The Class Of The Cultures: Investiment vs. Speculation, by John C. Bogle
When one has read a few books by Bogle , one quickly understands that he is the sort of writer who continually returns to the same few themes over and over again. One does not read the Bogle oeuvre looking for a wide variety of material, necessarily, but one reads it with an awareness that the author has a message and sticks with it, and even if he varies the specific examples or verbiage he uses to describe his investment philosophy and his critical comments about contemporary crony capitalism, his general points are consistent throughout all of his works. By the time you have read more than one of his books, you can probably guess whether that is a good thing or a bad thing for you. For me, it was a good thing, for the author clearly admits to being a hedgehog and demonstrates it through knowing one big thing and talking about it at length over and over again in the hope that the point will sink in to at least a few people. That appears to be Bogle’s goal, and it’s not a bad one as far as financial writing is concerned.
This particular book has nine chapters and seven appendices that total a bit less than 350 pages, so in reading this book you have to expect some long chapters and a lot of detailed discussion about Bogle’s thinking on investment. If you are reading this book, though, that is likely what you will be looking forward to. The author begins with a discussion on the clash between investment–buying stocks or funds and holding them for the long term, and speculation–renting stocks and seeking to time the market and profit off of frequent buying and selling (1). After that the author talks about the agency problem and the happy conspiracy between mutual funds and company executives (2). There is then a discussion on why mutual funds need to speak out more about governance problems because of the profit-harming aspects of executive compensation (3). The author then talks about the mutual fund culture of salesmanship (4), the issue of whether mutual fund managers are true fiduciaries (5), the challenge that index funds receive from short-term speculation (6), and the fact that there is too much speculation in America’s current retirement system (7). The author then concludes the main part of his discussion with a case study of the rise, fall, and rebirth of the Wellington Fund (8) and ten simple rules for investors (9). After that there are appendices that include the performance ranking of major fund managers in March 2012 (i), the annual performance of common stock funds against the S&P 500 from 1945-1975 (ii), a chart about the growth of index funds in numbers and assets from 1976 to 2012 (iii) and some statistical charts and tables concerning Wellington Fund (iv-vii).
The author’s discussion throughout is very intriguing, and it suggests some serious issues that are not often considered when one looks at money. For one, financial managers have been poor at passing along the benefits of economies of scale to their customers. For another, there are some serious and intractable agency problems concerning the difficulty in getting financial managers to act in ways that are good for those who own funds. The author implies at least that there are some significant peer pressure effects on financial firms and their managers that helps keep a lot of them acting in the same ways and not acting in the best interests of customers. In reading this book too, it became pretty clear that Bogle understands that the only way that ordinary investors of no particular brilliance in financial management (and among that number I would include myself) to have their interests met is for such people to become aware of their own self-interests and how that works in the investment market, to seek simplicity and low fees and long-term solutions and avoid the loser’s game of trying to beat the market and everyone else in it.
 See, for example: