At one time I owned shares of the Vanguard 500 index fund. It was highly recommended at the time as the simple no-brainer. Just put your money there, go back to work and don’t think about it. I was marginally satisfied, though not at peace. And that was a long time ago, when silver was like gold; a relic no one cared about or needed.
Recently I got another brush with Vanguard when uncle enthusiastically insisted read John Bogle’s “The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns”.
It was brought out on the heals of a intense debate on why I felt anyone should hold at least some amount of physical precious metals, and silver in particular. He agreed with most of the premise. He acknowledged the ultimate plight of the dollar, but could not see it as a reality in his lifetime.
He also congratulated me on what I had set out to do and then suggested that my readers would benefit greatly from this “Little Book of Common Sense”. Don’t get me wrong, this is not a book recommendation. It’s logical, but not aligned with the deepest understanding of these markets.
As you know, John Bogle is regarded my many as a genius and legend.
Here’s a little bit about him from Wikipedia:
Bogle is famous for his insistence, in numerous media appearances and in writing, on the superiority of index funds over traditional actively managed mutual funds. He contends that it is folly to attempt to pick actively managed mutual funds and expect their performance to beat a low-cost index fund over a long period of time, after accounting for the fees that actively managed funds charge.
Bogle argues for an approach to investing defined by simplicity and common sense. Below are his eight basic rules for investors:
No doubt, there are some gems here. And if it weren’t for the all crumbling pillars straining under the weight of promises and simple math, the spirit of Bogle’s wisdom is alive and well.
Thankfully, I was able to listen to it three times the normal playback speed. That allowed me to get to the point very quickly. Over and over. Hold your own. Avoid the broker. Buy the basket. Keep it simple. Get out of the system--almost. Because look at what the paper did. Look at how these gains were measured.
And so what about the dollar? The emphasis is placed on the fact that it's the broker who ultimately wins. And the broker could be representative of the entire financial system for the financial sector it skims off of the public’s good intentions.
Owning a part of real businesses that provide real value, and profits that can be reinvested is a beautiful concept. A concept that will return again one day. But not anytime soon.
Bogle is right. It’s boondoggle. Big finance has picked away at real capitalism, ironically, in the name of real capitalism; which of course, totally confuses everyone. Because big finance depends on fiction, and relies on bailouts to keep the Ponzi going.
In displaying the paper gains over the last decades and beyond, Bogle is careful to discount the effects of inflation. But what inflation? The official measures. The CPI?
So must go one step further - always. In everything. It may not be luxurious, but it is necessary. Official inflation has become a creative statistic, while real inflation builds under everything, quietly leaching into everything over time.
The great majority of wealth and prosperity has been transferred or misallocated. Along with the spirit.
I’m sure Bogle would defend King Dollar preeminence. From the cleanest dirty shirt to no place else to go - to their can be no other competitor in the near future. For his generation, it was the “little train that could”.
He would, as most of his elite contemporaries might - invoke the “American Spirit” as the backing. The long lost will of de Tocqueville’s people; who are one little shake away from turning it all around again. Yes we can.
But slowly, eventually history rhymed once again and the dollar was finally detached from any kind of commodity base or backing. The culmination came in the early 1970’s but decades leading up were merely concessionary to the inevitable.
The worst part of all this wisdom in best sellers is the pervasive assumption that everything is ultimately fine. That policy is priced in.
Or that a century of infiltration, infestation, and intervention has no direct or indirect consequence; that we can compare periods of time as if comparing apples to apples.
The fact of the matter is that all along the way, true risk has never been accounted for--or factored in. It’s been papered over - literally. Risk is akin to skin the game or lack thereof. What makes sense, unfortunately, is what it has evolved into is such a huge skimming.
Such a huge casino that the sheer strength and density of it and its infiltration and infestation of government (and ultimately control of money) has created a system that can't be fixed. It's a fantastic casino that Wall Street in big finance manages like the Taj Mahal.
It parallels the fact that it's also the games themselves that are being diluted or inflated away, its phantom earnings as a result of their illusory nature.
Equities have also been successful based on unsustainable policies like dividend buybacks or putting off retirement funds future that could never be actually funded.
Changing the (GAAP) accounting rules like mark to market; making it so that banks can't fail. Moral hazard left long ago. This is what underpins the growth in equities over the last seven years.
And before that, policy had long been down the highway. A synergistic bond between Wall Street and Washington.