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Vanguard Is Growing Faster Than Everybody Else Combined

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Re: Vanguard Is Growing Faster Than Everybody Else Combined

#181

Post by KKKKkkkk1 »

kolbe wrote: post #162
headmelted wrote: post #125

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…

Talking about honorable and competent people on the board of directors. I recently realized that Apple's board of directors includes Al Gore. He's certainly a honorable man, but what does he know about making and selling iPhones? Why is he on Apple's board of directors?

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#182

Post by Frqy3 »

mikekchar wrote: post #82
warcher wrote: post #42

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…

This may sound snarky, but it's not meant to be. When I've worked in large corporations I was astounded by the amount of... shall we say "irregular" stock activity. For a while I've been struck with the thought that you could probably make a pretty good living simply buying long stock the day before executive stock options are issued and then selling them again when executives are selling theirs (either through plann…

I have an engineering background and worked with a major telco for several years before moving to work as a financial analyst for a while.

Few of the other analysts had an industry background in the companies they covered. Mostly they had an accounting/commerce/economics background. They were good at pulling together financial models from the data and information provided to them in briefings, but they largely missed the implications that even someone with a year or two of industry experience would understand.

I am reminded of the story of Max Planck and the chauffeur and the two types of knowledge [0].

[0] https://www.farnamstreetblog.com/2015/09/two-types-of-knowle...

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#183

Post by reddytowns »

headmelted wrote: post #125

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…

If most people ends up investing in strictly index funds, it would end up badly foe them but I don't see it by itself causing a destabilization. Just a lot of people making sub market profits. It would take a large amount of people doing fad based investing and switching all at once cause destabilization, such as what happened during the dot com bubble and the housing bubble.

If investing decisions get slower in general, then I think it would be a good thing. The number of company decisions made only for only the next quarter rather than long term profitability would be much less if it took time for people to switch the companies they invest in rather than doing so instantly, which would in turn make a more efficient and stable market.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#184

Post by nickjarboe »

_delirium wrote: post #170
kolbe wrote: post #162

Earlier quoted context omitted.

> 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 E…

Individuals buying smaller amounts of stocks may not be exercising their votes or have a board member in their back pocket, but they can in the aggregate greatly influence one thing upper management does care about: the stock's price. Unfortunately, if you think management is too focused on the short term, if everybody investing with long horizons buys mutual funds and day traders focus on individual stocks, management is likely to be even more short term focused.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#185

Post by nojvek »

clubm8 wrote: post #175

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.

I think lots of investors have herd mentality. If it's rising, pump more money, If it's descending, pull out money. I definitely see a big crash if people don't trust the market.

Right now things are great as there is a lot of hot money flowing. If people hide the money then you'd need something like stimulus to jump start the system again.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#186

Post by fictioncircle »

KKKKkkkk1 wrote: post #181
kolbe wrote: post #162

Earlier quoted context omitted.

> 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…

Talking about honorable and competent people on the board of directors. I recently realized that Apple's board of directors includes Al Gore. He's certainly a honorable man, but what does he know about making and selling iPhones? Why is he on Apple's board of directors?

> Talking about honorable and competent people on the board of directors. I recently realized that Apple's board of directors includes Al Gore. He's certainly a honorable man, but what does he know about making and selling iPhones? Why is he on Apple's board of directors?

His job isn't to make and sell cell phones. His primary function is to make the C-suite accountable to shareholders. The C-suite's job is to make and sell cell phones.

Frankly, Boards function mostly on business metrics and people skills that are generic to any business.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#187

Post by dagw »

KKKKkkkk1 wrote: post #181
kolbe wrote: post #162

Earlier quoted context omitted.

> 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…

Talking about honorable and competent people on the board of directors. I recently realized that Apple's board of directors includes Al Gore. He's certainly a honorable man, but what does he know about making and selling iPhones? Why is he on Apple's board of directors?

Why is he on Apple's board of directors?

He has a working knowledge of how governments operate, and as such knows the right person to call and the right procedure to follow to get stuff done. He probably also still knows a bunch of people whom could be useful to know if you're operating a huge multinational company.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#188

Post by fictioncircle »

headmelted wrote: post #125

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…

> 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.

That won't happen (probably).

The less accurate our concept of correct value is, the more competition it will draw as the margins increase.

Realistically, we can be probably something absurd like 80% passive funds and 20% active investors and be fine.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#189

Post by [deleted] »

KKKKkkkk1 wrote: post #181
kolbe wrote: post #162

Earlier quoted context omitted.

> 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…

Talking about honorable and competent people on the board of directors. I recently realized that Apple's board of directors includes Al Gore. He's certainly a honorable man, but what does he know about making and selling iPhones? Why is he on Apple's board of directors?

[deleted]

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#190

Post by hesdeadjim »

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).

I've got a fair bit of money in Wealthfront and tax loss harvesting has directly saved me quite a bit of money over the last couple years. For instance, the beginning of last year was tumultuous and their tax loss harvesting let me realize around ~55k in losses. The market then shot back up and my investments were right back where they were barely a month later. Because I had a source of capital gains in 2016, I basically earned free money.

So even if my investments were in the black in the macro scale, with tax loss harvesting I can realize additional gains from the inevitable dips that happen on the more micro scale.

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