is the latest and perhaps best book by the now-83-year-old founder of Vanguard Group. You may not agree with everything he has to say, and you may be familiar enough with the Vanguard tale to want to be spared a new riff on it. But it’s hard to argue with the decades of experience in the fund industry that course through the entire narrative.
Because at the end of the day, the book seems to be the latest iteration of what Bogle first articulated in his 1951 thesis at Princeton; namely, that the mutual fund industry needs to be more mindful that its principal duty is to serve the interests of fund holders.
But the intervening 61 years have added a lot of punch to the argument, not least because of changes in financial markets, which he argues are increasingly dominated by a “short termism” that has come at the expense of true investing with a long-term focus.
“At a certain point in life, you start to get a little wisdom, so I think it’s maybe a little more impassioned now, and maybe a hair more sophisticated,” Bogle said in a recent interview with IndexUniverse. “But the basic value is and basic strategy has been really quite consistent throughout my long career. “
Plus, for those not familiar with Bogle’s prose, the man can turn a phrase, which makes the book all the more enjoyable. Moreover, he’s well aware that preaching the “cost-matters hypothesis” via the Vanguard story can get to be a bit much, and he wears his lack of impartiality regarding the Valley Forge, Pa.-based company he created on his sleeve. That, for me, adds credibility to what he has to say.
Additionally, it’s hard to poke holes in the Vanguard story, and if you’re going to do it, you have to do so with a fine-toothed comb. For example, you might ask whether the cap-market weighting that Vanguard favors is really the best way to organize an index fund. Might the fundamental indexing pioneered by Rob Arnott be the future of passive investing?
That possibility—remote as some may say it is—hardly makes Bogle a historical artifact. At 83 years old and with a 1996 heart transplant behind him, his mind is crisp, and what the New York Times called his stentorian voice suggests vigor and vitality. This is a man who will go out sprinting and relevant.
I particularly enjoyed the section of the book where Bogle takes measure of how markets, the economy and U.S. society got to this point, with the simple verities of investing seemingly cast aside and crass profiteering now on center stage.
“Our ‘Gatekeepers’—the courts, the Congress, the regulatory agencies, the public accountants, the rating agencies, the security analysts, the money managers, the corporate directors, even the shareholders—largely failed in honoring their responsibilities to call out what was going on right before their eyes,” Bogle writes in the first section of the book.
For Bogle, good behavior and incentives to do the right thing are a function of corporate structure, and in this regard he returns again and again to the virtues of Vanguard, a mutually structured company that is owned by its fund holders and that runs its funds at cost. Again, he seems aware that his championing of Vanguard can be a bit annoying, and his caveats about that are effective and even a bit endearing.
But the deeper flavor of the narrative is one of optimism, which makes Bogle an unmistakably American figure. For me, the son of European immigrants who came to America full of hopes and dreams, that optimism goes to the heart of why I like the book so much and why investors really ought to read it.
America isn’t over, it’s just regrouping. And Bogle is one of the figures helping that process along.