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A Professor Who Was Right About Index Funds All Along

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Re: A Professor Who Was Right About Index Funds All Along

#211

Post by tedmiston »

tanderson92 wrote: post #200
tedmiston wrote: post #195

Earlier quoted context omitted.

There's some gray area with Vanguard ETFs fees [1] for example: > Vanguard mutual funds & ETFs (exchange-traded funds) > There are no commissions when you buy and sell low-cost Vanguard mutual funds and ETFs. > If you buy and sell the same Vanguard ETF® in a Vanguard Brokerage Account more than 25 times in a 12-month period, you may be restricted from purchasing that Vanguard ETF through your Vanguard Brokerage Accou…

This clearly only applies to actual Vanguard accounts, not Vanguard ETFs held in other brokerage accounts.

You're definitely correct, but also Wealthfront recommends Vanguard ETFs disproportionately for their value [1]. A glance at my personal portfolio tuned to the higher end on their risk scale shows ~30% Vanguard ETFs.

[1]: https://support.wealthfront.com/hc/en-us/articles/209353626-...

Re: A Professor Who Was Right About Index Funds All Along

#212

Post by AznHisoka »

ant6n wrote: post #210
AznHisoka wrote: post #194

Earlier quoted context omitted.

I think we as hackers can use our abilities to analyze certain companies better than the professionals. Example 1: track the Google rankings of companies that rely a lot on search engine traffic. see if any have dropped a lot from a major algorithm change (i.e. Demand Media) Example 2: use the Facebook graph API to do the same for companies that rely a lot on Facebook for traffic. Example 3: at the end of every month…

These hacks sound like a full time job. How much will I get paid for that?

You can always turn it into a business and sell it to hedge funds.

Re: A Professor Who Was Right About Index Funds All Along

#213

Post by harry8 »

joezydeco wrote: post #93
jganetsk wrote: post #89

Earlier quoted context omitted.

Warren Buffett says it's OK, and has an excellent explanation for this. If I recall correctly: imagine you take all the investors in the US economy and put them in a room. Divide the room in halves. One side contains all the active investors, the other side contains all the passive investors. If each side owns roughly half of the economy, their returns will be equal. In that case, it's better to sit on the side with…

Buffett is close to winning a $1 million, 10-year bet he made with the head of the hedge fund Protege Partners. The bet was simple. Buffett would invest in a Vanguard S&P 500 index fund, and the hedge fund could do anything they wanted. http://fortune.com/2016/05/11/warren-buffett-hedge-fund-bet/ http://www.npr.org/2016/03/10/469897691/armed-with-an-index-...

I could win that bet if I were able to buy Goldman Sachs during the GFC at a 20% discount to market like Warren was able to.

A good troll would have been to buy Berkshire Hathaway.

Re: A Professor Who Was Right About Index Funds All Along

#214

Post by countingteeth »

Ericson2314 wrote: post #97
icebraining wrote: post #52

Earlier quoted context omitted.

Index funds still have an input on the corporations. https://about.vanguard.com/vanguard-proxy-voting/update-on-v...

Ok the proxy vote is good—I guess the real problem when everyone's investments are so diverse, it's impossible to be an educated voter in all cases.

No. Fund shareholders do not get a proxy vote in the underlying stocks. Not with Vanguard or most large funds anyway. The fund votes. And the fund managers and analysts will have a lot more resources and information on their holdings than fund shareholders.

That being said, there are all sorts of problems with the incentives here.

Re: A Professor Who Was Right About Index Funds All Along

#215

Post by countingteeth »

lordnacho wrote: post #173
Animats wrote: post #132

It would be interesting to have a fund which was mostly an index fund, but avoided "losers" based on simple criteria. Picking overpriced losers is easier than picking winners. (I did that for the first dot-com boom, at "downside.com".) That's a concept worth testing against historical data.

That's what smart beta does. You take an index and rejig it slightly to eke out a somewhat better return.

It doesn't work though.

Re: A Professor Who Was Right About Index Funds All Along

#216

Post by Ericson2314 »

countingteeth wrote: post #214
Ericson2314 wrote: post #97

Earlier quoted context omitted.

Ok the proxy vote is good—I guess the real problem when everyone's investments are so diverse, it's impossible to be an educated voter in all cases.

No. Fund shareholders do not get a proxy vote in the underlying stocks. Not with Vanguard or most large funds anyway. The fund votes. And the fund managers and analysts will have a lot more resources and information on their holdings than fund shareholders. That being said, there are all sorts of problems with the incentives here.

Oh the link above mentioned proxy votes, but to be honest I only skimmed it.

Yes what you say does sound worrisome.

Re: A Professor Who Was Right About Index Funds All Along

#217

Post by esqrama »

A discussion between the father of modern finance, Nobel prize winner Gene Fama, known for the Efficient Markets Hypthesis and his colleague and father of behavioral economics, Richard Thaler, of Chicago Booth, dissecting this question. http://review.chicagobooth.edu/economics/2016/video/are-mark...

Re: A Professor Who Was Right About Index Funds All Along

#218

Post by redsparrow »

For Canadians interested in learning about index-based investing I recommend the Canadian Couch Potato site[0]. If you don't want to put a lot of thought into it he has some sample portfolios, but also has a lot of resources for learning more. He's also very good about answering questions in the comments on his posts.

[0] http://canadiancouchpotato.com/

Re: A Professor Who Was Right About Index Funds All Along

#219

Post by namlem »

akiselev wrote: post #191
yborg wrote: post #119

Earlier quoted context omitted.

Precisely by being an investor in the old sense, the sense of being a businessman who allocates capital. He buys entire companies based on his analysis of their financials and management, and then operates them as businesses. He tries to take stakes in companies in deals where he holds an advantage, such as his Goldman Sachs investment. I don't consider him a stock picker, he's a very shrewd businessman.

He's absolutely a stock picker, not a businessman. That's the definition of value investing, which is his self proclaimed mode of investment. He looks for undervalued (by the stockmarket) companies with good cash flow, competent management, room to grow, etc. and waits until the market price catches up to his expectations. Meanwhile, he leaves the management alone to do their best work while reinvesting the cash flow…

Berkshire Hathaway is more involved and hands on than mutual funds. They don't really micromanage, but they do at least a little bit of basic management.

Re: A Professor Who Was Right About Index Funds All Along

#220

Post by dasil003 »

lordnacho wrote: post #202
dasil003 wrote: post #185

Earlier quoted context omitted.

First of all, I explicitly said that it's not wrong to attribute winners to skill, but you still feel the need to put my argument in a binary box, very well. Your mistake is treating each trade as an independent event. But in reality all those trades may share a single methodology which can be invalidated by a single unprecedented market change. Yeah, a fund is a perennial winner until it's not. You can call it being…

>>Your mistake is treating each trade as an independent event. They largely are. The people who fall under your criticism are the old school stock pickers. For instance, people who've grown up during the long decline of inflation and rates might have hit a wall over the last few years. A lot of those guys were essentially riding the same wave over multiple trades. But the kind of trading done in stat arb is largely i…

Sorry, not drinking your koolaid. Any exploitable "stat arb" will go to zero as it's exploited, or if it grows large it will move the market. There are no statistical axioms which are guaranteed to make you money, because if there were it would change once enough people discovered it. Anyone that's far out enough ahead can find these things for a while, but there's no way the average investor ever gets close to it, they're not exactly cold-calling senior citizens with these amazing opportunities.
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