What a treat to sit at the feet of one of my heroes in the financial services industry, Mr. John Bogle. His nickname in college was Beta Bogle, or he was sometimes called Data Devil. And he was still full of it... data, that is.
Mr. Bogle is still preaching the value of indexing and the evils of expenses imbedded in most pooled funds. He says there has been a change or shift in thinking in the market over the last few decades. Why? Five reasons.
Turnover ratios have expanded 10 fold since Bogle's early days. He divides market participants into two categories: investors and traders. The traders have taken over!
Next, communication technology has exploded. Cable channels abound that deliver "information" (Bogle sneered at this!) on a 24-7 basis. News is "breathlessly imparted" (the old guy has such a sharp wit). Bogle says that when crises happen, "Don't do something. Just stand there."
Financial innovation has made the process complicated. Bogle prefers simple and claims that indexing is unpopular on Wall Street.
Investment banking changed from private ownership to public ownership. They started using OPM-- other people's money-- and it changed their focus from client service to profits.
And finally, the focus has shifted from the value of future cash flows to the price of the stock.
Bogle says that the current process only enriches the middleman-- Wall Street. He was a trip! I'm going back to my Keynes and find Chapter 12. Oh, and he signed my book! Love this guy!
Independent, Fee-Only Financial Advisor
