You are previewing The Clash of the Cultures: Investment vs. Speculation.
O'Reilly logo
The Clash of the Cultures: Investment vs. Speculation

Book Description

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)

Table of Contents

  1. Cover
  2. Contents
  3. Title
  4. Copyright
  5. Dedication
  6. Foreword
  7. Acknowledgments
  8. About This Book
  9. Chapter 1: The Clash of the Cultures
    1. The Rise of Speculation
    2. High-Frequency Trading
    3. Mission Aborted
    4. Futures and Derivatives
    5. The Wall Street Casino
    6. How Speculation Overwhelmed Investment
    7. The Decline in Unit Transaction Costs
    8. Hedge Fund Managers and Other Speculators
    9. We Can’t Say We Weren’t Warned
    10. The Wisdom of John Maynard Keynes
    11. Speculation Will Crowd Out Investment
    12. Fixing the Social Contract
    13. Compensation Issues
    14. Creating Value versus Subtracting Value
    15. Restoring Balance in Our Investment Sector
    16. Tax Policies and Financial Transactions
    17. Develop Limits on Leverage, Transparency for Derivatives, and Stricter Punishments for Financial Crimes
    18. The Rules of the Game
    19. The Goal: Stewardship Capitalism
  10. Chapter 2: The Double-Agency Society and the Happy Conspiracy
    1. The Development of the Double-Agency Society
    2. Examining the Conflict
    3. Agency Costs and Managerial Behavior
    4. The Ownership Revolution
    5. Changing Leadership
    6. Renters and Owners
    7. The Creation of Corporate Value
    8. Time Horizons and the Sources of Investment Return
    9. “Short-Termism” and Managed Earnings
    10. The Failure of the Gatekeepers
    11. Conclusion
  11. Chapter 3: The Silence of the Funds
    1. Why Mutual Funds Are Passive Participants in Corporate Governance
    2. The Picture Begins to Change
    3. Reporting Proxy Votes
    4. Mobilizing Institutional Investors
    5. The Rights and Responsibilities of Ownership
    6. Acting Like Owners
    7. “The Proof of the Pudding”
    8. Executive Compensation
    9. How Did It Happen?
    10. The Ratchet Effect
    11. What’s to Be Done?
    12. Consider the Cost of Capital
    13. Slight Progress on Reform
    14. Corporate Political Contributions
    15. “The Procedures of Corporate Democracy”
  12. Chapter 4: The “Mutual” Fund Culture—Stewardship Gives Way to Salesmanship
    1. An Industry Changes
    2. Costs and Performance
    3. The Conglomeratization of the Mutual Fund Industry
  13. Chapter 5: Are Fund Managers True Fiduciaries?
    1. Enter Attorney General Spitzer
    2. Where Should Fund Investors Turn?
    3. A Challenge to Judgment
    4. The Stewardship Quotient
    5. Is the Fox in the Henhouse?
  14. Chapter 6: The Index Fund
    1. Part I
    2. Part II
    3. The Future of Index Funds
  15. Chapter 7: America’s Retirement System
    1. An Introductory Note
    2. The Inadequacy of Our National Savings
    3. “The Seven Deadly Sins”
    4. Our Retirement System Today
    5. The New Pension Plan
    6. What’s to Be Done?
    7. What Would an Ideal Retirement Plan System Look Like?
  16. Chapter 8: The Rise, the Fall, and the Renaissance of Wellington Fund
    1. Introduction
    2. Part I
    3. Part II
    4. Part III
    5. Part IV
  17. Chapter 9: Ten Simple Rules for Investors and a Warning for Speculators
    1. Summing Up
    2. Buy Broad Market Index Funds
    3. Wellington Fund and the Index Fund
    4. Reversion to the Mean (RTM) is a Virtual Certainty
    5. Ten Simple Rules for Investment Success
  18. Appendix I: Performance Ranking of Major Mutual Fund Managers–March 2012
  19. Appendix II: Annual Performance of Common Stock Funds versus S&P 500, 1945–1975
  20. Appendix III: Growth in Index Funds—Number and Assets, 1976–2012
  21. Appendix IV: Wellington Fund Record, 1929–2012
  22. Appendix V: Wellington Fund Equity Ratio and Risk Exposure (Beta), 1929–2012
  23. Appendix VI: Wellington Fund Performance versus Average Balanced Fund, 1929–2012
  24. Appendix VII: Wellington Fund Expense Ratios, 1966–2011
  25. Index