Jack Bogle: "The Clash of Cultures" A Gem

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Jack Bogle: "The Clash of Cultures" A Gem

Postby Taylor Larimore » Thu Jul 19, 2012 5:56 pm

Bogleheads:

Our mentor, Jack Bogle, has published his tenth book in which he shares his unparalleled experience in the mutual fund industry. He tells us what he thinks is wrong with the system and how to fix it. He tells individual investors how to avoid mistakes and how to successfully meet our investment goals. Mr. Bogle's brilliant mind, strength of character and beautiful prose, make The Clash of Cultures a one-of-a-kind book to treasure. These are valuable excerpts:
“Only if we serve “individual and institutional investors in the most economical, efficient, and honest way possible”—a phrase from my 1951 Princeton senior thesis—can we again honor the standard of fiduciary duty that once largely prevailed among the trustees of Other People’s Money.”

“Over the past several decades, the very nature of our nation’s financial sector has changed—and not for the better. A culture of short-term speculation has run rampant, superseding the culture of long-term investment.”

“Investors trade with each other and one is a winner and one a loser. But the cost of trading creates an obvious economic drag that results, for investors as a group, in a net loss from trading activity.”

“Too many innovations have served Wall Street at the expense of its client/investors.”

“The ETF is surely the greatest marketing idea in finance so far in the twenty-first century.”

“The only advice I have for short-term speculators is this warning: Stop!”

“The record is utterly bereft of evidence that definitive predictions of short-term fluctuations in stock prices can be made with consistent accuracy.”

“When I entered this business in 1951, right out of college, annual turnover of U.S. stocks was about 15%. Stock turnover soared to the remarkable level of 250% in 2011.”

“Investors will one day come to recognize the self-defeating nature of speculation, whether on Wall Street or in a casino.”

“As strange as it sounds, the less we pay as a group, the more we get. And if we pay nothing, or almost nothing, as in an all-stock market index fund, we get everything—the market return.”

“Wall Street’s total commission revenues appear to have doubled in the past decade.”

“We American’s like to buy things in abundance before we have the cash to pay for them. We focus on today’s wants rather than tomorrow’s needs.”

“In the stock market the more elaborate and abstruse the mathematics, the more uncertain and speculative are the conclusions we draw therefrom.” – Ben Graham quote

“Investments usually perform better than investors.”

“Financial institutions are trustees, they should behave as such.”

“Free market capitalism is the best system ever devised for the allocation of economic resources, risks and rewards.”

“In 1945, institutions held only 8% of all U.S. equities; today our financial institutions hold fully 70% of U.S. stocks.”

“While the managers of most large fund groups carefully review and consider corporate proxies, they overwhelmingly endorse, with few major exceptions, the proposals of corporate management.”

“We’ve become primarily a marketing business rather than a management business.”

“The dividend yield on stocks had been higher than the interest rates on bonds for nearly a century, from the 1870s through 1959.”

“In 1994, interested in keeping informed about the activities of Vanguard rival T.Rowe Price, I purchased 100 shares of its management company for $4,189. My investment is presently worth $208,960.”

“In 2010, Morningstar, the respected provider of fund analysis services, conceded that fund costs were a more significant factor in predicting fund performance than its own sophisticated rating system.”

“Vanguard remains the only mutual mutual fund complex in our nation.”

“The leaders of the mutual fund industry, and of its trade association, the Investment Company Institute, purport to represent mutual fund shareholders. But in fact they represent the management companies that operate the funds.”

“Fund marketers favor the fads that are in the momentary limelight, with the expectation that investors will take the bait.”

“Earning the market return itself is a virtual guarantee that an investor will, over the long term, accumulate more assets than his neighbors.”

“To earn their keep, advisers should focus their clients not on “picking winners” but on factors such as sound asset allocation, broad diversification, low cost, tax-efficiency, simplicity and even estate planning.”

“We now know that many seemingly well-qualified portfolio manager stars have turned out to be more like comets, burning out after a few years in the limelight.”

“The first index mutual fund was referred to as ‘Bogle’s Folly.’ Assets of index mutual funds now total $2.4 trillion.”

“I rank this Bogle invention along with the invention of the wheel, the alphabet, Gutenberg printing, and wine and cheese: a mutual fund that never made Bogle rich but elevated the long-term returns of the mutual fund owners.” – Nobel Laureate, Paul Samuelson

“The same surgeon general who required cigarette packages to say: “Warning, this product may be dangerous to your health” ought to require that 99 out of 100 books written on personal finance carry the same label.”

“Own an index fund, get a life outside of finance, and relax.”

“Of the 360 equity mutual funds in existence in 1976, only about 135 remain.”

“The total rate of return of Vanguard Index 500 from its inception in 1976 to the beginning of 2012 has been 10.4%. Based on an in initial investor of $10,000 the final compounded value is $328,838. The total rate of return of the average large-cap blend fund was 9.2%; total compounded value is $226,253.”

“Vanguard Total Bond Market Index Fund has fully measured up to its performance potential. Its now 24-year lifetime rate of annual return averaged 6.9%, a nice margin of 1.2% over the average 5.7% rate of return of its taxable peers.”

“Short-term speculation has become the major driver of the ETF business. – Turnover rates averaged 320% in 2011.”

“There is a positive correlation between higher volatility and lower returns by investors.”

“Rarely are my views on ETFs aptly characterized. So let me be clear: I remain positive on the concept, but only when the right kinds of ETFs are used properly. – If you decide on a buy-and-hold strategy, stick to the simplicity of the standard garden-variety ETF.”

“Our financial system is a greedy one, consuming from 1 to 2 percentage points of return.”

“Truly low-cost annuities remain conspicuous by their absence from defined contribution plans. (TIAA-CREF, has done a good job).”

“It is time for reform—a reform that serves, not fund managers and our greedy financial system, but plan participants and their beneficiaries.”

“What’s to be done ? (Mr. Bogle explains in detail): Simplify the system (IRAs, Roth IRAs, 401(k), 403(b) plans and the federal TSP); Get Real about Stock Market Returns and Risk; Reduce Participant Flexibility; Own the Stock Market; Balance Risk and Return Through Asset Allocation; Focus on Mutuality, Investment Risk, and Longevity Risk”

“Each time a share of stock changes hand, one investor is (relatively) enriched; the investor on the other side of the trade is (relatively) impoverished. – The traders, the brokers, the investment bankers, the money managers, the middlemen, ‘Wall Street,’ as it were, takes a cut of all this frenzied activity, leaving investors as a group inevitably playing a loser’s game.”

“I believe that a federal standard of fiduciary duty for all money managers should be enacted.”

“Until our government takes action—no mean challenge as long as our Congress is characterized by our intransigent, deadlocked, shockingly self-interested, parochial, and money-driven elected representatives—investors will have to look after their own interests.”

“You must know your pain and patience thresholds accurately and not play over your head.”

“In the world of investing, the past is rarely, if ever, prologue.”

“If you cannot resist temptation, you absolutely must not manage your own money. Either (1) hire a manager or (2) pick a sensible, globally diversified index of stocks and bonds, put your money in, and try never to look at it again until you retire.”

“When returns in the stock market get way ahead of the fundamentals—or way behind---reversion to the mean (RTM) will strike again sooner or later.

“Time is your friend. Impulse is your enemy. Market timing is impossible.”

“Once you get your balance right, then just hold tight. Change the allocation only as your investment profile changes.”

“Too many of us spend countless time and effort poring over fund records, getting information from news articles and television interviews and friend, and from hyperbolic fund advertisements and well-intentioned fund rating services. In substance, all of these statistics describe the past returns of mutual funds with decimal-point precision, yet have no predictive power to forecast the future returns that a fund may earn.”

“Investing in equities entails four risks: stock risk, style risk, manager risk, and market risk. You can easily eliminate the first three of these risks simply by owning the entire stock market – and holding it forever.”

“The secret to investing is that there is no secret.”

“The truly great investment strategy succeeds, not because of its complexity or its cleverness, but because of its simplicity and its low costs.”

“So I conclude with the hope that this perspective on American capitalism, especially today’s dominance of short-term speculation over long-term investment in the culture of finance, will help make you a more concerned citizen, a more aware investor, and a successful accumulator of asset for a more secure financial future.”


Thank you, Jack!

Taylor

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"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby Howard Donnelly » Thu Jul 19, 2012 6:23 pm

Thank you, Taylor! My copy has been ordered.
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby FrugalInvestor » Thu Jul 19, 2012 6:32 pm

Thank you Taylor. I have also placed a pre-order with Amazon, through the Bogleheads link of course.

I hope his books are reaching a new audience and not just the faithful.
"Some men worship rank, some worship heroes, some worship power, some worship God, and over these ideals they dispute and cannot unite, but they all worship money. - Mark Twain
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby Day9 » Thu Jul 19, 2012 7:01 pm

Reddit.com is the 125th most visited site in the world and 58th most visited site in the USA. I post regularly on the personal finance and investing sections of the website. I am constantly recommending Vanguard and now the dominant opinion in those forums is in favor of a passively managed index approach. I will now recommend this book!

Thank you Taylor for distilling this information. Young people today can only digest bites at a time (see Twitter).

The Ancient Greeks believed household management is among the best and most noble thing a free, educated man can be good at. I have learned in my life that teaching others to be good is the way to be good yourself. Taylor you are a role model!
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby rayout » Thu Jul 19, 2012 7:16 pm

Day9 wrote:Reddit.com is the 125th most visited site in the world and 58th most visited site in the USA. I post regularly on the personal finance and investing sections of the website. I am constantly recommending Vanguard and now the dominant opinion in those forums is in favor of a passively managed index approach. I will now recommend this book!

Thank you Taylor for distilling this information. Young people today can only digest bites at a time (see Twitter).

The Ancient Greeks believed household management is among the best and most noble thing a free, educated man can be good at. I have learned in my life that teaching others to be good is the way to be good yourself. Taylor you are a role model!


I do have to ask- are you the Day9 doing SC2 commentaries?
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby louis c » Thu Jul 19, 2012 7:20 pm

Thanks Taylor! My favorite of the list: “The secret to investing is that there is no secret.” :thumbsup
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby umfundi » Thu Jul 19, 2012 7:36 pm

May I ask for an explanation?
“The ETF is surely the greatest marketing idea in finance so far in the twenty-first century.”

Thank you,
Keith
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby Call_Me_Op » Thu Jul 19, 2012 7:42 pm

Taylor Larimore wrote:“In 1994, interested in keeping informed about the activities of Vanguard rival T.Rowe Price, I purchased 100 shares of its management company for $4,189. My investment is presently worth $208,960.”


This one makes me want to speculate in individual stocks! :)
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ETF--a great marketing idea.

Postby Taylor Larimore » Thu Jul 19, 2012 9:03 pm

umfundi wrote:May I ask for an explanation?
“The ETF is surely the greatest marketing idea in finance so far in the twenty-first century.”

Thank you,
Keith


Keith:

These two quotes from the book should answer your question:

"While our growth in index funds assets from 1986 through the 1990s had come entirely from our traditional index funds, most of our growth since then has been driven by "non-traditional" index funds known as "exchange traded index funds." ETFs have existed only since 1992, but by 2000 they had become a major force in indexing. By 2008, ETF assets actually exceeded traditional index fund assets and lead by an wider margin today."


He also wrote:

With some $1.2 trillion now invested in ETFs, it is without hesitation that I describe Nathan Most's visionary creation of the first ETF as the most successful marketing idea of the modern age. Whether it proves to be the most successful investment idea of the age, however, remains to be seen. I have my doubts."

Best wishes.
Taylor
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby NAVigator » Thu Jul 19, 2012 9:14 pm

Thank you, Taylor. This makes me want to read the book. I heard Mr. Bogle yesterday on an NPR program, so I am filled with anticipation now to get the book. The excerpts you gave are gems, the book appears to be a gem, and Mr. Bogle is a gem as well.

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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby JMDV » Thu Jul 19, 2012 9:18 pm

Thanks Taylor-
I look forward to JB book..great common sense ideas..
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby abuss368 » Thu Jul 19, 2012 10:02 pm

Hi Taylor,

Thank you for the insight from Mr. Bogle's upcoming book. Hopefully he continues to write additional books!

Looking forward to getting a copy!

Regards.
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby JMDV » Thu Jul 19, 2012 10:13 pm

Just downloaded to IPAD...thanks for the headsup Taylor...and thank you Jack
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Re: ETF--a great marketing idea.

Postby umfundi » Thu Jul 19, 2012 10:31 pm

Taylor Larimore wrote:
umfundi wrote:May I ask for an explanation?
“The ETF is surely the greatest marketing idea in finance so far in the twenty-first century.”

Thank you,
Keith


Keith:

These two quotes from the book should answer your question:

"While our growth in index funds assets from 1986 through the 1990s had come entirely from our traditional index funds, most of our growth since then has been driven by "non-traditional" index funds known as "exchange traded index funds." ETFs have existed only since 1992, but by 2000 they had become a major force in indexing. By 2008, ETF assets actually exceeded traditional index fund assets and lead by an wider margin today."


He also wrote:

With some $1.2 trillion now invested in ETFs, it is without hesitation that I describe Nathan Most's visionary creation of the first ETF as the most successful marketing idea of the modern age. Whether it proves to be the most successful investment idea of the age, however, remains to be seen. I have my doubts."

Best wishes.
Taylor

Taylor,

Thank you. That helps, a little.

I am still unsure whether Mr. Bogle's skepticism is to do specifically with Exchange Traded Index Funds, or with ETFs in general.

Best wishes,

Keith
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Re: ETF--a great marketing idea.

Postby joe8d » Thu Jul 19, 2012 11:05 pm

umfundi wrote:
Taylor Larimore wrote:
umfundi wrote:May I ask for an explanation?
“The ETF is surely the greatest marketing idea in finance so far in the twenty-first century.”

Thank you,
Keith


Keith:

These two quotes from the book should answer your question:

"While our growth in index funds assets from 1986 through the 1990s had come entirely from our traditional index funds, most of our growth since then has been driven by "non-traditional" index funds known as "exchange traded index funds." ETFs have existed only since 1992, but by 2000 they had become a major force in indexing. By 2008, ETF assets actually exceeded traditional index fund assets and lead by an wider margin today."


He also wrote:

With some $1.2 trillion now invested in ETFs, it is without hesitation that I describe Nathan Most visionary creation of the first ETF as the most successful marketing idea of the modern age. Whether it proves to be the most successful investment idea of the age, however, remains to be seen. I have my doubts."

Best wishes.
Taylor

Taylor,

Thank you. That helps, a little.

I am still unsure whether Mr. Bogle's skepticism is to do specifically with Exchange Traded Index Funds, or with ETFs in general.

Best wishes,

Keith


I Think Mr Bogle's concern with ETF's ( Index ) is well justified.The bulk of which,I suspect,are in the hands of hedge funds that can and have whacked the entire market with a single keystroke.
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby sschullo » Fri Jul 20, 2012 10:56 am

Thanks Taylor.
Mr. JB thoughts are all so good.
I like this one: “Investing in equities entails four risks: stock risk, style risk, manager risk, and market risk. You can easily eliminate the first three of these risks simply by owning the entire stock market – and holding it forever.”
Steve
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby Alex Frakt » Fri Jul 20, 2012 10:24 pm

I have had to remove a large number of off-topic replies on this thread. I've also removed the Bogle quotes that they were in response too. Please remember that this site only covers a limited set of subjects, everything else, including CEO compensation, is not an acceptable topic here.
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby c.Alvin » Sat Jul 21, 2012 9:56 am

Thanks Taylor. I just downloaded a copy to my Kindle device from Amazon.
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Re: ETF--a great marketing idea.

Postby baw703916 » Sat Jul 21, 2012 3:44 pm

Taylor Larimore wrote:Keith:

These two quotes from the book should answer your question:

"While our growth in index funds assets from 1986 through the 1990s had come entirely from our traditional index funds, most of our growth since then has been driven by "non-traditional" index funds known as "exchange traded index funds." ETFs have existed only since 1992, but by 2000 they had become a major force in indexing. By 2008, ETF assets actually exceeded traditional index fund assets and lead by an wider margin today."


He also wrote:

With some $1.2 trillion now invested in ETFs, it is without hesitation that I describe Nathan Most's visionary creation of the first ETF as the most successful marketing idea of the modern age. Whether it proves to be the most successful investment idea of the age, however, remains to be seen. I have my doubts."

Best wishes.
Taylor


Well, it turns out that more than $200 billion of that $1.2 trillion ETF market consists of Vanguard's ETFs. And remember, the existence of the ETF share class makes Vanguard's funds more tax-efficient for everybody, including holders of the traditional open-end shares, by giving Vanguard more tools to do tax management and avoid capital gains distrubutions.

Also, many of the largest non-Vanguard ETFs are things like SPY (tracks the S&P 500 index) and EFA (tracks the EAFE index). While one can argue that Vanguard's offerings provide broader market coverage at lower cost, I don't think it's reasonable to say that SPY or EFA are terrible things to own. Most (non-Vanguard) mutual funds out there, by contrast, are terrible things to own (think active management, high ERs, and loads).

Nothing will change until people are freed from the tyranny of bad 401k offerings.

Brad
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby Barry Barnitz » Sat Jul 21, 2012 7:17 pm

Hi:

Recent article at indexuniverse.com. examines Vanguard's market share growth in the ETF marketplace:

The Rise Of An Indexing Giant In ETFs

The mutual fund giant has elbowed its way into the exchange-traded fund world. It’s the No. 3 ETF firm by assets and, assuming present trends continue, it is clearly threatening to take over as the reigning ETF issuer.


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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby staythecourse » Sun Jul 22, 2012 1:12 am

sschullo wrote:Thanks Taylor.
Mr. JB thoughts are all so good.
I like this one: “Investing in equities entails four risks: stock risk, style risk, manager risk, and market risk. You can easily eliminate the first three of these risks simply by owning the entire stock market – and holding it forever.”
Steve


Loved the quotes and eloquent as usual, but would like some clarification on this specific quote because I don't think it is correct.

Owning the TSM definetly eliminates company risk, i.e. stock risk and an indexed version (which I am assuming he is referring to) eliminates manager risk, but it does NOT eliminate style risk or market risk.

Style risk is decreased with TSM, but not by much as one can look at the risk and returns of DJ and TSM. They are relatively close and that is what one would expect as TSM is 70% LCB so you would not expect much decrease in style risk. Maybe he is refering to active manager style risk?

Market risk is, of course, NOT decreased at ALL by holding TSM which you wouldn't want to as that is source of return. So I don't understand that point at all. The only way to decrease market risk for stocks is to diversify with another superasset class like bonds/ cash/ alternative investments.

Either way great gems as usual.

Good luck.
...we all think we're above average investors just like we all think we're above average dressers... -Jack Bogle
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby hazlitt777 » Sun Jul 22, 2012 8:00 am

Taylor,

Is there anything new in the book, additions to his basic philosophy one finds in his 1999 book, Common Sense in Mutual Funds? Or could you name one or two things that stand out as additions or different nuances?
thanks.
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Are Jack's books the same ?

Postby Taylor Larimore » Sun Jul 22, 2012 8:23 am

hazlitt777 wrote:Taylor,

Is there anything new in the book, additions to his basic philosophy one finds in his 1999 book, Common Sense in Mutual Funds? Or could you name one or two things that stand out as additions or different nuances?
thanks.


hazlitt:

The Clash of the Cultures is significantly different than Common Sense on Mutual Funds.

Clash of Cultures provides background and insight into the mutual fund industry plus general rules for investors. Common Sense on Mutual Funds is primarily about how to invest successfully.

You can read excerpts from Common Sense on Mutual Funds here:

viewtopic.php?t=46036

Best wishes.
Taylor
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby jvclark02 » Sun Jul 22, 2012 8:47 am

sschullo wrote:Thanks Taylor.
Mr. JB thoughts are all so good.
I like this one: “Investing in equities entails four risks: stock risk, style risk, manager risk, and market risk. You can easily eliminate the first three of these risks simply by owning the entire stock market – and holding it forever.”
Steve


+1 ......that was one of my favorites. I wished I would have known that 30 years ago :oops:
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Re: Are Jack's books the same ?

Postby hazlitt777 » Mon Jul 23, 2012 9:55 am

Taylor Larimore wrote:
hazlitt777 wrote:Taylor,

Is there anything new in the book, additions to his basic philosophy one finds in his 1999 book, Common Sense in Mutual Funds? Or could you name one or two things that stand out as additions or different nuances?
thanks.


hazlitt:

The Clash of the Cultures is significantly different than Common Sense on Mutual Funds.

Clash of Cultures provides background and insight into the mutual fund industry plus general rules for investors. Common Sense on Mutual Funds is primarily about how to invest successfully.

You can read excerpts from Common Sense on Mutual Funds here:

viewtopic.php?t=46036

Best wishes.
Taylor


Maybe I will have to buy one of his books.
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby clevername » Mon Jul 23, 2012 11:41 am

I'm currently reading bogle's 2009 book "Enough" and came across this thought he had in the hospital while waiting for a new heart:

"I never thought I would die. I never though I would live either. It just didn't seem sensible to think about the outcome either way."


Spoken like a true indexer all right! 'Maybe my portfolio will go up, maybe it'll go down, no use worrying about it. What's for lunch?'
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Re: Jack Bogle: "The Clash of Cultures" A Gem

Postby heyyou » Mon Jul 23, 2012 12:47 pm

Style risk is decreased with TSM, but not by much as one can look at the risk and returns of DJ and TSM. They are relatively close and that is what one would expect as TSM is 70% LCB so you would not expect much decrease in style risk.


If one chooses to use the cap weighted market as the reference point, then TSM has no style drift from that reference. Most slice and dice advocates want small and/or value tilts away from owning mostly LCB.
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