Investors: This Is Really Important

I know, I know. What to put in a Roth versus a traditional IRA. Like an author at 12:50 in the morning at the end of the old 90-minute Johnny Carson ‘Tonight Show,’ it keeps getting bumped. (But Johnny, I flew all the way out to Los Angeles!)

Well, Johnny had his reasons and so do I.

One of you (thanks, Paul Romaine) was good enough to direct me to what is very possibly the most important financial statement of the new century – by Vanguard founder John Bogle, not surprisingly – and I wanted to waste no time in commending it to you.

Click here for the whole thing.

And – because it is long – know in advance where it’s headed. In his remarks Bogle:

reviews the ‘happy conspiracy‘ that leads to poor economic decisions and inflated stock prices that come back to bite us;

explains and debunks the ‘managed earnings‘ game;

lambastes the unrealistic assumptions managements have made about their pension fund returns (thereby to inflate earnings and the value of their stock options);

attacks those executive stock option packages as obscene, ill-conceived and harmful to the shareholders (doing a much better job of it than I did in yesterday’s PARADE);

attacks auditors (see, also, Floyd Norris’s excellent column on this in Friday’s New York Times), calling for a ‘a nationally-chartered Federal Accounting Commission’ to push for better financial disclosure standards;

examines the perilous condition of our collective retirement prospects (25% of those eligible to participate in 401k’s do not; 18% of those who do participate borrow against their already-too-low 401k balances to finance current needs; far too many participants have all or most of their money tied up in their own company stock when they should have 10% or 20% at most; and where participants had just 30% of their 401k assets in stocks in 1990 – when stocks may have been fairly priced – that had risen to 81% at the start of 2001, when stocks, sky-high, offered much less value); and, finally . . .

proposes something really important: namely, that the 75 or so top money managers, who collectively control more than half the shares in corporate America, form some kind of ‘Federation of Long-Term Investors’ to be a louder and more effective voice for shareholders. For example, they might push to have executive compensation plans tied more closely to business performance than to stock performance (giving incentives to build value rather than manipulate earnings or simply ride an upswing in the stock market generally) . . . push to have the cost of those options be reflected in earnings (they are not free, as current accounting pretends) . . . and more.

It is a really important speech. And Bogle has the stature to change the world. He’s already done it once – over the decades, his Vanguard Group has saved investors billions of dollars in mutual fund fees. Maybe he can do it again. Click here.