Well, now's the time to leave equities or go active. I've never heard of anyone getting rich by following the herd.
Vanguard Is Growing Faster Than Everybody Else Combined
161–170 of 358 posts
Re: Vanguard Is Growing Faster Than Everybody Else Combined
#162As 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 a…
> the less active money there is around, the less accurate our concept of a correct value can be
The problem is deeper than that. Active shareholders actually give a shit about corporate governance. Collectively, they put honorable and competent people on the board of directors, and make sensible decisions when other issues are put to shareholder votes. Vanguard and other indexing funds could barely care. Their incentive to care is so small, we may as well call it nothing. Whereas the employees who control these voting blocks at Vanguard can easily make decisions that cause 10,000x more financial impact than their total compensation. And whenever someone is endowed with such power, human behavior throughout our existence has shown most people will be corrupted by it (e.g. see government employees).
Re: Vanguard Is Growing Faster Than Everybody Else Combined
#163Well, now's the time to leave equities or go active. I've never heard of anyone getting rich by following the herd.
If your goal is to get rich, sure. But going with the herd isn't necessarily unsafe. The goal of "getting rich" is generally incongruous with passive investing either way.
The risk/reward profile of active investing and index fund investing are completely different, so that will be more than a decision of upside you want to pursue.
Re: Vanguard Is Growing Faster Than Everybody Else Combined
#164Earlier quoted context omitted.
I think a few stock pickers are really good at their jobs while a lot of others are mediocre to plain bad. The problem is that the ones that are consistently good are usually boutique hedge funds not open for normal people, some of them like Renaissance Tech only invest their own money and take no external funds anymore. Part of this is that their edge only works if their moves don't alter the market too much and for…
The real dangerous issue, as I see it, is good pickers trading on their edge for increased fees, because presumably they're pretty smart and can justify them based on past performance. But if the edge goes away.... you're still stuck with the fees. Caveat emptor. Dunno. Maybe the wealthy have access to wonderful investments we don't; I certainly wouldn't know.
can't be sure about the wonderful part, but otherwise, yes, there are plenty of investment opportunities available to the "wealthy" that others are generally not allowed:
Re: Vanguard Is Growing Faster Than Everybody Else Combined
#165As 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 a…
> This situation has the potential to de-stabilise the economy sooner rather than later.
If these passive investment funds create a positive feedback loop for some stock prices - I don't know if that's the case - then this could be a pretty high risk.
On the other hand, I would intuitively expect them to have a dampening effect on the "pump and dump" schemes that created so many bubbles. So, in a way, they could even help stabilizing the markets?
Re: Vanguard Is Growing Faster Than Everybody Else Combined
#166Earlier quoted context omitted.
If you're a Vanguard customer (buying the flagship fund classes, I presume), you're expressing faith in CAPM[0] and EMH[1] on a significant level. Some active investors will probably in the long term scoop up some extra gains, but the question still remains: which of them, over what time horizon, and is that a risk you want to take? Vanguard gives you lots of no-commission funds with 1 day liquidity even in the mutua…
I think the parent commenter is more concerned about the economy's overall stability, and believes passive investors could be exploited due to mis-pricing index fund underlyings. I didn't interpret it as a worry about missing out on active investment, but I could be wrong.
^^ Effectively this.
My concern is that if everyone is in the passive investing boat then we're no longer following the market, we're making the market, and it's a big departure from the philosophical under-pinnings behind the idea of passive investing.
(We started out letting active players make the market by placing good/bad bets and winning/losing. We got a market that was at least trying to find the right price and we did well due to the low expense ratios. Now that we're in the majority, I'm concerned that no-one is trying to find the right price anymore.)
tldr; I have mixed feelings about passive investing over the long term if we're no longer small fish in a big ocean.
Re: Vanguard Is Growing Faster Than Everybody Else Combined
#167As 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 a…
> the less active money there is around, the less accurate our concept of a correct value can be The problem is deeper than that. Active shareholders actually give a shit about corporate governance. Collectively, they put honorable and competent people on the board of directors, and make sensible decisions when other issues are put to shareholder votes. Vanguard and other indexing funds could barely care. Their incen…
Yet, this is a general problem of all kinds of investment funds, not only of index ones.
It is a huge problem (and probably responsible for much of the lawlessness we can find on Wall Street), but the switch from active to passive investment shouldn't change a thing.
Re: Vanguard Is Growing Faster Than Everybody Else Combined
#168Anyone who wants to learn more about passive index investing should check out Bogleheads (bogleheads.org). My second favorite forum after HN.
You may also want to check out /r/financialindependence on reddit.
Re: Vanguard Is Growing Faster Than Everybody Else Combined
#169Re: Vanguard Is Growing Faster Than Everybody Else Combined
#170As 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 a…
> the less active money there is around, the less accurate our concept of a correct value can be The problem is deeper than that. Active shareholders actually give a shit about corporate governance. Collectively, they put honorable and competent people on the board of directors, and make sensible decisions when other issues are put to shareholder votes. Vanguard and other indexing funds could barely care. Their incen…
I'd make that narrower than "active shareholders". The only kinds of active shareholders who can exercise informed and effective oversight are large, professional active shareholders, who buy significant percentages of companies (enough to have a voting share that matters) and have in-house research and legal departments. Many active shareholders don't really look like that. The retail stock-picker buying stocks on ETrade isn't in a position to exercise oversight of the companies they're buying any more than they'd be if they were buying them through index funds. So I don't think much is lost in terms of corporate governance if that group of people moves from stock-picking to index funds. In principle, something could still be lost in the stock price signal if they move to index funds (a different question than corporate governance), although whether retail stock pickers, even taken collectively, are contributing anything useful to the price signal is not necessarily certain.