Investment and speculation

I re-read Enough. : True Measures of Money, Business, and Life by John C. Bogle this weekend. I had read it in 2012 and it had a huge impact on me.

If you're not 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 to last a very long time.

I was thinking about some things that bothered me, particularly on crypto, but more generally on current investing topics. I thought I'd revisit Enough. to see if that helped me solve them. I found my answer in Chapter 2: "Too much speculation, not enough investment."

Let's start with Bogle's definition of investment and speculation.

Investing is first and foremost about owning a business for the long term. Business is about the incremental accumulation of intrinsic value, derived from the ability of our public corporations to produce the goods and services that our consumers and savers demand, to compete, to thrive through entrepreneurship, and to capitalize on the change. Companies add value to our society and to the wealth of our investors.

Speculating is the exact opposite. It is the short-term trading, not the long-term holding, of financial instruments - pieces of paper, not companies - largely based on the belief that their prices, as opposed to their intrinsic value, will increase; indeed, the prices of the selected stocks are expected to rise more than other stocks, as other investors' expectations rise to match one's own.

What bothered me was simple: the narrative around a lot of things went to the speculative end. I do not participate in this particular type of story, but I am surrounded by it. I don't behave like a speculator. Although I invest in a lot of things, I rarely sell anything until there is a "definite exit", where I have a very explicit internal definition of "definite exit".

As someone who has owned private company shares in companies for over 20 years, having been in many situations where there were no exit opportunities until there suddenly has an exit, I understand and I'm totally comfortable with illiquidity. And the idea of ​​an investment.

I am absolutely not interested in speculation. In the mid-1990s, when I had plenty of money after selling my first business, I bought and sold public company stocks. I was sucked into giving some of my money to a fund manager at Goldman Sachs and another at Lehman. They happily traded stocks for me, which mostly cost me a fee in the end, even though I covered it all with a crazy trade in a weird swap fund that GS started in 2000. I put a bunch of Exodus stock I got from a company sale in the fund. Exodus went bankrupt, so my exchange fund contribution was $0, but when the exchange fund was paid seven years later, I got 1.5 times my investment. The only reason I was able to play in the exchange fund was because I had the GS account they traded stocks in, and the guy I worked with offered me access. Totally random and completely stupid luck as I probably would have held the remaining stock of Exodus I had down to $0. In hindsight, even writing this paragraph further confirms my ultimate lack of interest in this sort of thing.

As I watch crypto speculation grow into retail stock speculation which is then greatly amplified by fee-free trading apps that aren't really fee-free and watch the SEC get tangled up trying to figuring out how to monitor Twitter and Reddit accounts of high-profile people who are clearly playing age-old promotional games, whether or not there's any real pump-and-dump schemes behind their actions, I'm extremely bored. This boredom is covered in a layer of annoyance, especially given the extraordinary 15 months of Covid we've just been through.

Perhaps with the return of sports, some of that energy will return to sports. Now that online proxy betting has essentially become real money betting online, even though the laws around it (at least in the US) aren't really settled, and everyone online has figured out how bend all the rules, speculation can become called "b...