Jump to content
Sign in to follow this  
sschullo

"enough" By John Bogle

Recommended Posts

Hi all,

What an amazing man the many of us follow on this site. This interview was conducted at the Vanguard Diehard's conference in San Diego. Mr. Bogle tells us that Wall Street went from investing to speculation, he shows us how to protect ourselves from speculation and finally he advises us that money with a life purpose will truely make you successful. In his new book titled "Enough", he will convincing people to turn from making more and more money as a sole success determinator to using your time and money into more important values of family, community and what he calls the "greater good." He tells a now famous story that reveals how he titled his book, "Enough," that is becoming an internet folklore.

As I have said before, what an amazing man and am very fortunate that I had met him in person at the 1999 LA Investment Strategies Conference, got a hand written message back from him as a response to my letter and talked with him on Money Talk radio show. click to see the interview.

Have a great weekend,

Steve

Share this post


Link to post
Share on other sites

Hi,

This article below is a good follow up to what John Bogle says about our economy and the 21st century American capitalism. In the 20th century, creating real products was the norm, now it is manipulation money so that the ordinary person cannot understand. In the 20th century, revenue sharing, 12b (1) fees, Mortality and Expense ratios were the norm that few investor understood. Now that more people understand these fees, Wall Street had to turn up the ratchet a bit and use instruments such as "credit default swaps, merger arbitrage strategies, collateralized debt obligations, interest rate contracts" (quote from article) and derivatives. Mind you, there is nothing inherently wrong with these processes, it’s how they are used to take unbelievable risks to make a "profit."

The article below explains it very well.

 

The point is that investors can protect ourselves and by learning to isolate yourself from the impact of these thieves. The same strategies apply, invest in the total economies, total bond market, total stock market and total world market with index funds. You have extremely low costs and very broad diversification and think LONG TERM. Most importantly, learn how to manage your own investments and stay that heck away from insurance agents and financial advisers who make commissions. Even if you hire a fee only adviser, you need to learn the basics. There is no easy, softer way around this crisis.

 

 

By the way, the author may be one of the speakers at my teachers union (United Teachers Los Angeles) first ever defined contribution workshop scheduled for 11/22. All are welcome.

Have a great weekend,

Steve

 

Los Angeles Times

 

September 22, 2008

 

The Upside of an Economic Meltdown

By Kelly Candaele

 

As a Trustee of the Los Angeles City Employees Retirement System (LACERS), every week I receive materials in the mail from money mangers imploring me to consider investing in their strategy for generating high returns for our $10 billion pension fund. One of the most fascinating – and revealing - set of marketing materials comes from a company that lists the following options for investing our fund’s money: credit default swaps, merger arbitrage strategies, collateralized debt obligations, interest rate contracts. You get the picture. Or perhaps, like most Americans not involved in the arcane “science” of finance, you don’t get the picture.

 

It’s unfortunate that it takes a financial crisis for Americans to divert their attention away from what kinds of glasses Sarah Palin wears to issues that really matter, but a re-evaluation of priorities may be the only upside to a financial meltdown that the news media is now desperately trying to explain.

 

In the so called “old” economy, investors looked at the health of a company, the skills of management, potential market opportunities and the quality of the products produced. If, for instance, Harley Davidson motorcycles looked like they were producing high quality bikes, investing in new engineering, and training skilled workers – then that could be a solid investment. Your investment was a wager of course – like all stock investments – but none the less based on some modicum of analysis and solid research. If Harley Davidson sold more motorbikes, profits were made, investment was ploughed back into the company, and more jobs were created. Americans understand that basic logic of capitalism.

 

But try explaining a credit default swap – the financial instruments now collapsing – to your next door neighbor. Here is how one popular website defines the strategy: “A credit default sway is a credit derivative contract between two counterparties, whereby the “buyer” or “fixed rate payer” pays periodic payments to the “seller” or “floating rate payer” in exchange for the right to a payoff if there is a default or “credit event” in respect of a third party or “reference entity.” At what point in this elaborate series of maneuvers is the American economy enhanced and the American worker’s standard of living increased?

 

It is easy to parody the language quoted above. And Karl Marx did so in his mid 19th century writings by referring to various paper transactions as “fictitious capital.” In our “post-modern” economic system, money makes money through speculation without the arduous process of actually producing anything.

 

It is firmly established that hedge fund strategies, arbitrage arrangements and other complex investments have made a great deal of money for money managers and institutional investors who have embraced them. And some of these approaches can help hedge against risk, an important component in any large portfolio.

 

But more economists, writers and thankfully the American people are beginning to ask what these largely un-regulated and opaque financial operations means for the economy as a whole. In his recently published book, Bad Money, historian Kevin Phillips points out that if you include mortgage lending and real estate operations, financial services has grown from 11% of our gross domestic product in 1950 to over 20% today, now dwarfing manufacturing. As more and more of our economy is given over to financial machinations, inequality grows and working people’s faith in the direction of the economy declines.

 

And Nouriel Roubini, an economics professor at New York University who predicted the current crisis, points out that the financial meltdown is much more than simply the product of a few overzealous and incautious executives. “We have a subprime financial system,” he told the New York Times Magazine, “not a subprime mortgage market.” Capitalism has come off its leash.

 

President Bill Clinton famously declared the “era of big government” was over during his 1996 State of the Union Address. History often contrives to upend our most firmly held beliefs. The government now owns a big chunk of our financial system and our congressional leaders are scrambling to design appropriate regulations to impose on the financial industry. Even Republican Presidential nominee John McCain is repudiating his previous anti-regulatory convictions. It is more likely that what is “over” is Reaganism, the facile faith that the unfettered market offers the only path to economic prosperity.

 

The evolution from a manufacturing based economy to a financial service oriented one was not caused by institutional investors. But we do have a responsibility not to encourage it.

 

Sophisticated and reasonable regulations will help our economy as a whole, and provide more transparency for investors – like pension funds – who are looking for good investments that also strengthen our economy. We would all be better off if the most common economic questions were the fundamental ones – “What does this company produce, what is their market, and how well is the company run?

 

Kelly Candaele is a Trustee of the Los Angeles City Employee Retirement System and Executive Director of the Horizon Institute, a Los Angeles based progressive think-tank.

 

 

Share this post


Link to post
Share on other sites

Bogle is great, look forward to reading his book.

 

As for that LA Times article - just because an instrument like a Credit Default Swap is not easy to understand (actually its pretty simple) doesn't mean it shouldn't be used as a tool.

 

A CDS or Credit Default Swap is nothing more than an insurance policy for another security. One party pays another party to ensure against default. The problem is that these Credit Default Swaps are not regulated like insurance and thus are rarely reserved - AIG was hurt by CDS's because they were idiots and thought they had no risk or exposure....Mark-to-Market played a role as well.

 

Let's no throw the baby out with the bathwater, CDS' have contributed to this panic, but if used correctly (and perhaps regulated correctly) are just another risk tool.

 

I think there is something like $50 trillion in notional CDS on the market - with no central exchange and little regulation.......these can be dangerous in the wrong hands.....like anything.

 

ScottyD

Share this post


Link to post
Share on other sites

Hey Scotty,

 

I said in my intro that there is nothing inherently wrong with these instruments but as you said it was used by "idiots". But the fact that most of us have never heard of them until these past few months, means, whether you like it or not, Wall Street has all of the incentive in the world to keep ordinary people in the dark.

 

The larger issue is that this country is turning from manufacturing to managing money. From 11% of GDP in 1950 to 20% today. Lots of "fictitious" jobs with no real product and as Americans are learning and are rightfully angry about is that the fictitious professionals are not looking out for the investor’s best interests.

 

Steve

 

Share this post


Link to post
Share on other sites

Steve --

All the young people in our family will be receiving "Enough" for a holiday gift.... oh, dear! No wonder they think their mother / aunt / step-aunt is a bore! What a book, tho!!! A value system we can all respect...

 

JudyS

Share this post


Link to post
Share on other sites

Hey Scotty,

 

I said in my intro that there is nothing inherently wrong with these instruments but as you said it was used by "idiots". But the fact that most of us have never heard of them until these past few months, means, whether you like it or not, Wall Street has all of the incentive in the world to keep ordinary people in the dark.

 

The larger issue is that this country is turning from manufacturing to managing money. From 11% of GDP in 1950 to 20% today. Lots of "fictitious" jobs with no real product and as Americans are learning and are rightfully angry about is that the fictitious professionals are not looking out for the investor’s best interests.

 

Steve

 

 

Steve,

 

I don't disagree. I won't say that Wall Street (which I've renamed Hubris Street) should receive the full blame - government had a lot to do with it as well. Its always dangerous when government and hubris street team up...

 

I just hope the needed reforms will be put into place.

 

ScottyD

Share this post


Link to post
Share on other sites

Scotty,

Again its not Wall Street or the government, its the people who were elected and appointed that made decisions, very bad decisions for the country and for ordinary people. And ordinary people, the voters, do not want to cut back on spending or change their consuming life style from gas guzzlers to electric cars, demand alternative fuels, instead the voters want more oil. Carter proposed that we cut back on our consumer demands way back in 1978. We all know what happened to Carter and the solar panels he installed on the White House.

 

Steve

Share this post


Link to post
Share on other sites

Scotty and Steve,

 

I would like to toss in some blame on Main Street for this financial fiasco. It was ordinary citizens who took out the ill-advised loans that contributed to this disaster. Nobody put a gun to their heads; they voluntarily signed the papers. Then -- why not? -- many of them refinanced, refinanced, and refinanced, continually adding to their loan balances. When the day of reckoning came, surprise! The loans were upside down.

 

The old fashioned idea of living within one's own means seems to have been forgotten by lots of people, and now we are all paying the price.

Share this post


Link to post
Share on other sites

The following is an Excerpt from the "Upside of an Eeconomic Meltdown" by a trustee of the LA

City Employees Retirement System:

 

"The evolution from a manufacturing based enconomy to a financial services one was not caused by institutional investors but we should not encourage it."

 

Huh?

 

Its not a question of encouraging one sector in the economy over another but the inevitibility of the change. Insitutional investors are investing less assets in manufacturing companies who make things (automobiles) because making things is less profitable than other types of investments. For example, cars are subject to depreciation after they are made if they are not sold promplty. Automakers have had to take big writeoffs for their inventory of SUVs and light trucks which are sitting on lots. The value of SUVs/trucks which have come off leases this year have had to be written off for depreciation well in excess of their expected resale value which has caused the 3 detroit auto makers to take special write offs in the $ billions.

 

Compare the automakers with IBM which almost went out of business in the early 1990s when the desktop computer replaced IBM's monopoly of mainframe computers (a thing) as the main source for transmitting information by connecting every employee in a corporation. IBM became a seller of IT services, management services, financial administration, etc using its vast inventory of patents and proprietory programming which were not subject to the depreciaton rules for things. IBMs stock has gone from the equivalent of $10 a share in 1993 to over $100 today.

 

Warren Buffet has made a lot of money investing in companies that sell financial services, e.g., insurance (GEICO) and re insurance and recently invested $5B in Goldmans Sachs (investment bank) as well as $3B in GE which gets half of its revenue from financial services.

 

The duty of fiduciary is to determine the best investments for retirement plan funds, not to promote social investing in certain types of companies.

 

 

Hi,

This article below is a good follow up to what John Bogle says about our economy and the 21st century American capitalism. In the 20th century, creating real products was the norm, now it is manipulation money so that the ordinary person cannot understand. In the 20th century, revenue sharing, 12b (1) fees, Mortality and Expense ratios were the norm that few investor understood. Now that more people understand these fees, Wall Street had to turn up the ratchet a bit and use instruments such as "credit default swaps, merger arbitrage strategies, collateralized debt obligations, interest rate contracts" (quote from article) and derivatives. Mind you, there is nothing inherently wrong with these processes, it’s how they are used to take unbelievable risks to make a "profit."

The article below explains it very well.

 

The point is that investors can protect ourselves and by learning to isolate yourself from the impact of these thieves. The same strategies apply, invest in the total economies, total bond market, total stock market and total world market with index funds. You have extremely low costs and very broad diversification and think LONG TERM. Most importantly, learn how to manage your own investments and stay that heck away from insurance agents and financial advisers who make commissions. Even if you hire a fee only adviser, you need to learn the basics. There is no easy, softer way around this crisis.

 

 

By the way, the author may be one of the speakers at my teachers union (United Teachers Los Angeles) first ever defined contribution workshop scheduled for 11/22. All are welcome.

Have a great weekend,

Steve

 

Los Angeles Times

 

September 22, 2008

 

The Upside of an Economic Meltdown

By Kelly Candaele

 

As a Trustee of the Los Angeles City Employees Retirement System (LACERS), every week I receive materials in the mail from money mangers imploring me to consider investing in their strategy for generating high returns for our $10 billion pension fund. One of the most fascinating – and revealing - set of marketing materials comes from a company that lists the following options for investing our fund’s money: credit default swaps, merger arbitrage strategies, collateralized debt obligations, interest rate contracts. You get the picture. Or perhaps, like most Americans not involved in the arcane “science” of finance, you don’t get the picture.

 

It’s unfortunate that it takes a financial crisis for Americans to divert their attention away from what kinds of glasses Sarah Palin wears to issues that really matter, but a re-evaluation of priorities may be the only upside to a financial meltdown that the news media is now desperately trying to explain.

 

In the so called “old” economy, investors looked at the health of a company, the skills of management, potential market opportunities and the quality of the products produced. If, for instance, Harley Davidson motorcycles looked like they were producing high quality bikes, investing in new engineering, and training skilled workers – then that could be a solid investment. Your investment was a wager of course – like all stock investments – but none the less based on some modicum of analysis and solid research. If Harley Davidson sold more motorbikes, profits were made, investment was ploughed back into the company, and more jobs were created. Americans understand that basic logic of capitalism.

 

But try explaining a credit default swap – the financial instruments now collapsing – to your next door neighbor. Here is how one popular website defines the strategy: “A credit default sway is a credit derivative contract between two counterparties, whereby the “buyer” or “fixed rate payer” pays periodic payments to the “seller” or “floating rate payer” in exchange for the right to a payoff if there is a default or “credit event” in respect of a third party or “reference entity.” At what point in this elaborate series of maneuvers is the American economy enhanced and the American worker’s standard of living increased?

 

It is easy to parody the language quoted above. And Karl Marx did so in his mid 19th century writings by referring to various paper transactions as “fictitious capital.” In our “post-modern” economic system, money makes money through speculation without the arduous process of actually producing anything.

 

It is firmly established that hedge fund strategies, arbitrage arrangements and other complex investments have made a great deal of money for money managers and institutional investors who have embraced them. And some of these approaches can help hedge against risk, an important component in any large portfolio.

 

But more economists, writers and thankfully the American people are beginning to ask what these largely un-regulated and opaque financial operations means for the economy as a whole. In his recently published book, Bad Money, historian Kevin Phillips points out that if you include mortgage lending and real estate operations, financial services has grown from 11% of our gross domestic product in 1950 to over 20% today, now dwarfing manufacturing. As more and more of our economy is given over to financial machinations, inequality grows and working people’s faith in the direction of the economy declines.

 

And Nouriel Roubini, an economics professor at New York University who predicted the current crisis, points out that the financial meltdown is much more than simply the product of a few overzealous and incautious executives. “We have a subprime financial system,” he told the New York Times Magazine, “not a subprime mortgage market.” Capitalism has come off its leash.

 

President Bill Clinton famously declared the “era of big government” was over during his 1996 State of the Union Address. History often contrives to upend our most firmly held beliefs. The government now owns a big chunk of our financial system and our congressional leaders are scrambling to design appropriate regulations to impose on the financial industry. Even Republican Presidential nominee John McCain is repudiating his previous anti-regulatory convictions. It is more likely that what is “over” is Reaganism, the facile faith that the unfettered market offers the only path to economic prosperity.

 

The evolution from a manufacturing based economy to a financial service oriented one was not caused by institutional investors. But we do have a responsibility not to encourage it.

 

Sophisticated and reasonable regulations will help our economy as a whole, and provide more transparency for investors – like pension funds – who are looking for good investments that also strengthen our economy. We would all be better off if the most common economic questions were the fundamental ones – “What does this company produce, what is their market, and how well is the company run?

 

Kelly Candaele is a Trustee of the Los Angeles City Employee Retirement System and Executive Director of the Horizon Institute, a Los Angeles based progressive think-tank.

 

Share this post


Link to post
Share on other sites

Intrutor,

You hit the nail on the head, absolutely, financial services has been more profitable than manufacturing. Heck, the CEO of Lemund bros made a handsome 38 million for his work last year.

 

The question from many Americans including from Mr. Bogle himself--how much is enough? How much profit are we talking about that our economy needs to keep people gainfully employed for the long term? Secondly, where have all the profits gone now that so many of them are in financial ruin and what happens to the 25000 mostly innocent Lemun Bros employees? It may be profitable but its mostly short term.

 

How many homes and cars can one person physically own? Can one of these pigs live in just two or three homes, fly one private jet and drive ten or less cars? Can they live with a 15 cd changer in their car vs. just having a 10 cd changer? How can you defend such greed?

 

Warren Buffett does not share the short term profits gains that the pigs on wall street have. Mr. B is a man that buys very few stocks and holds them for long periods of time. We all agree he is not a trader, AT ALL. He made money because of his long term thinking, in value stocks and because he gets envolved with some of the companies he owns.

 

Fiduciary has its limits involving such egregous cases as South Africa and Dafur, when our entire country discusses seriously about restricting trades. You will not agree with the values that comes from many public service institutional investment strategy, but they have a serious voice about the social problems in the world that can't always hide behind fiduciary responsibilities.

 

BTW, since when did IBM, Mr. B and Auto makers have to adhere to fiduciary responsibility?

Share this post


Link to post
Share on other sites

Intrutor,

You hit the nail on the head, absolutely, financial services has been more profitable than manufacturing. Heck, the CEO of Lemund bros made a handsome 38 million for his work last year.

 

The question from many Americans including from Mr. Bogle himself--how much is enough? How much profit are we talking about that our economy needs to keep people gainfully employed for the long term? Secondly, where have all the profits gone now that so many of them are in financial ruin and what happens to the 25000 mostly innocent Lemun Bros employees? It may be profitable but its mostly short term.

 

How many homes and cars can one person physically own? Can one of these pigs live in just two or three homes, fly one private jet and drive ten or less cars? Can they live with a 15 cd changer in their car vs. just having a 10 cd changer? How can you defend such greed?

 

Warren Buffett does not share the short term profits gains that the pigs on wall street have. Mr. B is a man that buys very few stocks and holds them for long periods of time. We all agree he is not a trader, AT ALL. He made money because of his long term thinking, in value stocks and because he gets envolved with some of the companies he owns.

 

Fiduciary has its limits involving such egregous cases as South Africa and Dafur, when our entire country discusses seriously about restricting trades. You will not agree with the values that comes from many public service institutional investment strategy, but they have a serious voice about the social problems in the world that can't always hide behind fiduciary responsibilities.

 

BTW, since when did IBM, Mr. B and Auto makers have to adhere to fiduciary responsibility?

 

 

Where did you get the idea that I was defending greed? I merely noted the change to a post manufacturing economy that has been going over the last 25 years. GM used to have a financing arm, GMAC, which generated most of the profits for the automaker. GM sold off GMAC last year.

 

Where did you get the idea that I was referring to investors, IBM and automakers having to adhere to fiduciary responsibility? I was referring to the author of the article "the Upside of the Economic Meltdown" (that you introducted to the board) who is a trustee (fiduciary) for the LA City Employee Retirement System. Unless you are going to tell me that a trustee is is not a fiduciary.

 

As for where Lehman's profits have gone, the answer is simple: to those financial institutions that will purchase its assets for pennies on the dollar. Barclays bought Lehman's investment business for about $1.5B and other investors will purchase the best of its remaining assets such as $70B in mortgage securities at steep discounts and sell them when the assets recover their values. What has not been reported is that most of Lehman's mortgage securities are not worthless just illiquid if they had to be sold now. Bizarre note: When Bear Stearns went under in March and was taken over by JPM, the book value of its assets was about $80B. It was sold to JPM for less than $10B. Some portion of the 70B excess in book value will be captured by JPM after settling the litigation against Bear brought by investors and writing off bad securities.

 

As for the head of Lehman Bros making $38 million last year, A-Rod made $26M for less than 6 months work this year (and he has another 9 years guaranteed on his contract) yet the Yankees missed the playoffs for the first time in 14 years. Should A Rod give his salary back to the Yankees?

 

How many cars do Jay Leno and Jerry Seinfeld own?

 

I didnt understand your ramblings on South Africa and Dafur, but I do know that the CA pension system is underfunded and the last thing it needs is to pull out of good investments for political reasons but then its your tax money that will make up any deficit.

Share this post


Link to post
Share on other sites

Something is way off here. I'm agreeing with Intruder and disagreeing (respectfully) with Steve. The duty of a fiduciary is to do what is in the best financial interests of the investor. Period. I don't mix social engineering with investing, and I sure as heck do not want my teachers' retirement system fund to do so, either.

 

Screening out companies for "social" reasons opens up a huge can of worms. We could easily screen out most of the most profitable companies because one group or another in society is offended. If we are going to give STRS the liberty to pick and choose which companies are bad guys, then I want the liberty to pull out of STRS and invest on my own.

 

"And another thing ..." :) Just who the heck gets to decide what is "socially desirable?" What criteria are to be used? No weapons? No alcohol? No cigarettes? How about no beef? After all, beef causes high cholesterol. How can we in good conscience support that? The oil companies have jacked up oil prices. Should our pension funds avoid oil companies?

 

GE does business in Iran. Does that mean we shouldn't invest in GE? Any number of companies invest in Saudi Arabia. I happen to find the Wahabi sect in that nation morally repugnant. Does that mean that STRS shouldn't invest in companies that do business in Saudi Arabia?

 

Any number of nations (Afghanistan, Pakistan, Indonesia, the Philippines) are doing a lousy job of combating terrorism. How about telling STRS to avoid companies that do business in those nations?

 

How many companies have we screened out now?

 

Furthermore, it's not always clear that avoiding investments in a "bad" nation will help the very people that such a strategy purports to help. For example, by not investing in North Korea, we might actually be hurting those long-suffering people.

 

For those folks who want to engage in "socially responsible" investing on their own, more power to them. But please don't ask pension funds to make political decisions in economic markets.

Share this post


Link to post
Share on other sites

AP,

You bet something is way off here. Just look at whats happening around us, the credit market is at its worse crisis since the great depression. Just 8 years ago the economy was going great. Sure there are ups and downs but this down was caused by greed plain and simple.

 

What decides what is social responsible investing? I know you are way far to the right of me. And we can respectfully disagree. All I am saying is why not ask our pension plan to look at some of the issues that affect us worldwide. I happen to believe that social issues have more connection to our economic well being than most people think. Nothing personal but I have no problem discussing and knowing what things that bother me and many folks, weapons, tobacco, companies that treat their employees badly, or companies that pollute the environment. Why not at least discuss the idea of supporting great companies such as Costco and Starbucks who give full benefits to their employees.

 

South Africa apartheid was so egregious that our country stopped trade and so the pension plans followed suit. Nothing threatening happened to our pension plans. Of course, pension plans have a fiduciary responsibility. But that does mean that social concerns are not taken into consideration. It happens rarely because of the fiduciary responsibility. CalSTRS stopped investing in tobacco stocks ten years ago and the plan lost about 1 billion dollars. However, the discussion to buy back into them would not have ever been brought up if it weren't for the fact that those tobacco stocks soared since 2000 (I was at a CalSTRS board meeting when this discussion took place). In 1999, the decision was made to get out of them for both social reasons (UTLA did this) and fiduciary responsibility because many of the tobacco company stocks were way down due to the numerous legal judgments forcing them to pay billions to states. The analysists at CalSTRS made a decision to get out because the future looked very grim. If you disagree with this decision, you disagree. The interesting side issue is that one cannot time the market and getting out of a bad performing stock and then want to get back into it when its up. But that’s a side issue. I am very happy they got out because last I heard, tobacco kills and apartheid, well, I do not have to say what apartheid does. These social issues are pretty clear cut for me as an economic issue. It costs us as a society billions of tax payer money devoted to medical care for the diseases caused by tobacco. It was right both as a fiduciary and as a social issue. Sometimes you cannot separate the social issues with economic issues.

 

Intruder,

You know what I am talking about when it comes to greed and a lot of other issues. You come across so innocent when you are called on it. But what the heck, everybody has an opinion. You brought up some issues to which I already responded. All and all, you defend the status quo not because you are for it or that you make money from it, but because it pushes buttons around here. You like to see us scramble to defend ourselves. What a small world you live in. Remember you are more like us and an indexer too boot.

 

Have a good day ;-)

Steve

 

Share this post


Link to post
Share on other sites

AP,

 

What decides what is social responsible investing? I know you are way far to the right of me. And we can respectfully disagree. All I am saying is why not ask our pension plan to look at some of the issues that affect us worldwide. I happen to believe that social issues have more connection to our economic well being than most people think. Nothing personal but I have no problem discussing and knowing what things that bother me and many folks, weapons, tobacco, companies that treat their employees badly, or companies that pollute the environment. Why not at least discuss the idea of supporting great companies such as Costco and Starbucks who give full benefits to their employees.

 

South Africa apartheid was so egregious that our country stopped trade and so the pension plans followed suit. Nothing threatening happened to our pension plans. Of course, pension plans have a fiduciary responsibility. But that does mean that social concerns are not taken into consideration. It happens rarely because of the fiduciary responsibility. CalSTRS stopped investing in tobacco stocks ten years ago and the plan lost about 1 billion dollars. However, the discussion to buy back into them would not have ever been brought up if it weren't for the fact that those tobacco stocks soared since 2000 (I was at a CalSTRS board meeting when this discussion took place). In 1999, the decision was made to get out of them for both social reasons (UTLA did this) and fiduciary responsibility because many of the tobacco company stocks were way down due to the numerous legal judgments forcing them to pay billions to states. The analysists at CalSTRS made a decision to get out because the future looked very grim. If you disagree with this decision, you disagree. The interesting side issue is that one cannot time the market and getting out of a bad performing stock and then want to get back into it when its up. But that’s a side issue. I am very happy they got out because last I heard, tobacco kills and apartheid, well, I do not have to say what apartheid does. These social issues are pretty clear cut for me as an economic issue. It costs us as a society billions of tax payer money devoted to medical care for the diseases caused by tobacco. It was right both as a fiduciary and as a social issue. Sometimes you cannot separate the social issues with economic issues.

 

Steve

 

Steve,

 

Just to clarify: I have voted Democratic in presidential elections since 1984. I can't tell you how much I despise the current occupant in the White House. I'm not sure that I am so far off to the right from you.

 

I do disagree with you on "socially responsible" investing because it is an oxymoron. "Socially responsible" has nothing to do with investing. "Socially responsible" concerns social values, and "investing" concerns returns. How far do you want to go on the former? Beef? Poultry? Trans-fats? Beer? Wine? Candy? Fast food companies? G-mbling? Yes, tobacco kills, and so do beef, trans-fats, beer, wine, and liquor. Yes, tobacco kills, and so do beef, trans-fats, beer, wine, and liquor. Lord knows how many lives g-mbling has ruined, too.

 

Do you see the problem? It is a slippery slope, and you are asking pension trustees to make what are essentially social judgments for economic decisions. I haven't seen any evidence that "socially responsible" investing outperforms what you and I both like: a well diversified portfolio of low cost, no load index funds.

 

Having said all that, I want you to know how much I respect you, and how much I admire what you have done for teachers.

Share this post


Link to post
Share on other sites

AP,

I agree. All I am saying is that CalSTRS made only two decisions that I am aware of: S. Aftrica and Tobacco. Thats it. I agree with these decisions. What we disagree is that I see that social issues do affect economics, it is not easily seen or observed. When we invest in index funds, we invest in the total market via bonds or stocks. It is just my value system that says that the two are not 100% separate. I think social issues affect my index funds. I remember the geopolitical volitility leading up to the war in Iraq when my portfolio was way down. Wars are horrible. I was in one and got wounded.

 

I also agree that I have never used socially responsive funds but I know teachers who want these funds and I respect those wishes. Heck, at least it gets them saving for retirement.

 

Thanks for the kind remarks. You are very valuable around here because you and I want to help our fellow educators to have a plan that they can live with through these terrible times and stay away from the sales force.

My best regards,

Steve

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

×
×
  • Create New...