Investment vs. Speculation
I reread Enough.: True Measures of Money, Business, and Life by John C. Bogle over the weekend. I’d read it in 2012 and it had a huge impact on me.
If you aren’t familiar with John C. Bogle, he founded The Vanguard Group, is credited with inventing the index fund and is a spectacular writer (every one of his books is worth reading.) He passed away in 2019 at the age of 89, but I expect his legacy will last a very long time.
I was pondering some things that were bothering me, specifically about crypto, but more generally about current themes around investing. I thought I’d revisit Enough. to see if it helped me work them out. I found my answer in Chapter 2: “Too Much Speculation, Not Enough Investment.”
Let’s start with Bogle’s definition of Investing and Speculating.
Investing is all about the long-term ownership of businesses. Business focuses on the gradual accumulation of intrinsic value, derived from the ability of our publicly owned corporations to produce the goods and services that our consumers and savers demand, to compete effectively, to thrive on entrepreneurship, and to capitalize on change. Business adds value to our society, and to the wealth of our investors.
Speculating is precisely the opposite. It is all about the short-term trading, not long-term holding, of financial instruments — pieces of paper, not businesses — largely focused on the belief that their prices, as distinct from their intrinsic value, will rise; indeed, an expectation that prices of the stocks that are selected will rise more than other stocks, as the expectations of other investors rise to match one’s own.
What was bothering me was simple: the narrative around many things has shifted to the far end of speculating. I don’t participate in this particular type of narrative, but I’m surrounded by it. I don’t behave as a speculator. While I invest in many things, I rarely sell anything until there is a “defined exit,” where I have a very explicit internal definition of “defined exit.”
As someone who has held private company stock in companies for longer than 20 years, been in many situations where there were no exit opportunities until suddenly there was an exit, I understand and am completely comfortable will illiquidity. And the idea of an investment.
I’m completely uninterested in speculating. In the mid-1990s, when I had a bunch of money after the sale of my first company, I bought and sold some public company stocks. I got sucked into giving some of my money to a money manager at Goldman Sachs and one at Lehman. They happily traded equities for me, which mostly just cost me fees in the end, although I covered it all with a crazy transaction into a weird Exchange Fund that GS created in 2000. I put a bunch of Exodus stock I’d gotten from the sale of a company into the fund. Exodus went bankrupt, so my contribution to the exchange fund was $0, but when the exchange fund paid out seven years later, I got 1.5x my investment. The only reason I got to play in the exchange fund was I had the GS account where they were trading stocks, and the guy I worked with offered up access to it. Totally random and completely dumb luck as I would have likely held the remaining Exodus stock I had all the way to $0. In hindsight, even writing this paragraph is more reinforcement to me of my ultimate lack of interest in this stuff.
As I watch crypto speculation expand into retail stock speculation, which then gets amplified broadly by zero-fee trading apps that aren’t really zero-fee and watch the SEC tangle itself up trying to figure out how to monitor Twitter and Reddit accounts of high profile people who clearly are playing age-old promotion games, regardless of whether or not there are actual pump and dump schemes behind their actions, I become extremely bored. This boredom has a layer of annoyance coating it, especially given the extraordinary 15 months of Covid we’ve just gone through.
Maybe as sports come back, some of this energy will shift back to sports. Now that proxy betting online has become essentially real cash betting online, even though the laws around this (at least in the US) haven’t really resolved, and everyone online has figured out how to get around all the rules, the speculating can become called “betting” again. Or maybe “betting” will just become speculating. It doesn’t really matter since they are fundamentally the same thing.
Let’s go back to Bogle. “Investing … adds value to our society, and to the wealth of our investors” and “Speculating is precisely the opposite.”
Ask yourself, “Is what I am doing adding value to our society?”
Enough has three sections: Money, Business, and Life. While I found the answer to what was bugging me in Chapter 2, the section on Life is awesome. The three chapters are:
- Too Much Focus on Things, Not Enough Focus on Commitment
- Too Many Twenty-First-Century Values, Not Enough Eighteenth-Century Values
- Too Much “Success,” Not Enough Character
Bogle completely nails this topic without being preachy, annoying, arrogant, or directive. As writing goes, it’s as beautiful and powerful as it gets. I strongly recommend Enough.: True Measures of Money, Business, and Life, especially if you have enough but don’t realize it.