Hi Guys,
A couple of days ago I posted a reference to John Bogle’s recent “Clash of Cultures” book and his 10 key investment rules. It seemed to me that Bogle’s work would be uncontroversial and that his rules would be graciously accepted given that both were the products of almost six decades of commitment to serving small investors.
I was dead wrong on that score. For completeness, here is an internal Link to my earlier submittal:
http://www.mutualfundobserver.com/discussions-3/#/discussion/5961/bogle-on-the-clash-of-culturesIt appears that ETF guru Ron DeLegge took umbrage with what he sees as a misrepresentation of the ETF industry. He challenged Bogle in several directions with a negative editorial.
Well, Bogle elected to reply so we have dueling editorials, a shoot-out at the OK corral.
The nmg Capital Group has assembled both editorials together in their archives section. The editorials are the second and third items at the following Link:
http://www.nmgcapitalgroup.com/category/investing/#.UUx-A0aIYQEI now see why DeLegge took issue with Bogle’s reporting on ETF client behavior. It all goes back to the DALBAR-like finding that private investors only realize a small fraction of the annual returns that these products (mutual funds and ETFs) yield.
It relates to the poor timing instincts of entry/exit points that investors consistently demonstrate. The generic explanation is that individual investors succumb to a host of behavioral deficiencies. Bogle postulates that the trade-anytime feature of ETFs allow easier access to these behavioral flaws.
In his retort, Bogle repeats the mantra that frequent trading is hazardous to wealth, and ETFs encourage that losing behavior. In some earlier work, Bogle reported that over a 5-year study period, ETF traders underperformed benchmarks by a huge negative margin.
So the verbal shooting continues. Both sides score hits. Enjoy the dueling perspectives.
Best Regards.
Comments
BINGO! And the very reason I abhor ETFs so much. I wrote back in the the late 90s how trading open end funds imposes a much needed discipline upon traders i.e. it prevents them from making bonehead intraday moves.
By the way, this may surprise you being that I so disagree with your contention we should all become robotic and passive indexers. I spoke at a seminar in 1999 and tried to open the eyes of all the dreamers out there thinking they could handily beat the markets and trade for a living. I listed all the statistics about how difficult it is to beat a passive buy and hold strategy. I quoted the research from DALBAR Financial Services, Barber and Odean, as well as a lot you have missed ala the performance of the real money timers tracked by MoniResearch as well as the performance of the newsletter timers tracked by Hulbert to name just a few. In theory I agree 100% with you. But......
His show was about index mutual funds and etfs but he is nowadays an interested party in the ETF industry and peddle etf products. ETF management companies advertise on his show and he is also associated with a ETF industry web site (ETFGuide.com). He frequently brings the same ETF industry guys (advertising on his program) as a frequent guest. It is pretty much marketing interview in disguise.
Before he was openly against Bogle, he had Bogle on his show a couple times that I know. The discussion was civil and in agreement even though Bogle was negative on current ETF trends. Bogle conceded that if someone buys and ETF and holds it like an index mutual fund that was good use but he emphasized that the ease of selling and buying creates a tendency of trading and that is destructive to Investor returns and thus he does not like them.
His show used to be somewhat interesting at one time and still has occasionally a useful guest. I normally skip to that part of the podcast skipping his now regular ranting and somewhat arrogant and disrespectful tone. It is a turn-off when he does that.
Update: Ron DeLegge is the editor of ETFGuide.com. He has vested interest in selling subscriptions to newsletters as well.
Hi Investor,
Thank you for the excellent contribution. It adds considerable depth to the discussion.
It illustrates the need and cautions the reader to assess the incentives of the authors. Incentives are always a dominant force.
Best Wishes.
Hi Hiyield007,
Thank you for visiting and commenting on my innocuous posting. Who can be mad at John Bogle for very long? He is an honorable and trustworthy member of the investment community for about six decades.
You do my investment philosophy an injustice. I am definitely not committed to a robotic, passive, Index investment policy as you asserted. That’s a plain misrepresentation of my position on the matter.
In years long past, and current to this day, my portfolio is constructed with a mix of both passively managed and actively managed mutual fund and ETF products. I have consistently and often documented my position on both the FundAlarm and the MFO websites.
It is true that the percentage of my passive holdings relative to my active positions has increased over time. That is consistent with the pathway that both institutional and private investors are concurrently following. But I still retain a substantial actively managed component in my portfolio. So you are simply wrong in your judgment.
Like Fidelity, who seem to be limited with stars Joel Tillinghast and William Danoff, I am finding it more and more challenging to identify superior fund managers who preserve long-term positive Alphas (excess returns).
Yes, I have recently concentrated my references to DALBAR and to the research of Barber and Odean. That’s temporary. But I also commonly refer to the S&P Persistence scorecards, to a variety of academic research (boring many MFO members), and to Mark Hulbert’s fine research and reporting. Apparently a plethora of my submittals have slipped past your immediate attention. That’s too bad, but not my fault.
Specifically, I am a fan of Mark Hulbert’s work and his work ethic. I subscribed to his rating service for three years about a decade ago; I cancelled when I concluded the newsletter tended to be repetitive. Most newsletter writers suck, and, mirroring the mutual fund managers record, they fail to forecast accurately and/or fail to deliver market-like returns. I’ll be renewing my annual visit with Hulbert at this year’s May Money Show in Las Vegas. That’s always fun and sometimes it’s even informative.
Thanks for your tip with regard to the usefulness of the Moni Research newsletter; I did not know it existed. But I experienced difficulty in learning about its product and track record on the Internet. References seem to be dated over a decade ago. Does the firm still publish a newsletter?
Regardless, the outfit appears to be a Pop and Mom operation. It lists very few employees with the wife serving as secretary, and operates from a house address. The chief of the firm might be brilliant, but he is functioning like the Lone Ranger in financially isolated Washington state. What hooked you on this sparse organization?
Super investors do exist, but they are extremely rare animals. Certainly we can all name a rather short list like Warren Buffett, Peter Lynch, Sir John Templeton, John Neff, Walter Schloss, Benjamin Graham, Bill Ruene, historically Nathan Rothschild, and a small complementary cohort. That’s it.
Studies must concentrate on statistical averages. There will forever be outliers. It is a daunting challenge to predict who those outliers will be. Only hindsight allows that identification with proper verification. Many charlatans claim to be part of the super-investor community, but few would survive the scrutiny of a legitimate audit. Several years ago, several contributors to FundAlarm claimed that distinction. They declared annual returns in the 25 % range.
Surely that assertion is a possibility, but the odds against it being real are firmly against the claimant. The honor roll cited in the previous paragraph generated returns in that vicinity over the long haul. Very few, likely zero, fund managers can substantiate such an extravagant claim today. As John Bogle noted in his rule number One: the marketplace favors a regression to the mean. I recognize and happily applaud the rare exceptions.
Best Wishes.