I am reading Vanguard founder John Bogle’s most recent book, The Clash of Cultures. It shares a common theme with many of his other writings: the investment management industry has increasingly promoted salesmanship over the stewardship of client assets. The evidence of this is everywhere–from the excessive fees for actively managed mutual funds to the excessive turnover of stocks in most funds to the proliferation of funds (including ETF’s) at many fund families.
I wish I could say that the hedge fund industry has done a better job than mutual funds and focused on stewardship over salesmanship, but I can’t. Hedge funds have been just as bad as mutual funds, especially when it comes to the oldest and most destructive temptation in the money management game: overgrowing one’s assets under management (AUM).
As I write about in the book I’m finishing up (it’s due out late this year or early next year–stay tuned for more details!), I’ve lived through a number of asset bubbles, or manias, in my career. By far, the most maniacal of these manias–and the biggest one in the history of capitalism–was the dotcom craziness of the late-1990s. It was absolute bedlam, and its epicenter was down the road from me in Silicon Valley, so I had a front row seat.
The normal metrics for valuing companies went haywire during those days. Revenues didn’t matter. Earnings mattered even less (because they were usually nonexistent). When it came to pricing a dotcom stock, it was all about “eyeballs”–the number of people visiting a given website.
If that sounds familiar, it should. It’s the exact same way people are valuing the darlings of the latest online mania–social media.
Something extraordinary happened last week: a politician went against the dogma of his own party and proposed something that might actually boost our economy and improve our country’s long-term fiscal health.
Of course, the plan has no chance of getting a vote, let alone passing congress. And even if it did manage to pass, President Obama would veto it before his first morning cigarette. But just because Representative Dave Camp’s tax reform bill is a lost cause doesn’t mean it’s not a worthy one.
Recently, I was subjected to the unpleasant experience of watching the press fawn over a bunch of self-satisfied celebrities who contribute little or nothing to society. No, I’m not talking about the interminable Oscars coverage this past week. I’m talking about the reaction to the Federal Reserve meeting minutes from the 2008 financial crisis, which were released two weeks ago.
In the popular press–even at the reliably liberal New York Times–it has become conventional wisdom that the biggest mistake of that era wasn’t bailing out the most corrupt and incompetent firms on Wall Street with billions of dollars in taxpayer money. The biggest mistake was not making the bailouts big enough.
It’s an election year, and election years bring out so-called wedge issues. This time around, it looks like the big wedge issue will be the minimum wage. Democrats want to push it above $10 an hour. I’m not a fan of government regulation and other burdens on business–like the excessive corporate tax rate–but I do believe Washington has a moral and financial obligation to help entry-level, unskilled, and young workers. Raising the minimum wage helps all three groups. It does something even more important, too: