Bogle: History and the Classics

John Bogle thinks the investing world could benefit from more exposure to history and the classics. He articulates why in this article from The Atlantic.

He explains that we've gone from an ownership society to a situation where agents manage most of they money. Institutions used to manage eight percent but now manage something like 75 percent. According to him, the agents are not living up to their role.

"These are pension funds, pension managers, mutual fund managers, but they're agents for others, and they're not honoring their agency. They're not putting their clients first, their principles first. They've ignored their principles, focusing on speculation, rather than investment."

In the article, Bogle says speculation is by definition a loser's game. One speculator wins, one loses, and the frictional costs in the middle make it less than zero sum. Later in the conversation, Bogle reads from a speech that Ben Graham gave in 1958. Check it out. Quants certainly would not have earned Graham's approval. As the article points out:

In fact, it seems he would have consigned them to a rather low level of Dante's Inferno.

More from the article:

"Somebody ought to spend a little time thinking," he said, "and this gets back to the classics, about the role of business in society. It should add value. But the financial business does not add value. By definition the financial business subtracts value. In round numbers, it takes something like $600 billion out of the pockets of investors every year. That's $6 trillion dollars in 10 years."

Charlie Munger, Paul Volcker, and Warren Buffett have, give or take, articulated similar views on the corrosive effects of short-termism and speculation in the financial system.* They have each generally argued for policies that reduce it over the years. Last September, Buffett and Bogle signed along with 25 others a letter titled Overcoming Short-termism that argued for policies that reduce speculation and encourage patient capital.

So there has been a fair amount of material (new and old) generated on this subject by some pretty good thinkers.

As of now, it appears their views and recommendations will not become policy in any meaningful way.

It will be a fairly unfortunate prospect if that's what happens. A hugely important missed opportunity. At the end of the article, Bogle also paraphrases a quote by Upton Sinclair:

"It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it."

Check out the full article.


* Based upon what they wrote in their own time, it seems likely that John Maynard Keynes or John Kenneth Galbraith wouldn't disagree much if at all.
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Bogle: History and the Classics
Bogle: History and the Classics
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