Jack Bogle Says Industry Must Return To Stewardship Model

At a recent CFA Conference in Boston, Jack Bogle, the Founder of Vanguard Group, said that the investment industry should return to its roots and abandon salesmanship for stewardship.  A summary of his comments, as well as Christopher Davis, Chairman of Davis Selected Advisers, were recently reviewed on Advisor.ca.

Although this article covers a variety of issues, some of the key highlights of this article include:

1. Putting clients first should be an obvious first step said Jack Bogle, founder of the Vanguard Group

2. The focus of investing has shifted from owning a stock, to “renting” it for six months, Bogle pointed out. Speculation has long been a part of the stock market, but aside from increasing volatility, speculators diminish the value of companies because they have no interest in governance issues.

3. “If we can get the institutional managers that control 70% of the stock of every company out there to start serving their shareholders…that will get some of the agency problems out of the system,” he said, pointing to high executive compensation and mergers for the sake of size as examples. “If these owners don’t want it to happen, it will not happen.”

4. “If you’re buying a company to get the intrinsic value of the business’s discounted cash-flow, governance is everything,” said Bogle. “Governance comes down to ‘is this business being run in the interest of the shareholder?'”

5. The first rule of business is to give the customer what they want, Davis points out. This is antithetical to the first rule of a profession, which is to give the client what they need. Just as a doctor should advise against smoking, even though the patient enjoys his nicotine addiction, the role of the asset manager is to advise clients against foolish investments that tickle their fancy.

Lots of great strategic insights in this article about the real issues that continue to plague the global investment management business.