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Monday, October 26, 2009

Review: Enough

It is no secret that John Bogle is a hero to many investors, myself included. Enough is his book themed the current rapacious greed that seems to have taken over most of American society.

You might think that for someone like me (who has an incredibly low opinion of people in finance, and the profession in general), there's no way a financier could be a hero. But that is not true. Last I checked, Vanguard has well over $1 trillion in management. To put things in perspective, Fidelity has $1.5 trillian under management, which is enough to put Abigail Johnson, who owns 24% of Fidelity, well into the Forbes 400 list of richest people. John Bogle isn't even #400 on the list, and neither are his heirs. It truly takes a great man to organize a company so the benefits go to the customers, rather than to himself and his heirs.

The title of the book comes from Kurt Vonnegut's poetic obituary for Joseph Heller. When Vonnegut told Heller that the host of the party (a hedge fund manager) made more money in one day than Heller's novel re had earned in its entire history, Heller said, "I've got something he'll never have." In response to Vonnegut's "What on earth could that be?" Heller said, "The knolwedge that I've got enough."

Bogle starts off with an indictment of the entire financial industry, and it's a rant I entirely agree with --- unlike being an engineer (who creates things), a doctor (who heals people), a teacher, or any other professional, finance's contribution to society can only be subtractive --- whether a broker working on commission, a financial advisor taking a percentage of assets, or even merely lending money, a financier's take always comes out of the client's capital or gains. In fact, in the case of the hedge funds, the managers get 2% of assets every year (win or lose), a 20% off profits, and on top of that (through successful lobbying) pay 15% taxes on the money they make, unlike a school teacher who pays federal marginal tax rates no matter what.

What's more, the brain drain from physics and engineering to the financial field has cost society even more, as smart people go from building and making things to shuffling money from one end of the table to the other, while figuring out more and more ways for some of that money to land on their laps.

Bogle moves from there to other topics --- from chief executives padding their wallets at the expense of shareholders (a topic Warren Buffett has also ranted about), to how having wealth be the measure of success is really not satisfactory. Unfortunately, I think the only people who would actually pay attention to this are folks already capable of making that judgement for themselves.

I enjoyed this book, but it's probably not for everyone. It's short enough that it won't be a waste of time, though!


Unknown said...

Sorry I'm only going to touch your first statement that says you have a very low opinion of people in finance.

Whenever I diss people in finance with my fellow engineering buddies, many would echo back with an amen. Engineers create something of value to mankind, and it's quite tangible. People in finance? Give me a break. But whenever I diss finance people to my other set of friends who are not in the engineering (even to my friends in medicine), many are surprised at my attitude. Their responses to me is something to the effect "They're just doing their jobs." Then I go on explaining why I have very low opinion of people in finance, but it's usually the "what it is, is... who cares" response.

Do you get this response frequently? Or maybe it has more to do with demography (where you live, certain set of friends, etc).

Piaw Na said...

Dude, I live in Silicon Valley. Bean counters are universally held in contempt here. You have to remember that it's a profession where creativity (of the sort that brought us CDOs and sub-prime loans) is the worst thing that could possibly happen.

Unknown said...

Exactly, I laugh at the notion of creativity in finance. I even laugh at stuff like derivatives and stuff that basically legalizes gambling and encourages unnecessary risks which entice people and makes the whole stock market seem so arbitrary.

I can explain this to a lot of my non-engineer friends over and over again. However, most people in this world are non-engineers let alone college educated, and I've come to the conclusion that most people simply feel differently (or indifferent) about this whole creative finance thing.