John Bogle

Some excerpts from John Bogle's book: The Battle for the Soul of Capitalism.

"By the latter years of the twentieth century, our business values had eroded to a remarkable extent. Yes, we are a nation of prodigious energy, marvelous entrepreneurship, brilliant technology, creativity beyond imagination, and, at least in some corners of the business world, the idealism to make our nation and our world a better place. But I also see far too much greed, egoism, materialism, and waste to please my critical eye." - John Bogle

"While our nation's largest arena, the stadium at the University of Michigan, holds but 107,501 citizens—one-third the 320,000 capacity of the Circus Maximus—television screens bring U.S. sports and entertainment to worldwide audiences that reach into the billions. As stocks became entertainment, perhaps our greatest circus became our financial markets." - John Bogle

"When we should be teaching young students about long-term investing and the magic of compound interest, the stock-picking contests offered by our schools are in fact teaching them about short-term speculation. And the biggest financial circus of all—today's incarnation of the Circus Maximus—is the garish eight-story NASDAQ MarketSite Tower in Times Square, displaying stock prices on what is proudly billed as the 'world’s largest video screen.' That display, it seems to me, is the visual paradigm of a stock market that has become not only a circus, but a casino for speculators. Yet as Lord Keynes warned us: 'When the capital development of a country becomes the by-product of the activities of a casino, the job is likely to be ill-done.'" - John Bogle

Successfully changing investing habits from A) today's high frictional cost with an emphasis on speculation to B) low frictional cost with emphasis on compounding will be nearly impossible. A whole generation of investors now have these embedded habits and most of the money management industry's business incentives are built upon it. Still, in my view even if it is only by a small degree over the next 20-30 years its worth attempting to tilt things in the direction of B). Wall Street has become a tax on the system both in terms of hyperactive trading that generates frictional costs and its ever increasing use of the best future engineers, mathematicians, and scientists for largely unproductive activities (actually negative productivity). Charlie Munger refers to all this wasted energy as 'febezzlement':

"Are there important functional equivalents of 'bezzle' that are large and not promptly self-destructive? My answer to this question is yes. I will next describe only one. I will join Galbraith in coining new words, first, 'febezzle', to stand for the functional equivalent of 'bezzle' and, second, 'febezzlement', to describe the process of creating 'febezzle', and third 'febezzlers' to describe persons engaged in 'febezzlement'. Then I will identify an important source of 'febezzle' right in this room. You people, I think, have created a lot of 'febezzle' through your foolish investment management practices in dealing with your large holdings of common stock.

If a foundation, or other investor, wastes 3% of assets per year in unnecessary, nonproductive investment costs in managing a strongly rising stock portfolio, it still feels richer, despite the waste, while the people getting the wasted 3%, 'febezzlers' though they are, think they are virtuously earning income. The situation is functioning like undisclosed embezzlement without being self-limited. Indeed, the process can expand for a long while by feeding on itself. And all the while what looks like spending from earned income of the receivers of the wasted 3% is, in substance, spending from a disguised 'wealth effect' from rising stock prices." - Charlie Munger speaking to investors at the Philanthropy Roundtable in 2000.

As always Charlie calls it as he sees it no matter who is in the audience.

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John Bogle
John Bogle
Reviewed by Pisstol Aer
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