Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Vanguard Is Growing Faster Than Everybody Else Combined

mobile.nytimes.com

Post reply on HN
Print view View original

121–130 of 358 posts

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#121

Post by thisisit »

jordanthoms wrote: post #114
ajdlinux wrote: post #55

Earlier quoted context omitted.

My understanding is that individual fund investors will never see a proxy form - the fund's decisions on how it will vote are determined by the managers. Also, take a look at https://about.vanguard.com/vanguard-proxy-voting/

I was referring more to control of Vanguard itself - i.e. choosing the Board of directors for Vanguard. I did a bit of digging though, and it seems they are actually elected by the shareholders of Vanguard funds - but they are appointed for lifetime terms, and up to 1/3 of the directors may be appointed by the other directors. So they only need to go to a vote of shareholders occasionally - looks like the last was in…

That is one of the major concerns regarding indexing and Vanguard in general. The process for selecting directors in Vanguard indirectly affects the proxy voting for corporate governance in stocks owned by the fund. Many people think it will lead to lower competition because of the objective of the fund is to keep in line with the market and not beat it.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#123

Post by lmm »

pg314 wrote: post #72
stygiansonic wrote: post #44

Earlier quoted context omitted.

This doesn't answer your question directly, but Matt Levine has written some great articles, in particular, about index funds and their effect on the market. Here's one: [1] "Second: One of my little stock-market obsessions is that index funds free-ride on the work done by active investors. Someone needs to make decisions that allocate capital to businesses. A world in which everyone indexes, and in which no one thin…

That the stock market is an efficient mechanism in allocating capital to the right businesses is a myth. For one, the stock price of a company has no direct bearing on its capital. Only at IPO time or when a company is raising additional capital is the stock price relevant for the capital. E.g. Google's stock price has increased 15x since their IPO, but that has had no effect on their capital. Any other time besides…

> the stock price of a company has no direct bearing on its capital. Only at IPO time or when a company is raising additional capital is the stock price relevant for the capital. E.g. Google's stock price has increased 15x since their IPO, but that has had no effect on their capital. Any other time besides the IPO and when raising additional capital, it is just money changing hands between stockholders, the company doesn't see any of that.

But all the capital decisions are in the context of the stock price. If an outside group looks at investing, that will be in terms of current shares; if the company gets bought by another or does a merger, that transaction will be determined by the current share price.

> Secondly, the market is frequently very wrong about pricing stocks. It was happily 'allocating capital' to internet stocks during the dot-com bubble, to financial stocks up to 2008

Some of those internet stocks were worth far more than even their inflated valuations at the time (of course, many were worthless). The market price is always going to be a best-guess consensus estimate, sure, but a lot of these things are just inherently hard to figure out how much they're actually worth.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#124

Post by aangjie »

hueving wrote: post #106
gcb0 wrote: post #84

Earlier quoted context omitted.

stock prices Do vary randomly.

Random walk depends on all participants acting rationally based on the same information released at the same time. However, index funds are not rational, they always buy in the same ratios regardless of news.

I'd suspect all those HFT firms will have robot agents (trading based on some ratios/logic) as simulations for their testing environment.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#125

Post by headmelted »

As a Vanguard customer, I can understand why people are so enthusiastic about their products, and have known for a while that passive investment, and Vanguard in particular, was growing while active management was on the decline.

At no point did I think the difference in inflows was anywhere close to 8.5x. And it does worry me.

I'm familiar with the contention that even having some active players in the market will arbitrage the prices back to fair value, but when they compose such a small share of such a large market that's no longer a trustworthy assumption to make.

There's no law that I know of that prevents active players from exploiting the knowledge that passive money will go wherever the market tells it to. There have got to be a lot of opportunities here for profiting, legally, at the expense of those passive investors, that goes beyond simple margin arbitrage.

My point is, the less active money there is around, the less accurate our concept of a correct value can be. This situation has the potential to de-stabilise the economy sooner rather than later.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#126

Post by pedrocr »

gabemart wrote: post #56
Animats wrote: post #48

With index funds so big, who determines prices? An index fund tied to the S&P 500 just buys stocks in the proportion that they're in the S&P 500. The price of the stock plays no role in that decision. At some point, this has to create problems, but so far it hasn't. It does mean the active traders, who are basically moving the same money around all day, have an outsized influence on prices. Index funds are so success…

I had assumed - perhaps incorrectly - that as more and more money is invested in index funds and similar passive vehicles, it becomes increasing easy to beat the market as an active trader. My thinking goes like this - as less money in invested actively, the market becomes less efficient at pricing. As the market becomes less efficient at pricing, it becomes easier to make money as an active trader. As it becomes eas…

Your intuition seems correct but with a big caveat. If you divide the market in two, active to one side and passive to the other, both of them will have the exact same returns as a group. That's because all the passive investor is doing is replicating the market average and not changing it so the mix of stocks the total passive investors hold is the same as the mix of stocks the total active investors hold. That means as more money gets invested in index funds pricing becomes worse and thus there are more active funds that make a lot of money and more active funds that lose a lot of money and on average they still make the same returns before fees than the passive funds.

It only stops being like this if pricing gets so poor that active funds can start to trade in ways that the passive funds can't replicate, either because they're faster or more frequent or have some other trading advantage that makes it very hard for the passive fund to replicate it effectively.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#127

Post by Applejinx »

If this is not an Enron-like foreshadowing, it says something rather dark. It certainly looks like a 'bubble is about to pop' indicator, though it's generalized to the whole financial sector (to the extent that a blind index fund represents it, at least).

If it does pop, it suggests that an industry that is on average not as good as its own average, is itself overvalued (as numerous other comments strongly imply).

If it does NOT pop, it's speaking a deeper truth. It speaks to a collective, society-wide agreement: those with power should automatically get more power. Those with money should automatically get more money. The mechanism doesn't matter: it's like a moral duty to reverse Robin Hood and fill in the reasons later. If a dumb blind index beats everything and never fails, that means we've gone all-in on redistribution of wealth to 'the winner', defined as whoever has all the wealth.

And the only way to break that loop is pitchforks and guillotines. Some might say in the age of automation, AI and robotics, such disruptive things are impossible. But the original pitchforks and guillotines were in the age of early industrialization, and I'm sure nobody thought machinery and tools could end up turned against the rich and powerful. Everything's a tool eventually.

Vanguard popping is the SOFT option.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#129

Post by acchow »

zeroer wrote: post #105
silverpikezero wrote: post #61

Earlier quoted context omitted.

Tax Loss Harvesting. This is the sole reason why Betterment(/Wealthfront) is superior to Vanguard. The benefits of this technique more than offset any fees they charge.

That's really debatable. After 10~15 years of investment in Betterment or Wealthfront, in all likelihood all of your investments will be in the black, and there will be no opportunities for loss harvesting. But you're still stuck paying the 25 basis points per year unless you sell (and thus incur the capital gains, anyways).

False - this is not how tax loss harvesting works. Even if you are in the black every year, you can still benefit from it.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#130

Post by cJ0th »

lmm wrote: post #116
cJ0th wrote: post #90

Earlier quoted context omitted.

> And the bigger indices grow, the larger the opportunities for active traders to profit. It's not a real problem — it's self-correcting. I appreciate that finally someone puts forward a rational argument as to why index fonds will keep working. Books and online resources tend to not take a critical look at the system at all or they offer an answer along the lines of "Trust me!" Having said that, only hindsight is 20…

You're talking as if there's a swarm of fresh money flowing into the market, whereas it's more a case of people shifting away from traditional actively managed mutual funds etc. into indexing. Money is cheap at the moment because growth is low, and that in turn means risk premia are lower and so on, but I don't think that's related to the rise of index funds. Then again I never understood why active management was so…

> You're talking as if there's a swarm of fresh money flowing into the market, whereas it's more a case of people shifting away from traditional actively managed mutual funds etc. into indexing.

Yeah, the question seems to be about fresh money. You could be right that we are mostly witnessing a shift from actively managed funds to indexing. As far as my home country (Germany) is concerned indexing seems to become more attractive to people who never invested, though. Now that I think about it I am not sure whether or not this kind of money would be "fresh money" as these people stored their money in banks who were probably investing it.

> Money is cheap at the moment because growth is low, and that in turn means resk premia are lower and so on, but I don't think that's related to the rise of index funds. Then again I never understood why active management was so popular in the first place.

As I understand it, risk premia is not related to growth. It is simply the costs to transfer risk to someone else. Active management was probably high in the past as banks had little incentive to sell passive investment plans: If people don't constantly buy and sell they don't cause transaction costs and thus income for the bank. Active and passive management are both neither inherently wrong or right. Until now active investment has been irrational but it could theoretically change if the share of money passively invested is high enough, say (made up number incoming) 80%.

Post reply on HN