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The Clash of the Cultures: Investment vs. Speculation by Arthur Levitt Jr., John C. Bogle

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Chapter 9

Ten Simple Rules for Investors and a Warning for Speculators

Many shall be restored that are now fallen and many shall fall that are now in honor.

Horace1

Summing Up

In the course of this book, I’ve taken you through the hazards created in our financial system when short-term speculation takes precedence over long-term investment. When a value-destroying culture of salesmanship overwhelms a value-enhancing culture of stewardship, of course there’s a clash. I’ve illustrated the problem that speculation engenders by describing its impact on today’s financial environment and on our society at large, driven by our complicated new double-agency society in which a powerful symbiotic relationship had developed between corporate executives and institutional money managers. It is high time that we challenge this happy conspiracy that focuses on short-term stock returns over long-term intrinsic values.

The solutions to these formidable problems begin with the development of a statutory federal standard of fiduciary duty outlined in Chapter 3. While I’m disinclined to advocate for further regulations that are detailed and precise, the present application of standards of fiduciary duty that have been on the books for decades has been weak, if not nonexistent. It’s time to make it express and clear: the agent has a duty to put the interests of his principal before his own interests. (The Investment Company Act and the Investment Advisers Act, both enacted in 1940, establish this ...

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