If you swallow a toad when the market opens, you will encounter nothing more disgusting the rest of the day.
—Paraphrase of a remark attributed to the famous misanthrope, Nicolas de Chamfort (1741–1794)13
John Bogle, founder of The Vanguard Group and one of the wisest men in the business, once gave a speech titled, Don't Count On It! The Perils of Numeracy, in which he said, in part:
“My thesis is that today, in our society, in economics, and in finance, we place too much trust in numbers. Numbers are not reality. At best, they're a pale reflection of reality. At worst, they're a gross distortion of the truths we seek to measure.”14 [emphasis in the original]
Oddly, nearly 20 years earlier, the eminent ecologist, Garrett Hardin,15 had bemoaned our lack of numeracy:
“[L]iteracy is not enough … we also need numeracy, the ability to handle numbers and the habit of demanding them. A merely literate person may raise no question when a journalist speaks of ‘the inexhaustible wealth of the sea,’ or ‘the infinite resources of the earth.’ The numerate person, by contrast, asks for figures and rates.”16
Far be it from me to choose sides between such towering eminences grises—let's just say that they are both right. Bogle is surely correct: Numerate investors have focused so hard on the gross return expectations developed by modern portfolio theorists that we have frequently missed the forest for the trees. But Hardin is also right: Frustration with investment ...