The Clash of the Cultures: Investment vs. Speculation
Recommended Reading by Warren Buffet in his March 2013 Letter to Shareholders
How speculation has come to dominate investment--a hard-hitting look from the creator of the first index fund.
Over the course of his sixty-year career in the mutual fund industry, Vanguard Group founder John C. Bogle has witnessed a massive shift in the culture of the financial sector. The prudent, value-adding culture of long-term investment has been crowded out by an aggressive, value-destroying culture of short-term speculation. Mr. Bogle has not been merely an eye-witness to these changes, but one of the financial sector's most active participants. In The Clash of the Cultures, he urges a return to the common sense principles of long-term investing.
Provocative and refreshingly candid, this book discusses Mr. Bogle's views on the changing culture in the mutual fund industry, how speculation has invaded our national retirement system, the failure of our institutional money managers to effectively participate in corporate governance, and the need for a federal standard of fiduciary duty.
Mr. Bogle recounts the history of the index mutual fund, how he created it, and how exchange-traded index funds have altered its original concept of long-term investing. He also presents a first-hand history of Wellington Fund, a real-world case study on the success of investment and the failure of speculation. The book concludes with ten simple rules that will help investors meet their financial goals. Here, he presents a common sense strategy that "may not be the best strategy ever devised. But the number of strategies that are worse is infinite."
The Clash of the Cultures: Investment vs. Speculation completes the trilogy of best-selling books, beginning with Bogle on Investing: The First 50 Years (2001) and Don't Count on It! (2011)
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Community Reviews
Reading Bogle is a little like reading the Bible, if you aren’t from a religious family. It’s such a well known dogma that you sorta figure you know what is in there and so you never bother to pick it up. Then about forty pages in you wonder why you didn’t ever actually take a look in there for yourself. While I can’t say I enjoyed reading Leviticus, I loved reading Bogle.
The thing you miss in the tag line is he has arrived at his conclusions through nuanced observation, pain staking argument, and hard experience. His conclusions may be simple, but it’s because of the work he put in and his care for the subject matter rather than evidence of simple minded dogmatism.
Bogle argues owners have different incentives than their agents and this applies not just to shareholders vs corporate managers but to shareholders vs money managers and other stakeholders in modern financial capitalism.
He posits the typical owner cares only about long term appreciation of capital, which can best be understood by a company’s ability to generate returns on invested capital above its cost of capital. This basic activity eventually drives stock market activity and so should be in focus.
However, no major market participants view this as their primary goal. Instead they focus on short term fluctuations because this is how they are paid. As a result, a whole army of lawyers, regulators, investors, sell side analysts, and corporate managers are furiously playing a quarterly game that does not particularly matter at best and at worst creates perverse incentives to leverage, cost cut, and take needless risk.
If he only pointed this out, he would have written a good book. But he also explains how he anticipated some of this and created various institutions - from vanguard to actively managed funds, to deal with those problems. He can then show with fifty years of data that - while not everything he did worked - most of it did. He even includes the original memos from the sixties and the responses he received. What a show!
All of this is quite convincing to the point that you wind up feeling he is fairly justified when he asks congress to appoint him czar like powers over the retirement system so that he can fix some of its biggest problems.
Great book!
The thing you miss in the tag line is he has arrived at his conclusions through nuanced observation, pain staking argument, and hard experience. His conclusions may be simple, but it’s because of the work he put in and his care for the subject matter rather than evidence of simple minded dogmatism.
Bogle argues owners have different incentives than their agents and this applies not just to shareholders vs corporate managers but to shareholders vs money managers and other stakeholders in modern financial capitalism.
He posits the typical owner cares only about long term appreciation of capital, which can best be understood by a company’s ability to generate returns on invested capital above its cost of capital. This basic activity eventually drives stock market activity and so should be in focus.
However, no major market participants view this as their primary goal. Instead they focus on short term fluctuations because this is how they are paid. As a result, a whole army of lawyers, regulators, investors, sell side analysts, and corporate managers are furiously playing a quarterly game that does not particularly matter at best and at worst creates perverse incentives to leverage, cost cut, and take needless risk.
If he only pointed this out, he would have written a good book. But he also explains how he anticipated some of this and created various institutions - from vanguard to actively managed funds, to deal with those problems. He can then show with fifty years of data that - while not everything he did worked - most of it did. He even includes the original memos from the sixties and the responses he received. What a show!
All of this is quite convincing to the point that you wind up feeling he is fairly justified when he asks congress to appoint him czar like powers over the retirement system so that he can fix some of its biggest problems.
Great book!
