Economist Paints Dramatic but Dull Picture of Bogle
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Friday, September 14, 2012

Economist Paints Dramatic but Dull Picture of Bogle

"IN A world marked by high-frequency trading and billionaire fund managers, Jack Bogle ploughs an increasingly lonely furrow."

No, that is not a movie trailer, it is the opening to the Economist's review of Vanguard [profile] founder's Jack Bogle's new book. Read the rest if you have a password. If you don't:

The review hits all the high notes "mutually owned Vanguard", "remorseless focus on keeping costs down", "double agency problem". You have heard it all before.

Even the Economist admits that the book "echoes many familiar themes" and that it even excerpts the Economist itself.
But those themes are worth repeating, because they are too often ignored. Investors spend so much time chasing hot asset classes and hot fund managers that they end up buying high and selling low, all the while incurring transaction costs. In Mr Bogle's words, "investors need to understand not only the magic of compounding long-term returns, but the tyranny of compounding costs."
Mutual fund executives are also targeted in the review:
Those mutual-fund managers are pretty poor stewards, rarely voting against the actions of executives. And they have an incentive to expand the amount of funds they manage, even though such expansion has not benefited their existing investors. The assets of the mutual-fund industry have risen from $5 billion in 1960 to $6 trillion at the start of this year, but the annual expense ratio of the average equity fund has risen from 0.5% to 0.99%. If economies of scale have been achieved, they have not been passed on to the individual investor.
The review gives Bogle the final word:
It is hard to disagree with Mr Bogle that the "system of retirement security is imperilled, heading for a serious train wreck." But will anybody listen to him, when they haven't in the past?
Again, none of this is new, but the book and the review of it are worth paying attention to, if only because of the reputation of the messengers.

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