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Another example of why John Bogle is my hero
07-30-2015, 11:35 AM
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#1
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,003
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Another example of why John Bogle is my hero
Why 99% of trading is pointless: John Bogle
Quote:
"The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings," Bogle told Time in an interview.
"What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It's a waste of resources."
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Numbers is hard
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07-30-2015, 11:41 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,819
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Quote:
with a gain only to the middleman. It's a waste of resources."
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Unless you are the middleman!
-ERD50
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07-30-2015, 12:25 PM
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#3
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Thinks s/he gets paid by the post
Join Date: Mar 2015
Location: philly
Posts: 1,219
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Quote:
Originally Posted by ERD50
Unless you are the middleman!
-ERD50
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+1
Hey they have to eat also.
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07-30-2015, 03:15 PM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2005
Posts: 17,203
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Yes... a great article and a great point....
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07-31-2015, 02:07 PM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,671
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Quote:
If you're a normal retirement investor trying to get from A to B and retire
on time, well, you have a really big problem to face: The toll-taker wants your
money.
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I'm as normal as the next guy yet I know how to avoid the toll-takers. So does everyone here.
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Part-Owner of Texas
Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx
In dire need of: faster horses, younger woman, older whiskey, more money.
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08-01-2015, 12:15 PM
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#6
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Full time employment: Posting here.
Join Date: May 2015
Location: Atlanta suburbs
Posts: 633
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Nice article.
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08-01-2015, 12:53 PM
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#7
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Thinks s/he gets paid by the post
Join Date: May 2014
Location: Utrecht
Posts: 2,650
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Unless you are the middle man (broker platform).
Unless you are the front man (?) (high frequency trader).
Unless you are the running man (?) (hedge fund type investment manager)
Unless you are the tax man (short terms capital gains)
I'm probably missing a few good men.
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08-01-2015, 03:07 PM
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#8
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Administrator
Join Date: Apr 2006
Posts: 22,971
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Quote:
Originally Posted by Totoro
I'm probably missing a few good men.
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That's because you can't handle the truth.
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Living an analog life in the Digital Age.
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08-01-2015, 05:54 PM
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#9
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Confused about dryer sheets
Join Date: Aug 2015
Posts: 2
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Hello All. I'm a long time lurker and this is my first message.
First, let me say I agree with the sentiment of John Bogle's statement. But I do want to point out one very important benefit additional trading has over and above the initial capital placed with firms. The trading allows investors to earn higher returns (than say a bank account) and still access their money later when they want to. Imagine if the only trading was with firms (IPOs, SECs, and share repurchases) (i.e., when firms raise capital or return capital). In that case when I get paid and want to invest my money, I can only buy stock in a firm if it is selling new shares right at that moment. In addition, I can only get money back from my investment if that firm decides to pay dividends or repurchases shares.
I do think John Bogle is correct in the idea that Wall Street makes lots of money from trading and wants to encourage investors to trade for their own benefit. But it is also true investors do get some benefit from having a liquid market so they can invest and then access their investment at a time of their choosing. Besides the 1% or trading that is used to raise capital, I'm not sure how much more is "good" trading vs. churning. It might be just another 1%, but it is something and without this function of the markets, I think many of us would have a hard time retiring early.
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08-01-2015, 10:03 PM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2004
Location: SW Ohio
Posts: 14,404
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One thing that can reduce the loss from "friction"--buy stock in "the middleman" and get your share of the action.
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08-02-2015, 09:14 AM
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#11
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Confused about dryer sheets
Join Date: Mar 2015
Posts: 8
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This is interesting. So let's see what we would be doing with the 32 trillion instead of shuffling it back and fourth for nothing. Is this an indictment on entrepreneurship that only 1% goes towards capital finance? Don't we have enough viable business ventures that could make better use of some of that capital?
Sent from my XT1019 using Early Retirement Forum mobile app
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08-02-2015, 10:54 AM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2008
Posts: 7,422
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OTOH, without all that trading activity which boosts valuations, would most of us here have FIRE'd?
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08-02-2015, 02:43 PM
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#13
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Moderator
Join Date: Oct 2010
Posts: 10,653
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I'm not so sure one would need that many trades to get a valuation, though. But does the increased liquidity generated by speculators help the infrequent traders? They're not putting the broker's kids through Harvard.
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08-02-2015, 03:22 PM
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#14
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Recycles dryer sheets
Join Date: Nov 2005
Posts: 355
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Quote:
I'm not so sure one would need that many trades to get a valuation, though. But does the increased liquidity generated by speculators help the infrequent traders?
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Well said. Who cares if it is one or two or ten percent? The point is that most trading is speculation, not investing. The horse race track employs people, but no one is confused about the purpose of its existence which is not about testing the breeding and training of horses. Is the stock market any different?
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08-02-2015, 08:20 PM
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#15
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Moderator
Join Date: Oct 2010
Posts: 10,653
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I'd say it's sanctioned gambling, for the most part. Probably what Jack was getting at.
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08-02-2015, 08:42 PM
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#16
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Recycles dryer sheets
Join Date: Jan 2012
Posts: 441
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Staying put is really hard to do for most people. That's why I keep a small portion (5%) for trading.
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08-03-2015, 06:36 AM
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#17
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Thinks s/he gets paid by the post
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,455
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May we live in peace and harmony and be free from all human sufferings.
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08-03-2015, 06:39 AM
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#18
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Thinks s/he gets paid by the post
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,455
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Quote:
Originally Posted by Rickt
Staying put is really hard to do for most people. That's why I keep a small portion (5%) for trading.
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Not difficult at all! I have zero portion for any kind of trading. There are so many other things to do for fun. Trading (or gambling) is not one of them.
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May we live in peace and harmony and be free from all human sufferings.
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08-03-2015, 07:33 AM
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#19
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 14,183
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Frequent traders are in a different business than investors.
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...not doing anything of true substance...
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08-03-2015, 08:37 AM
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#20
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Thinks s/he gets paid by the post
Join Date: Jun 2013
Location: Bonita (San Diego)
Posts: 1,795
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But investors benefit from the existence of frequent traders...
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