Here is part two of my interview with Mary Anne Wiley, Head of iShares, who explains what to expect in the wake of BlackRock’s acquisition of Claymore. You can read the first part of the interview here.

Claymore pioneered some innovative programs, such as preauthorized cash contributions (PACCs) and dividend reinvestment plans (DRIPs), as well as the Scotia iTrade partnership that brought commission-free ETFs to Canada. Will those programs continue?

MAW: Let me take each one of those individually. Claymore did have a program with PACCs, DRIPs and SWPs, and by far the DRIPs were the most popular. There are other ways to do DRIPs with the brokerages directly, but not every brokerage has every ETF set up for it, and we want it to be as easy as possible for all types of investors. So we are going to keep all of the programs on the existing funds, and we are looking to expand the DRIPs, in particular, to a wider set of iShares.

As for the commission-free partnerships, we think these are fabulous programs. Anything that encourages investors to try ETFs and get to know them, to see whether they have an application in their portfolio, we support and encourage.

We think of our clients in three categories: the institutional clients (such as pension funds, asset managers and mutual funds), the advisors, and the individual self-directed investors. We estimate that our business in Canada is one-third in each category. We have focused more on the institutions and advisors to date, but we are looking at doing more for self-directed investors, and these types of programs are going to help us with that. A big part of our business this year—and I suspect for many years to come—is going to be looking at how we can effectively educate investors about ETFs and iShares, and some of that is going to come through partnerships like the iTrade program.

That is one of the next big changes to come in the ETF space. A lot of that information has come from people like yourself who are educating, and getting the word out on how to use ETFs. Now it’s time for the ETF providers to play a role.

One reason iShares and Claymore had few overlapping products was that they had quite different philosophies. Yes, both companies advocated low cost, largely passive investments. But Claymore was very vocal about why cap-weighted indexes are flawed, and iShares would counter with arguments saying that other strategies were questionable. How have you managed to take those two conflicting philosophies and make them coherent?

MAW: Actually, quite easily. There is a place for all of these different strategies. I think of investing as a spectrum, and it would be really easy if it were just a black-and-white world and you could just make one or two decisions. But markets, and the economy, and our own life situations are all evolving constantly. So the way that you build a portfolio is going to have to involve a little bit more than passive versus active. And this is an example of that.

If you go back and look at our firm, we were promoting our own stance, but it was more about the merits of cap-weighting: the largest companies in the economy are going to be the largest companies in the portfolio, and it’s self-rebalancing, so turnover is low and maintenance is low. Which is different from saying that anything outside of that is bad. It’s just the purest form of indexing along this spectrum.

Fundamentally weighted or equal-weighted indexes are based on a published benchmark, they are rules-based, they will have lower turnover than an active strategy, they are likely to be more diversified, and you can understand what you’re getting. So this is the way we think of the families now coming together. If you want a small-cap bias in the portfolio, then an equal weighted index can make sense. If you want to look at different screens, but you don’t want to go all the way to active, then fundamental indexing is right for you. It’s really a matter of understanding what the benchmark is, and then deciding if it meets what you are trying to achieve in the portfolio.

One of the main concerns my readers had when this deal went through was that it has reduced the amount of competition in the ETF marketplace, and that might remove some incentive to keep costs low. How do you respond to that?

MAW: First of all, I remind people that last year the number of ETF providers in Canada doubled. There are now seven, so there is plenty more room for competition. There was a great deal of competition for the Claymore acquisition: there were a lot of institutions that were interested in getting into ETFs, and I don’t think that has diminished at all.

We continue to see really strong flows into ETFs, and the category is continuing to grow. ETFs are still only about 5% of mutual fund assets, and even if we take that 5% to 10% there is still a whole lot of opportunity. So that’s why I believe there will be a lot more competition, from international players as well as domestic players. Vanguard has now come in to the space, and that is exactly why, if we want to maintain our position as the leading provider—which we do—we need to innovate on product development, on servicing, and on education. We need to innovate on how we actually get the products out to market. We have the fire and the desire to continue to hold that lead position.

Imagine that you’re the marketing director for MegaAlpha Investments and you want to advertise two of your mutual funds. In the September 2011 issue of Performance Chaser magazine, you place the following ad:

Are stocks still worth the risk? Not anymore. Over the last three years, the S&P/TSX Composite Index delivered annualized returns of just 0.2%. Meanwhile, the MegaAlpha Awesome Income Fund earned 6.4% a year. Rather than relying on a disappearing equity premium, our managers delivered reliable yield and significant growth with a portfolio of the highest quality government and corporate bonds.

Three months later, in the December issue, you run a different ad:

Are stocks still worth the risk? You bet. Over the last three years, the MegaAlpha Awesome Equity Fund  delivered annualized returns of 12.5%, dramatically outperforming the DEX Universe Bond Index, which returned just 7.7%. Rather than relying on the perceived safety of bonds, our managers took advantage of generous dividends and capital growth in a portfolio of leading Canadian companies.

Do you think I made those numbers up? Nope. Both the index returns and the funds’ performance are real—except the “MegaAlpha Awesome Income Fund” is actually the iShares DEX Universe Bond Index Fund (XBB), while my bogus equity fund is the iShares S&P/TSX Capped Composite Index Fund (XIC).

All I did here was change the start and end dates for the three-year performance data. The first ad uses numbers as of August 31, while the second example ends on November 30. By shifting these dates just 91 days, the entire argument gets flipped on its head. One ad makes stocks look pathetic, while the other makes the last three years look like a screaming bull market. And yet the two sample periods have 33 of their 36 months in common.

How can this be? The first sample begins just before the Lehman Brothers collapse in September 2008, while the second one starts after the market had already dropped about 30%. The two ads demonstrate how easily dates can be selected to make virtually any investing strategy look either magic or tragic, depending on your motives.

2001: A Spud’s Odyssey

How many times have you heard that the last decade “proves” that a simple buy-hold-rebalance strategy no longer works? That claim is a prime example of how you can use start dates to manipulate performance data to either celebrate or condemn the same investment approach.

To show you what I mean, I compiled some historical performance data for the Global Couch Potato, a portfolio of 40% bonds and 60% equities (divided equally among Canadian, US and international). These are index returns only, without accounting for fees, but it’s the relative figures that are important here. How would the Couch Potato strategy have served an investor who cashed out at the end of 2010? It depends entirely on your start date:

• Since 1996, the Global Couch Potato delivered an annualized return of 6.65%. Index investing rewarded investors with excellent returns during a 15-year period that saw both strong bull markets and two of the worst market meltdowns in history.

• Since 2001, the Global Couch Potato delivered an annualized return of 3.74%. An active money manager could argue that the strategy doesn’t work, because it delivered a decade of dismal returns that barely outperformed T-bills. Time for a phone call to MegaAlpha Investments.

• Since 2003, the Global Couch Potato delivered an annualized return of 6.15%. Index investing rewarded investors with excellent returns during an eight-year period that included both a strong bull market and one of the worst market meltdowns in history.

So take your pick. If you want to sing the praises of the Couch Potato strategy, look back 15 years or only eight. Or you can start your assessment just before the dot-com bust and use this one 10-year period to “prove” that passive investing doesn’t work. However, if you decide to take that approach, act now because you have only 13 months left. Once 2012 is in the books, all 10-year fund performance data will start with 2003 and the report card may look quite different.

I never meant to make you cry
And though I know I shouldn’t call
It just reminds us of the cost
Of everything we’ve lost
Bad timing, that’s all
– Bad Timing, Blue Rodeo

One of the promises made by active managers is that they can move to cash before the markets tank and then get reinvested before they recover. When markets are as volatile as they have been in recent years, a manager with this skill would be something of a hero.

I recently looked at the record of actively managed mutual funds during bear markets for an article just published in Canadian MoneySaver. I found that there were indeed periods where managers were able to protect investors from losses. The problem was that defensive mangers were usually late to the recovery party. As a result, over an entire market cycle most investors are usually better off staying fully invested all the time.

Shortly after the article appeared, I heard from a member of the investing club I belong to. He told me that one the other club members, Dave Dennis of Newmarket, Ont., had done his own informal study on this subject a couple of years ago. I contacted Dave and he generously agreed to share his findings.

“I went back in the history of both Market Call and Market Call Tonight on BNN during 2008 and 2009 and recorded every time one of the professional guests called for cash as one of their Top Picks at the end of the show,” Dave explained. He plotted those dates with a red dot on a chart a graph of the S&P/TSX Composite Index.

If the market gurus had an ability to identify the best and worst times to be in the market, most of the red dots should appear near the market peaks, and the fewest dots should appear near the troughs. Let’s see how things turned out:

 “In 2008 there were no Top Pick recommendations for cash until July 11,” Dave pointed out. “All the while the TSX index was flirting with 15,000. There were two in each of July, August, and September. Then between October 22 to November 24, a little over a month, there were six cash Top Picks. This last flurry of picks were all made when the TSX had already dropped 30% and was below 10,000.  Some guests even picked cash when the index was approaching 8,000 after a drop of nearly 50%.”

No one claims to be able to move in and out of the markets perfectly, of course. But you will often hear managers say they can add value if they right about 70% to 80% of the time. This chart suggests that most of them come nowhere close to that. Professional money managers, it seems, are subject to the same emotions as retail investors.

By the way, I set out to find the guy responsible for the solitary little dot on July 11. I found him living on a 200-foot yacht in the South Pacific. And the folks who brought you the mess of dots between October 2008 and February 2009? You can see them again tonight on BNN.

This is the final post in a series of three looking at the potential risks that ETFs may pose to the stability of financial markets. The previous two discussed synthetic and leveraged ETFs. Now we’ll take a look at the practice of securities lending.

Many active traders, including hedge funds and prop traders at investment banks, engage in short selling when the they believe a stock is about to fall in price. For example, if a company is trading at $20, a short seller might borrow shares and sell them on the open market for that price. If the stock falls to $18, the trader can then buy it at this lower price, return the shares to the lender, and pocket a profit of $2 per share (before costs).

Firms that borrow shares need to get them from somewhere, and the most common lenders are mutual funds, ETFs and pension funds, who use securities lending agents as intermediaries. When a fund lends shares to a short seller, it collects a fee for doing so.

The problem

The main concern about securities lending is common to all funds, not just ETFs: namely, the borrower may default on the agreement to return the securities to the lender. While all developed countries have regulations that require the borrower to provide collateral, the strictness of the regulations vary. According to the UK site Fundweb, in Europe “the assets offered as collateral are often less liquid than those that are borrowed. In the event of a market run, ETFs could find it hard to pay back clients if they have large amounts of illiquid assets on their books.”

A second problem applies to ETFs more directly. Unlike active mutual funds that charge fat management fees, index ETFs have low margins. There may a greater incentive for their managers to overindulge in securities lending—and therefore take greater risks—in order to squeeze out higher profits.

There is also a question about the fairness of securities lending. The revenue collected from borrowers is typically shared by the lending agent (which may be affiliated with the fund provider) and the fund itself. Industry standard seems to be that investors in the fund get about 50% or 60% of the revenue, which can offset some of the management fee and lower the fund’s tracking error. That’s a good thing, but investors might reasonably ask whether their share should be higher. After all, they own the shares, and they are the ones taking all the risk when they’re lent to a short seller. Why, then, are they only getting half the reward?

What Canadians need to know

As with the concerns about synthetic ETFs, the major problems with securities lending are in Europe, where the practice is more common and less strictly regulated. Canadian mutual fund regulations require that no more than 50% of a fund’s securities be on loan at any time. The collateral must be of high quality and must have a value at least 102% of the loaned shares.

You can learn the extent of an ETF’s securities lending by checking its Management Report of Fund Performance and its financial statements (look under “Statement of Operations”), both of which you can find at SEDAR. In most cases, you’ll find that the revenue is very small. For example, the iShares S&P/TSX 60 (XIU) has about $10 billion in assets and earned all of $157,000 from securities lending in the first half of 2011. The iShares DEX Universe Bond (XBB), with $1.7 billion under management, raked in a whopping $25,000 during the same period.

iShares explains in its financial statements that they split securities lending income 60-40, with the larger share going to the fund and the smaller going to the lending agents. The lending agents are affiliates of BlackRock, which owns iShares. You can read more about iShares’ securities lending practices in page two of this document.

Claymore employs a third party, CIBC Mellon, as its securities lending agent. In an email to me, Claymore president Som Seif explained that their collateral requirements are even stricter than what the regulators require. They insist that all collateral be valued at 105% of the securities loaned, and that “this amount must be in cash and cash equivalents, and cannot be invested in riskier securities in effort to generate higher returns.”

Unfortunately, Claymore does not disclose how securities lending revenue is divided between CIBC Mellon and the funds themselves, saying only that “it is in line with other players.” From looking at the ETFs’ financial statements, it seems to vary from fund to fund. For example, the Claymore Canadian Financial Monthly Income (FIE) shows some revenue from securities lending (about $40,000 annually). However, several others—including the Claymore Canadian Fundamental (CRQ), Claymore BRIC (CBQ), and Claymore Equal Weight Banc & Lifeco (CEW)—engage in significant securities lending, but no revenue from this activity appears in their 2010 financial statements.

The most generous ETF provider in this respect is Vanguard. According to its website: “Unlike other firms that allocate a significant portion of lending revenues to their management companies, Vanguard returns all lending revenues, net of broker rebates, program costs, and agent fees, to the funds. Other securities lenders may divert up to 50% of the revenues derived from their securities lending programs.”

With Canada’s strong regulatory framework and the relatively small amount of securities lending that goes on in ETFs, I don’t think the practice is unduly risky. However, as an investor I would demand full transparency when it comes to revenues: since the unitholders own the stocks in the funds, they have a right to the majority of the profits. Or at the very least, they have the right to know who receives the revenue, after which they can decide if they’re comfortable with the arrangement. Jason Zweig of The Wall Street Journal made these arguments back in 2009 and again last month.

This is especially true if the ETF in question has a significant tracking error. I expect a fund to trail its index by an amount equal to its management fee, but if the tracking error is more than that, then revenue from securities lending might be used to close that gap. If it ends up in someone else’s pocket instead, then that tells you something about the fund manager’s priorities.

Looking for something to do on Wednesday, November 9? ING DIRECT is hosting a public event to discuss personal finance with four panelists, including yours truly. The other three are:

• Rubina Ahmed-Haq, a financial journalist and blogger who has worked with the CBC, Rogers Media and Moneyville.
• Ellen Roseman, the Toronto Star’s intrepid consumer advocate and columnist, whose work also appears on CBC Radio and Moneyville.
• Preet Banerjee, an obscure former blogger with no public profile.

The event, hosted by Andrew Zimakas, VP Marketing of ING DIRECT Canada, will give live audience members an opportunity to ask questions of the panel. We’ll also be taking additional questions through social media.

Everything kicks off at 7 pm EST at the ING DIRECT café at 221 Yonge Street in downtown Toronto. It will also be streamed live at the other café locations:

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If you prefer to sit at home and participate in your pyjamas, the event will be available through a live webcast: register here. Don’t miss this opportunity to hear three of the country’s top financial experts, as well as Preet Banerjee.

If you’re in the area and plan to drop by in person, make sure you say hello.

On Tuesday I linked to a poll of some 200 institutional investors who were asked about their outlook for global equity markets. The smart money seems to be evenly split between buyers, sellers, holders, and those who “are confused and doing nothing.”

It’s funny that investors who don’t react to market swings are said to be doing nothing. This is one of the enduring myths about index investing: that carefully building a diversified, all-weather portfolio for the long term makes you a naive fool because you’re not constantly “repositioning.”

Staying the course is not “doing nothing.” On the contrary, it’s doing something thoughtfully and productively rather than constantly reacting to the market. The first three quarters of 2011 have been a marvellous example of how diversifying and ignoring forecasts can work so well during times of market stress. To see this idea in action, let’s do a Q3 check-in with the Complete Couch Potato.

No, everything does not go down together

Dumping bonds was supposed to be part of the “reposition your portfolio for today’s market” strategy—actually it’s been a refrain for about three years now. And once again, the bonds that everyone hates because “interest rates are guaranteed to go up” have proven the fortune tellers dead wrong. The iShares DEX Universe Bond Index Fund (XBB), which makes up 30% of the Complete Couch Potato, has returned 7.20% on the year (all figures as of September 30).

Another 10% of the portfolio is in real-return bonds, which historically have some negative correlation with equities, and even a low correlation with nominal bonds. That’s why they make such an effective diversifier. So far this year the iShares DEX Real Return Bond Index Fund (XRB) is up 9.53%.

The portfolio allocates 10% to real estate, which also has a rather low correlation with the overall equity markets. Sure enough, while the S&P/TSX Composite is down over 12% so far this year, the BMO Equal Weight REITs Index ETF (ZRE) is up almost 6%.

Equity markets in Canada, the US and overseas are all deep in the red so far this year. But they’ve fallen to different degrees and at different rates, which means that global diversification has smoothed out the volatility. The headlines have focused on Europe, but emerging markets (“the only place you’re going to see growth”) have been the big losers, down 22% so far. Stocks in the US (you know, the country you were supposed to avoid because of their huge debt problems) have lost less than half as much and are on track to outperform Canada for the first time in years.

To add another layer of diversification, the Complete Couch Potato avoids currency hedging for its foreign holdings. This has provided a huge cushion during the bear market, as the US dollar is up more than 11% against the loonie since May 1, and the euro (surprise!) is 8% higher than it was in early January. As a result, the Vanguard Total Stock Market (VTI) is down almost 10% in US dollars, but has fallen just 5.26% for Canadians. The Vanguard Total International Stock (VXUS) is down 18% in its native currencies, compared with 13.82% in Canadian dollars. (Thanks to Justin Bender of PWL Capital in Toronto for these figures.)

How you did if you “did nothing”

Here’s how all of these elements have come together in the Complete Couch Potato the first nine months of 2011:

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As the media scream at you to do something to protect your investments, this simple, balanced, diversified portfolio is down a mere 1.6%. Even amid all the gloom of 2011, do you think you would have been tempted to abandon your plan after such a trivial loss?

My point is not that 2011 has been a particularly good year to hold bonds, or real estate, or to diversify globally, or to have exposure to foreign currencies. I’m saying it’s always a good year to diversify in this way. By getting exposure to all these asset classes, all the time, you’re prepared for just about anything the markets will throw at you. Next year, if stocks rally and rising interest rates finally do take a bite out of bonds, you’re equipped for that, too.

Diversification is not perfect, and it doesn’t guarantee positive returns every year. But it is still the best tool we have.

I’m pleased to announce that Canadian Couch Potato has been selected as the top investing blog in Canada by the Globe and Mail. The article appears in today’s issue of the paper and online here.

I’d like to thank Rob Carrick and Dianne Nice at the Globe for nominating the blog, and I want to express my gratitude to all of my readers. I believe that one of the strengths of this blog is the number of smart, sophisticated readers who leave insightful comments and engage in intelligent debates. Let’s all continue the effort to make Canadian Couch Potato the best source for information on index investing.

If you’re visiting for the first time, I encourage you to read the Couch Potato FAQ for the lowdown on index investing.

Book draw winners

Many thanks to all of the readers who weighed in the questions of whether index investors need an advisor. I’ve randomly selected five names from those who posted a comment or Tweeted the post, and these winners will receive a copy of Tony De Thomasis’s book, “If I Only Knew! Avoiding Investor Mistakes.” Congratulations to Support Spy, Siddarth, Michel, Hysljo and Dave. Winners will be notified by e-mail.

One of my favourite financial authors, William Bernstein, used to recommend that investors ditch their financial advisor and handle their portfolios themselves. But in his 2010 book, The Investor’s Manifesto, Bernstein recanted that advice: “I was wrong. Having emailed and spoken to thousands of investors over the years, I have come to the sad conclusion that only a tiny minority will ever succeed in managing their money even tolerably well.”

I’m not quite as pessimistic as Bernstein, but I agree that most people would benefit from professional financial help, even if they use an indexing strategy. The problem is that too many advisors focus on products rather than process, and their compensation models often create conflicts of interest. I discussed these ideas last week in a guest column for the Toronto Star about what you should expect from a financial advisor.

Many of my views on this issue were shaped by Warren Mackenzie of Weigh House Investor Services. I first met Warren three years ago, when he was part of MoneySense’s 7-Day Financial Makeover. The magazine invited three couples and one single woman — all self-confessed financial messes — to Toronto, put them up in a fancy hotel and subjected them to a week-long fiscal boot camp with the help of Warren and several other trusted experts. (Although I was supposed to just be a reporter that week, I ended up becoming a Couch Potato myself.)

Professional help for passive investors

So when Warren told me about his upcoming AdvisorSEARCH Workshops, I was happy to spread the word. On May 17 and May 18, Weigh House will be hosting a pair of events designed to help investors looking for a new financial advisor. They’ll invite three carefully screened fee-only advisors — all of whom use low-cost, passive strategies with ETFs or Dimensional Funds — and give each one about 40 minutes to make their pitch. Weigh House will provide each investor with a booklet to help them rate the advisors according to several criteria, and will offer guidance about how to make a good choice.

Weigh House doesn’t receive a finder’s fee of any kind from the advisors. If you attend the workshop and decide to work with one of the advisors, Weigh House will start you off with a financial plan for $750, and the advisor will then help you put the plan into practice.

If you’re in the Toronto area and you’re looking for an advisor who can help you build an index portfolio, take advantage of this opportunity and sign up for the workshop. The cost is $125 for a single person or a couple, and the minimum portfolio size is $200,000. (If you’re looking for professional help with a smaller portfolio, visit my Find an Advisor page.)

Vote for your humble spud

I’m also pleased to announce that Canadian Couch Potato has again been shortlisted for best investing blog by The Globe and Mail. The Globe’s Rob Carrick had these kind words to say: “One of the blogs on my favourites list is Canadian Couch Potato, which is all about index investing using exchange-traded funds and index mutual funds. While some blogs fill space with personal musings and platitudes about saving more and spending less, this blog gives you hard analysis.”

Last year, I was runner-up to Preet Banerjee and Where Does All My Money Go. Now that Preet has sold out to the mainstream and become a Globe columnist himself, he’s no longer eligible, and he can’t invite thousands of his relatives to stuff the ballot box again this year. I’d be grateful if you’d take a moment to cast your vote here.

Many thanks, and best of luck to the other nominees!

In my last post, I explained that US-listed ETFs that hold overseas stocks do not expose Canadians to fluctuations in the US dollar. This is an important idea to understand if you’re comparing ETFs that hold international equities.

Vikash Jain, portfolio manager at the Toronto investment firm archerETF, was kind enough to dig into the data and provide a real-world example of this principle. In 2009 and 2010, the MSCI Brazil Index returned a total of 51% in its local currency, the Brazilian real (BRL). During that same two-year period, the following currency movements took place:

• The BRL strengthened against the US dollar (USD) by 38%

• The BRL strengthened against the Canadian dollar (CAD) by 14%

• The CAD strengthened against the USD by 21%

Jain explained how all of this would have affected the returns of investors who held the iShares MSCI Brazil Index Fund (EWZ), which is traded in US dollars:

• An American holding EWZ would have received the 51% index return, plus a big boost because the BRL shot up 38% against the greenback. In USD terms, he would have earned 109%.

• A Canadian holding EWZ would also have received the 51% index return, plus a boost because the BRL appreciated by 14% against the loonie. In CAD terms, she would have earned 72%.

• Although Canadians must buy and sell EWZ in USD, the fact that the CAD strengthened by 21% against the USD during this period is irrelevant.

A mathematical footnote

I used to assume that you could calculate an international fund’s total return by simply adding the gain/loss on the stocks to the movement of the currency. In the Brazil example, I expected that if the stocks rose 51% and the BRL appreciated by 14%, then a Canadian would earn 65% from EWZ. But the correct return, as you can see above, is actually 72%.

Jain corrected my bad math and explained that you have to multiply the figures, not add them. Here’s the logic behind the calculation:

• Assume that 1 BRL = CAD $0.50.

• Your CAD $100 buys BRL 200, which are then invested in EWZ.

• EWZ goes up 51% in local currency, so your 200 BRL have become 302 BRL.

• Over the same period, the BRL appreciates 14% versus the CAD. Now one BRL is worth $0.57.

• At this new exchange rate, your 302 BRL are now worth $172.14 (302 × $0.57).

• Your original investment of $100 is now worth $172.14, so your return in CAD is 72.14%.

For the math geeks in the audience, the formula for this calculation is as follows, where y is the local return and z is the gain (or loss) on the currency:

((1+y) × (1+z)) – 1

Many thanks to Vikash Jain for patiently explaining this complicated but important topic.

This will be my only post of the week, as I am currently on a family vacation in New York City. I spent today in the Financial District, approaching bankers and other well-dressed individuals on Wall Street and asking them if they had considered embracing a low-cost indexing strategy. Most ignored me. Some swore colourfully. My children were frightened.

During quieter moments, I’m rounding out my summer reading this week with John Bogle’s Enough: True Measures of Money, Business, and Life. Bogle, as long-time Couch Potatoes will know, is the founder of The Vanguard Group and the father of index investing. This book contains no practical advice for investors; rather, it’s a reflection on everything that has gone wrong in business and finance in recent years. In the world of investing, Bogle sums things up like this:

• Too much cost, not enough value
• Too much speculation, not enough investment
• Too much complexity, not enough simplicity

Amen to all three points. It’s hard to overstate the influence that Vanguard and Bogle himself have had on investing in the United States. Not only is Vanguard now the largest mutual fund company in the world, but the fact that investors have the option of choosing its funds, with their extraordinarily low costs, has changed the mutual fund landscape in that country. If a fund company tried to charge Canadian-style fees in the U.S., they would be run out of town by angry mobs with pitchforks. Rumours have floated around since last year that Vanguard may eventually come to Canada: that day can’t come soon enough.

One final note: Thanks to everyone who signed up to follow the blog on Twitter (@CdnCouchPotato). The winner of the Cutco potato masher is Tim, the blogger behind Canadian Dream: Free at 45.

See you next week. Until then, stay passive, my friends.