There’s a certain amount of irony involved when a man worth $80,000,000 elaborates on his notions of Enough. Especially from someone who spent his career in finance.
But after a few pages of John Bogle’s Enough, you dismiss the irony quickly.
Bogle seems like your grandfather, if your grandfather happened to invent the Index Fund.
Bogle is a legend.
He’s the former CEO and founder of The Vanguard Group. Vanguard is the largest mutual fund company in the world with $2 trillion or so invested in the U.S.
But this book is a manifesto about a return to what made this nation great: simplicity, independent thinking, planning for the long-term, hard work, doing what’s right, common sense finance management (ie, spend less than you earn…) if not downright frugality.
The chapter titles alone will have you nodding your head, saying, “Damn right, JB.”
1. Too Much Cost, Not Enough Value
2. Too Much Speculation, Not Enough Investment
3. Too Much Complexity, Not Enough Simplicity
4. Too Much Counting, Not Enough Trust
5. Too Much Business Conduct, Not Enough Professional Conduct
6. Too Much Salesmanship, Not Enough Stewardship
7. Too Much Management, Not Enough Leadership
8. Too Much Focus on Things, Not Enough Focus on Commitment
9. Too Much 21st Century Values, Not Enough 18th Century Values
10. Too Much “Success”, Not Enough Character
When you hear financial elder statesmen implore our nation’s best and brightest to avoid wasting their talents on Wall Street, they should save their breath and give them this book instead.
I burned through a few highlighters on this book.
Here are a few of my biggest takeaways….
Opener to Chapter 1: Too Much Cost, Not Enough Value
Some men wrest a living from nature and with their hands; this is called work.
Some men wrest a living from those who wrest a living from nature and with their hands; this is called trade.
Some men wrest a living from those who wrest a living from those who wrest a living from nature and with their hands; this is called finance.
- The more the financial system takes, the less the investor makes.
- The investor feeds at the bottom of what is today the tremendously costly food chain of investing.
- On balance, the financial system subtracts value from our society.
This last line knocked me on my tail.
When a guy like John Bogle says that, it should get your attention.
On Wall Street asymmetry…
My problem with the incredible compensation earned by hedge fund managers is its asymmetry – its lack of fundamental equity. Managers on the winning side of speculation win big; but the losers don’t lose big.
On Motivation and Value…
I fear, though, that the motivation of too many of those rushing into finance is more aligned with what they can get from society than what they can give back to it; and it is a mathematical certainty that the cost of the services provided by their firms, as a group, will exceed the value that they create.
Voting v. Weighing…
This quote comes from Benjamin Graham, Warren Buffet’s mentor:
In the short run the stock market is a voting machine… but in the long run it is a weighing machine.
There are no Black Swans….
In Nassim Nicholas Taleb’s book, The Black Swan, the author draws a comparison between mathematical models & “accepted wisdom” the industry took/takes for granted and Black Swans.
That is, if all you had ever seen was white swans, the odds of witnessing a Black Swan would be zero.
It’s never happened.
No one has even seen a Black Swan, hence they don’t exist.
What’s past is prologue.
Then… you see one Black Swan.
A single Black Swan.
Didn’t see that coming.
Wasn’t in the model.
And all our assumptions were based on the model.
Bogle dovetails nicely: In the 50’s and 60’s, the daily changes in the level of stock prices typically exceeded 2% only three of four times per year. But in the year ended July 30, 2008, we’ve witnessed 35 such moves – 14 were up, and 21 were down. Based on past experience, the probability of that scenario was… zero.
Speculation, Short-Term Thinking and the Corporatization of Wall Street has increasingly led to Black Swans – events the “experts” said couldn’t/wouldn’t happen.
Bogle points out there are no Black Swans in the long-term.
Because if companies are not run intelligently over the long-term, competitive market forces ensure their demise.
In the short-term, a single Black Swan appearance changes all our assumptions.
In the real market of business, firms spend real…
CEO compensation is a feedback loop.
Apparently there are consultants whose specialty is to advise companies how much to pay CEO’s. There are also consultants whose specialty is to advise CEO’s on how much pay to accept.
I’m assuming these are the same consultants.
Anyway… these consultants have an intern pull the data on CEO pay for the 500 largest publicly-traded companies.
There will be a median number in the data set.
Half will be above.
Half will be below.
Regardless of business performance, the lower half CEO’s will feel slighted. They will attempt to right this compensatory wrong. Since the Board was chosen by the CEO, they tend to like him (or way too infrequently, her). The Board approves the pay increase.
The lower half moves up, establishing a new lower half.
This process repeats itself year-over-year and before you know it, CEO’s are paid 380x the average worker.
Bogle’s stats from 2004 make the current reality even more ridiculous: In 1980, the compensation of the average CEO was 42 times that of the average worker; by the year 2004 the ratio had soared to 280 times…
The rationale was that these executives had “created wealth” for their shareholders. But were CEO’s actually creating value commensurate with this huge increase in compensation? Certainly the average CEO was not. In real terms, aggregate corporate profits grew at an annual rate of just 2.9%, compared with 3.1% of for our nation’s economy, as represented by the GDP. How that somewhat dispiriting lag can drive average CEO compensation to a cool $9.8M in 2004 ($12.9M in 2012) is one of the great anomalies of the age.
I’ll close with Enough’s opening. David Brooks is cited from a 2008 article in the NY Times, “The U.S. has been an affluent nation since its founding. But the country was, by and large, not corrupted by wealth. For years it remained industrious, ambitious, and frugal.”
Many of us have been corrupted by wealth in some way over the past decade.
Reading this book won’t change much of it, but it’s a good place to start.
Bottom Line: Is this a manifesto for Vanguard Mutual Funds and low-fee, no-load Index Funds everywhere? Yeah, probably. But unless you compete in the financial community with Vanguard and other like products, the logic Bogle presents is solid. This book is a Bogle hedge against America’s inability to change despite the epic fail of the past few years; if behaviors don’t change on Wall Street and Main Street… the past will be prologue and this book will be a best-seller once again after the next financial trainwreck.
Bradley Hartmann is El Presidente at Red Angle (www.redanglespanish.com). He’s trying to read 52 books this year. He’s behind…
28. Enough by John Bogle
Categories: Libro 52 Challenge