I've been reading John Bogle's helpful and stimulating books for several years now. One which has perhaps had the most profound effect on the philosophy underpinning my financial-planning work, is his excellent little paperback, 'Enough
'. Earlier this year, we gave a copy to all our Member Firms, as part of our 10-Year celebration. The great thing about Bogle's writing is that you don't need to agree with everything to benefit from it - he is always refreshing, always challenging, and his longer-term perspective is something one doesn't really encounter anywhere else.
The book I want to highlight here, 'The Clash of the Cultures
' was published in 2012, and it pulls together some sixty years of Bogle's experience in financial markets - it provides a kind of sustained reflection on the changes the author has observed over that lengthy period, and of course highlights some of the changes that he was largely responsible for - such as the creation of the Vanguard 500 Index Fund in 1975. This is now the world's largest equity mutual fund. Even if Bogle was not so consistently right
in his judgements, this would be a useful text for IFAs to familiarise themselves with. It is well-written, winsomely-argued and presents very clearly the conceptual gulf between investment on the one hand and speculation on the other.
Bogle has always consistently argued for a 'better way' of doing things - a focus on value for the investor, rather than a system which extracts
value by over-trading, or by allowing professional
interests to be overwhelmed by business
interests. His chapter on the mutual fund culture, is subtitled, "Stewardship Gives Way to Salesmanship", which pretty much says it all: most of the surveys we get asked to complete for investment providers have little to do with the quality of what they deliver, and everything to do with the effectiveness of their marketing. Certainly, the intermediation sector in the UK has given plentiful evidence of being a 'repeat offender' when it comes to advisers succumbing to the marketing blandishments of product-providers, rather than focusing on a longer-term (and admittedly less sexy) strategy of delivering a fair market value to their clients.
Bogle charts the way in which investment culture has morphed over the years from a longer-term, conservative framework, into a shorter-term speculative culture. This has been accompanied by a leap in portfolio turnover from 15-20% in the 1950s to 85-100% in the last few decades. In other words, the average holding period for a stock has dropped from six years to a single year or much less. This kind of structural change has fostered a range of ever-more exotic trading strategies, which in turn has led to a dramatic increase in relative volatility of equity funds.
This is a really valuable book. It may contain mainly examples from the US, but those examples are so well documented that the lessons from them are clear to us in the UK. At 338 pages (including Appendices) it's not a quick read, but is absolutely the thing to stimulate a thoughtful consideration of what we, as IFAs, ought to be seeking to achieve for our clients.