Seeking Alpha

Never mind the fiscal cliff, it's speculation that could do the financial markets in, says...

Never 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."
Comments (17)
  • Hendershott
    , contributor
    Comments (1621) | Send Message
     
    The death of equities isn't far away.
    10 Dec 2012, 08:30 PM Reply Like
  • J 457
    , contributor
    Comments (957) | Send Message
     
    We would be so lucky if it was limited to only equities.
    10 Dec 2012, 09:44 PM Reply Like
  • Tricky
    , contributor
    Comments (1685) | Send Message
     
    My dad used to say that the only "investor" was the first person that bought the security, everyone else is a "gambler" ;-)
    10 Dec 2012, 08:31 PM Reply Like
  • Seth Walters
    , contributor
    Comments (677) | Send Message
     
    Well of course an index fund guy isn't going to like short term traders.
    10 Dec 2012, 08:41 PM Reply Like
  • 22thoroughbred
    , contributor
    Comments (551) | Send Message
     
    Bogle is the biggest self serving hypocrite that I have heard in a very long time. These guys (Bogle, Suzy Orman, etc) all made a fortune selling stocks and making commissions, once they were rich enough they began lamenting what a rip-off it is to pay brokers commissions and how rigged the market is. I guess once you get yours everyone else is crooked. I wouldn't buy a Vanguard fund even if my only alternative was
    10 Dec 2012, 09:41 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9964) | Send Message
     
    It might not make sense, but it sure has been profitable for the HFT's algo's and some big money traders. But do agree with Bogle that a transaction tax and higher ST trading taxes would help.
    10 Dec 2012, 10:15 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4842) | Send Message
     
    Bogle did not make his case to prove that speculation is a problem.

     

    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.
    10 Dec 2012, 10:34 PM Reply Like
  • Remyngton
    , contributor
    Comments (350) | Send Message
     
    Bogle's like the crazy uncle who shows up drunk at the BBQ every year , driving everyone nuts
    10 Dec 2012, 10:36 PM Reply Like
  • redarrow5150
    , contributor
    Comments (1159) | Send Message
     
    I don't understand the comments here? Based upon what Bogle said what is not true?
    10 Dec 2012, 11:43 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4842) | Send Message
     
    His whole premise is not true. Or at minimum you can say it is unproven. And probably just a self serving opinion.
    10 Dec 2012, 11:52 PM Reply Like
  • kmi
    , contributor
    Comments (4526) | Send Message
     
    Bogle is saying that the proper functioning of markets has been overwhelmed by trading.

     

    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.
    11 Dec 2012, 03:32 AM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4842) | Send Message
     
    kmi

     

    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.
    11 Dec 2012, 08:09 PM Reply Like
  • kmi
    , contributor
    Comments (4526) | Send Message
     
    I was not making logical connections simply pointing out data.

     

    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.
    12 Dec 2012, 09:57 AM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4842) | Send Message
     
    For the most part you appeared to be just reporting information. But the below was not reporting:

     

    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.
    12 Dec 2012, 10:00 PM Reply Like
  • Seth Walters
    , contributor
    Comments (677) | Send Message
     
    Holding a security for one second is no different than holding it for 20 years. In both cases, you buy it with the intention of selling it at a profit at some point in the future. Why is the opportunity for profit there? It is because the security is undervalued relative to future demand for it. In a HFT world the "best" opportunities may change from second to second, and certainly they can change every day even for a normal trader. Regulation of the markets with enhanced penalties on short term capital gains or transaction taxes will only make them less efficient, and the entire US economy poorer.

     

    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.
    11 Dec 2012, 12:10 AM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4842) | Send Message
     
    I stood in line today at the gas station for 20 minutes because everyone ahead of me was buying lotto tickets. Now that is a rigged game!
    11 Dec 2012, 08:13 PM Reply Like
  • 22thoroughbred
    , contributor
    Comments (551) | Send Message
     
    I've been in the market since I was ~13 (I'm 52) and was a broker from 1988-2002 and for the last 10-15 years I've heard the same thing "the retail investor is leaving the market" that's not correct, the avg. investor is not "trading" as much as they did in 1998-2001 (Tech) however they are in the market more now than ever in their 401k, IRA, Pensions, etc. however they are in both managed accounts and mutual funds thus less trading activity/volume. Also those that are out, based on what I saw 1st hand, were more people day trading tech without enough money, knowledge, experience it was a casino, well they're broke and gone, and personally I'm thrilled
    11 Dec 2012, 05:36 AM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Hub
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs