December 8, 2010
Another Look at the Financial World
John Bogle
Founder, Vanguard Fund
Minutes of the 12th Meeting of the 69th Year
Robert Varrin brought the meeting to order at 10:15
Don Edwards led the invocation.
Charles Clark read the minutes of the last meeting.
Guests included:
Carol Christofferson, Joe Bolster
Susan Ferry, Jim Ferry
David Scott, Arky Vaughn
Charles Genoe, Charles Taggart
Sidney Taggert, Charles Taggart,
Toby Taylor, Patricia Taylor
Bernie Miller, Ruth Miller
Jack Wolinetz, John Tiebout
Attendance was 122
There were no announcements.
John Bogle, presented ”Another Look at the Financial World”
Jack Bogle, was introduced by Joe Bolster. Jack joined the Wellington fund from college, leaving to found the Vanguard Mutual fund business in 1976. The first fund, an Index fund, spoken of by some as Bogle’s folly, is now part of a group of 122 mutual funds managing about $1.6 trillion. He has written 7 books, has 12 honorary degrees, and is considered by many, a mutual fund legend.
He began his talk by discussing 2 of his books. “Enough” and “Don’t Count on it”. This set the stage for an expression of his deep concern, a struggle for American capitalism, a conviction that speculation, risk taking, and a focus on short term profits has swept away the traditional view of good investing.
He outlined two major changes in capitalism in the last 50 years. The first was that individual ownership of corporations has seriously declined. In the past, over 92% of equities were owned by individual investors. Today, that number is 30%. 70% is held by financial institutions, corporations, investment groups, charities, etc. i.e. money managers.
Secondly, there has been a change from long term investment strategies, to short term speculation and betting on future pricing. In 1929, a then shocking 149% turnover in the stock exchange was observed. In 1950, it was a more common 25%; in 2009 the turnover was 350%.
The result is a real risk. Ownership has given way to rental of the nation’s capital assets. Business managers now control most of our assets, and now operate with almost no controls. Personal gain, short term profits and a lack of response to the interests of stockholders has become common.
Jack feels strongly that we must demand of those with the fiduciary responsibility for our assets 5 major changes.
1 . Money managers must be responsive to shareholders rights
2. They must do due diligence concerning the assets they control
3. We have the right to expect integrity in the products they offer
4. They must act as responsible corporate citizens
5. All conflict of interest conditions must be eliminated.
He mentioned HFT, high frequency trading, now representing more than 40% of current stock market transactions. Stocks on average are held less than 11 seconds, hardly investing for the long term. The huge volumes make this extremely profitable. Such trading is pure gambling.
He also mentioned the rating agencies, where the agencies are funded by the companies they rate.
In summary, he believes we must return to a financial system based on classic economics, that good investments are those that give a good return on capital, recognize the value of future cash flow, and yield an intrinsic increase in value over time.
The questions brought forth a number of issues of interest.
He suggested that a share transfer tax would quickly remove the attraction of HFT. Even something as small as 3-4 cents per share would have a terrific impact on HTF volume, and would return badly needed money to the treasury.
He was negative on the possibility of federal or state regulatory agencies being of much help. Ultimately, regulators will never have access to the financial and intellectual resources available to those they are meant to regulate.
Finally, to a question about what the individual investor could do, Jack pointed out that at only 30% control of assets, there was little you could do personally except focus on your own accounts, being sure you keep your eye on long term opportunity. A good financial advisor who shares this philosophy would be helpful but they are apparently as rare as hen’s teeth.
Respectfully submitted
John Rassweiler
Don Edwards led the invocation.
Charles Clark read the minutes of the last meeting.
Guests included:
Carol Christofferson, Joe Bolster
Susan Ferry, Jim Ferry
David Scott, Arky Vaughn
Charles Genoe, Charles Taggart
Sidney Taggert, Charles Taggart,
Toby Taylor, Patricia Taylor
Bernie Miller, Ruth Miller
Jack Wolinetz, John Tiebout
Attendance was 122
There were no announcements.
John Bogle, presented ”Another Look at the Financial World”
Jack Bogle, was introduced by Joe Bolster. Jack joined the Wellington fund from college, leaving to found the Vanguard Mutual fund business in 1976. The first fund, an Index fund, spoken of by some as Bogle’s folly, is now part of a group of 122 mutual funds managing about $1.6 trillion. He has written 7 books, has 12 honorary degrees, and is considered by many, a mutual fund legend.
He began his talk by discussing 2 of his books. “Enough” and “Don’t Count on it”. This set the stage for an expression of his deep concern, a struggle for American capitalism, a conviction that speculation, risk taking, and a focus on short term profits has swept away the traditional view of good investing.
He outlined two major changes in capitalism in the last 50 years. The first was that individual ownership of corporations has seriously declined. In the past, over 92% of equities were owned by individual investors. Today, that number is 30%. 70% is held by financial institutions, corporations, investment groups, charities, etc. i.e. money managers.
Secondly, there has been a change from long term investment strategies, to short term speculation and betting on future pricing. In 1929, a then shocking 149% turnover in the stock exchange was observed. In 1950, it was a more common 25%; in 2009 the turnover was 350%.
The result is a real risk. Ownership has given way to rental of the nation’s capital assets. Business managers now control most of our assets, and now operate with almost no controls. Personal gain, short term profits and a lack of response to the interests of stockholders has become common.
Jack feels strongly that we must demand of those with the fiduciary responsibility for our assets 5 major changes.
1 . Money managers must be responsive to shareholders rights
2. They must do due diligence concerning the assets they control
3. We have the right to expect integrity in the products they offer
4. They must act as responsible corporate citizens
5. All conflict of interest conditions must be eliminated.
He mentioned HFT, high frequency trading, now representing more than 40% of current stock market transactions. Stocks on average are held less than 11 seconds, hardly investing for the long term. The huge volumes make this extremely profitable. Such trading is pure gambling.
He also mentioned the rating agencies, where the agencies are funded by the companies they rate.
In summary, he believes we must return to a financial system based on classic economics, that good investments are those that give a good return on capital, recognize the value of future cash flow, and yield an intrinsic increase in value over time.
The questions brought forth a number of issues of interest.
He suggested that a share transfer tax would quickly remove the attraction of HFT. Even something as small as 3-4 cents per share would have a terrific impact on HTF volume, and would return badly needed money to the treasury.
He was negative on the possibility of federal or state regulatory agencies being of much help. Ultimately, regulators will never have access to the financial and intellectual resources available to those they are meant to regulate.
Finally, to a question about what the individual investor could do, Jack pointed out that at only 30% control of assets, there was little you could do personally except focus on your own accounts, being sure you keep your eye on long term opportunity. A good financial advisor who shares this philosophy would be helpful but they are apparently as rare as hen’s teeth.
Respectfully submitted
John Rassweiler