This is a really good interview, by Jason Zweig, of Jack Bogle found at Biz of Life's blog. Jason Zweig is an excellent interviewer and asks the questions that occur to listeners. The interview is about Mark Cuban's approach to investing where he says "buy-and-hold" and "diversification" are not the keys to good investing - I've paraphrased here big time; Cuban is a bit blunter. All of this is exactly counter to the principles Jack Bogle has touted and on which his flagship index fund was built.
There are some interesting tidbits in the interview. Bogle talks a bit about how exchange traded funds (ETFs) have increased volatility. He mentions leveraged ETFS. He is against them. I agree and believe they should be banned. Instruments that push capital markets more towards becoming a gambling casino just increase the odds of a bad macro outcome in the capital markets. We know the script: some "too big to fail" entity overdoes it, etc., etc. I know there is a huge lobby out there ready to produce data for Congressmen and their staffs on the hedging characteristics of these instruments - especially over a fine dinner of steak and wine at one of DC's outstanding restaurants. Leveraged ETFs remind me of other derivatives and former Fed Chairman Greenspan extolling their value as a hedging instrument.
Bogle also mentions "apocalyptic risk" - a subject on the minds of many today, especially with the ongoing failure of government finances. He says that it is impossible to hedge against. Actually that isn't exactly correct. Investors can buy long-term puts on the S&P 500, for example. Granted, they will cost and eat into positive returns. For example, take 5% of the portfolio and buy long-term puts and, if the market is up 12%, you'll only get 7%. But still, it is a hedge.
To be politically correct, here's the Mark Cuban interview. I think he makes a good case for how a billionaire might approach investing. He says to avoid diversification and stay fully invested. Instead, invest in what you know, hang out in the weeds until volatile markets come along, and then make big bets in what you know better than the experts. Going unsaid is what happens to the smaller investor who makes a wrong bet and/or who doesn't have access to the sources that a billionaire attracts.
He does offer interesting comments on patent trolling and some basic rules that should be followed--like paying off credit cards and thinking about the transactional value of cash. He is wrong in mentioning a deficit of $10 - $11 trillion. The deficit is actually around $1.4 trillion. He had in mind the national debt.
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