171–180 of 358 posts
Total market cap of S&P 500 have increased from $13T to $21T from 2012 to 2017 without having corresponding underlying financial growth in companies. This $8T difference feels tantalizingly close to new investment money flowed in via ETFs. I am wondering if current rise in S&P 500 can almost entirely attributed to new money flowing in to ETFs. If this thesis is correct then we can continue to expect more bull market…
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 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 don't believe this. They bring in axemen to cut jobs for a bump in stock price. For one, why do they allow for huge severance packages even when they fail?
I'm fascinated at how Vanguard's essential idea plays out over the long term. The basic value proposition seems to be that Wall Street is extracting more value in fees than they're making in smart stock picks. Which thus far has been pretty accurate, but is the contribution of stock pickers actually zero? Is it negative ? Where do we reach a fixpoint, and how? Do the stock pickers, clever scamps that they are, figure…
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…
I can only speculate as to what is going to happen but my hunch is that in the long term the gap between returns from index fonds and savings books is going to become a great deal smaller as more people are willing to shoulder risk for companies and thus risk premiums go down Doesn't that suggest people on average have had a misplaced fear of stock (indices) in the past, and that capital is now more efficiently alloc…
Yes, I think this bit is pretty much agreed upon today. Hence the run for indices.
> and that capital is now more efficiently allocated?
That sounds likely to me.
> Sounds like it would make the world better off.
As tempting as it is to argue one way or another ... I think that's an impossible statement to make.
But like I initially said, it's all just speculation anyhow. Tbh these kind of discussions are inherently whacky. Chances are everything you've quoted from me is flawed on so many levels if one takes a closer look. Discussing finance is mostly a fool's errand.
What happens when millions of people sell off their shares in say, VASGX (basically an 80/20 stock/bond index fund)?
Would that effectively tank the entire market rather than sectors doing poorly.
Earlier quoted context omitted.
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 a…
EDIT - I highly recommend watching some of Robert Schiller's Financial Markets lectures on Yale Coursera about general investment theory. Bogle is saying good things, but he simplifies it in a way that I can see might sound disconcertingly incomplete. You're not wrong to ask these questions if you're conscientious and smart enough to want more in-depth answers.
Earlier quoted context omitted.
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 mor…
My point was that investors targeting a particular rate of return are having to take on more risk (because growth is low), which in turn lowers the risk premium through ordinary supply and demand.
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 a…
The outflow is mostly from active domestic equity mutual funds (average expense ratio: 1%-1.5%) to index domestic equity ETFs (average expense ratio: 0.1%-0.2%), so it's really about lower costs and the relative underperformance of active management.
Total market cap of S&P 500 have increased from $13T to $21T from 2012 to 2017 without having corresponding underlying financial growth in companies. This $8T difference feels tantalizingly close to new investment money flowed in via ETFs. I am wondering if current rise in S&P 500 can almost entirely attributed to new money flowing in to ETFs. If this thesis is correct then we can continue to expect more bull market…
There's been something I've been thinking about: with so many people purchasing index funds, what happens when there is a major downturn in the market? What happens when millions of people sell off their shares in say, VASGX (basically an 80/20 stock/bond index fund)? Would that effectively tank the entire market rather than sectors doing poorly.
If indexing also implies passive/"set and forget"-style trading then you would actually dampen market swings. You'd have fewer people selling as the market tanked and fewer people buying the big rallies.