Best of the Blogs: Down with Bogleheads

Much of the the activity on Wall Street involves promotion. Self promotion.

Sometimes it can take on an almost evangelical zeal; practitioners of certain strategies can become quite passionate about their craft.  Micro-cap crackpots. Free-cash flow junkies. Tech stock addicts. You know them when you see them.

But there is one breed of investor that should draw your ire. Closet indexing is one thing, but indexing?

John Bogle of Vanguard fame has a new book out, “The Little Book of Common Sense Investing”. Fans of Bogle’s indexed approach might not be as numerous as Parrotheads, but they are annoying all the same.

What more can you say about people that idolize the man who claims index investing is the “only way to guarantee stock market returns”. Bogle, who is no doubt stuck in the 1970’s, essentially ignores hedge funds in the book except to call them “hype”.

But one guy is fighting back against Bogle’s claims:

He extolls the merit of owning all the nation’s publicly held companies. Which nation? All the companies? Just the biggest firms? Why just the public ones? Most companies are private. Good venture capital and focused (smaller!) private equity funds can offer excellent performance. By the time a company makes it to IPO a good percentage of its growth is usually over so why shouldn’t investors access private companies. A firm that makes it into the S&P 500 has already been a winner for many years.

In the long run we might all be dead, but without active management no one would have a job. Crafting a portfolio and playing the game is fun, even bloodsport to some. Running money the Bogle way is not:

Not many would want to be in a car driven by John Bogle. I guess he would just put a brick on the accelerator, remove the steering wheel, stare out of the back window and wait for the nice destination he anticipates. No need to worry about ongoing risks, turns and obstacles in the path when nirvana looms in the so-called long term. Just ride out that volatility? Keynes helpfully pointed out what happens in the long run so isn’t it be better to grow and preserve capital while still alive? Is it really common sense to own every stock Standard and Poor’s bother to choose no matter what the underlying economic conditions and business environment for those companies? Is it really common sense to imply investment skill does not exist and investors should not try to identify good fund managers? Is it really common sense to buy and hold value destroying corporations when you could be shorting or actively engaging them?

There is a reason Veryan Allen is my favorite financial blogger. Do yourself a favor and read his response to Bogle’s book.

John Bogle and hedge funds
Hedge Fund Blog

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