By Arnold Kling
Nassim Nicholas Taleb argues that people who reject blind faith in religion are nonetheless guilty of blind faith with respect to the stock market.
He believes in the stock market because he is told to do so. — automatically allocating a portion of his retirement money. And he does not realize that the manager of his mutual fund does not fare better than chance — actually a bit worse, after the (generous) fees. Nor does he realize that markets are far more random and far riskier that he is being made to believe by the high priests of the brokerage industry.
Meanwhile, John C. Bogle writes,
individual investors remain major participants in the stock market, but now do so largely through mutual funds and public and private pension plans. But such participation lacks the traditional attributes of ownership such as selection of individual stocks and engagement in the process of corporate governance.
…The excessive advisory fees, expenses, hefty sales loads, and huge commissions on portfolio transactions paid to brokers in return for their sales support consumed something like 45% of the real returns earned on fund portfolios during the past two decades.
Second, unlike their predecessors in the ’50s and ’60s, financial institutions focus on investment strategies that emphasize short-term speculation in evanescent stock prices, rather than traditional long-term investing based on durable intrinsic corporate values. From 1950 to 1965, equity mutual funds turned over their portfolios at an average rate of 17% per year; in 1990-2005, the turnover rate averaged 91% per year. The old own-a-stock industry could hardly afford to take for granted effective corporate governance in the interest of shareholders; the new rent-a-stock industry has little reason to care.
Kind of makes you want to stick your money in a mattress.