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Never mind the fiscal cliff, it's speculation that could do the financial markets in, says...
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Monday, December 10, 2012, 8:09 PM ETNever mind the fiscal cliff, it's speculation that could do the financial markets in, says Vanguard founder Jack Bogle. Companies raise about $250B a year in equity financing through IPOs and additional equity offerings - but there's $33T worth of trading going on. "The role of the financial system is to direct capital to its highest and best and most profitable uses," Bogle says. But this is simply "betting on the psychology of the markets. It makes no sense."
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As I reviewed my portfolio I discovered that I have traded multiple times the value of my portfolio. Does that mean that I really am 4X richer? Or that I put 4X at risk?
He also does not admit that trading is how price discovery is done He probably wants to propose that trading with Vanguard is how it is done so leave your money in VG funds.
If you believe, as many do, that the markets have become a 'rigged game' where insiders make money at the expense of retail, then you should agree with what Bogle suggests.
Commenters on SA don't tend to be the 'average retail investor' by the nature of the site, and likely tend to trade more frequently. So the comments will reflect a disagreement with Bogle. But the reduction in retail equity investment over time would suggest Bogle is correct.
The thesis is also very evident in the frustration of retail holding AAPL positions. A lot of folks don't understand why the price has been fluctuating so dramatically, when the changes in fundamentals have not been anywhere near as dramatic.
Your logic is flawed. Agreeing with a persons' perspective because it is in harmony with a third data point does not mean that any of those three perspectives or data points have any relationship to each other.
Similair logic is that it is also true that most trades are done by computer. So everything is the fault of the microprocessor. Let's get rid of all computers and we will be fine.
The root cause anlaysis is flawed. But Bogle is not interested in that he is leveraging common complaints to sell his business model.
It is a fact that average hold time for positions is far shorter than it ever used to be, which necessarily implies that 'trading', or short term holds, have become more common.
What conclusions may be drawn from this are a different matter.
But the reduction in retail equity investment over time would suggest Bogle is correct.
That is a conclusion which gave a thumbs up to the rest of the information as having credence.
That said we have quite a few badly inefficient capital markets and problems with the HFT stuff. Flash crashes and haywire algos are not good for the economy. There are also many billions of dollars put into almost universally doomed penny stocks, lotteries, and other wasted uses. But a transaction tax isn't going to fix any of that... it will just harm the functioning markets.