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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

#241

Post by lmm »

rsync wrote: post #227
lmm wrote: post #116

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…

"Money is cheap at the moment because growth is low, and that in turn means risk premia are lower and so on" Maybe. Money is cheap if you are a bank or a government backed borrower (like a conforming mortgage loan in the US). If you have collateral, like the car you're borrowing against, money is kind of cheap ... also if you have a perfect credit history. But I am not so sure that money is cheap right now out in the…

> But I am not so sure that money is cheap right now out in the real world. If you are a new business with no track record or a consumer with poor credit history I think money might be quite expensive for you ...

Really? My understanding was that (non-mortgage) subprime lending was higher than ever, business loans were cheaper than ever...

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#242

Post by L_Rahman »

tryitnow wrote: post #237
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…

It's been a looong time since I've studied financial economics but I do think there's an active research literature around this topic (under the topic of market microstructure maybe?). If I recall correctly (and again, it's been a while), I think the amount of passive funds has to be quite substantial for markets to be really bad at reflecting value over the long run.

And it's a recurring topic in Matt Levine's Money Stuff newsletter. The finance community is not only aware but actively thinking about the ramifications of the situation.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#243

Post by kolbe »

_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…

Whether they are mentally capable of making good decisions is another story. But presuming those people exist, then the system should at least be structured in such a way that they're incentivized to use them to properly manage their own assets, rather than in more shifty/nefarious ways.

Tell me what you think the result of this scenario might look like. A manager wants to conduct an LBO that grossly undervalues a stock. He couldn't get the votes from shareholders if they were paying attention, but instead he walks up to management at Blackrock, Vanguard and State Steet, and offers the people in charge of voting a very lucrative job at the new private company. How do you think they'll vote?

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#244

Post by dv_dt »

headmelted wrote: post #166
dsacco wrote: post #159

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…

I think the long long term problem is that the stock market has an increasing disconnect between investment in new businesses doing anything well new, and to an increasing degree novel business practices in existing businesses.

Yes, there are some IPOs, but overall new business starts are still in decline, and large portions of financial markets seem both too systematically risk averse, and yet willing to follow other risks blindly.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#245

Post by Chaebixi »

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.

Could that be mitigated by people not completely jumping on the passive bandwagon (e.g. by keeping say 5% in active funds)? Wouldn't all that you need is an active enough and large enough market to resist manipulation?

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#246

Post by kolbe »

marcosdumay wrote: post #167
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…

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.

It's not necessarily active vs passive. It's skin in the game vs no skin. Low fee index funds offer no incentive for the managers to do any actual managing. They follow an equation, and collect a few bps.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#247

Post by jackcosgrove »

malchow wrote: post #197
lr4444lr wrote: post #154

Earlier 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…

Say more. Why do I believe in the Capital Asset Pricing Model and Efficient Markets (both proven wrong) if I invest in Vanguard's cheap S&P 500 ETF? I invest in their S&P 500 ETF because it's the cheapest way to get diversified exposure to the 500 largest American companies, and I believe that the 500 largest American companies will be more valuable in the future as a combination of valuation, scale, and cash flows t…

While you may not believe in CAPM and EMH and still invest in Vanguard funds, many do both. I used to participate in the Bogleheads forum and encountered many doctrinaire EMH proponents there. It's not an unreasonable inference to connect the two.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#248

Post by ellyagg »

nommm-nommm wrote: post #214
chillydawg wrote: post #112

Earlier quoted context omitted.

Because their product is SO SO SO much better than the alternative, it's worth the hassle.

Not really. They aren't better than Fidelity or Schwab for the vast majority of people, their brokerage accounts are all very, very similar. Plus Schwab and Fidelity both offer better additional products. Both offer totally free, no catches, ATM reimbursement, no minimum balances, no fees alternatives to a checking account. Fidelity also offers a no annual fee 2% cash back on everything credit card. Vanguard has a di…

I'd love to hear a case made for Fidelity/Schwab being even with Vanguard. My understanding is that Vanguard's expense ratio is the best (and it goes without saying this makes a big difference over time). Has Fidelity's expense ratio recently moved to match Vanguard's?

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#249

Post by zeroer »

hesdeadjim wrote: post #238
zeroer wrote: post #223

Earlier quoted context omitted.

> Perhaps buying a similar asset, holding that instead of the other, wait for the original to go down If you're presupposing the assets are similar, this is unlikely to happen to any significant degree. The standard way to increase your odds of being able to tax loss harvest is to own as many different uncorrelated securities as possible. You can take this to mean a fund per industry (as Betterment and Wealthfront do…

What about the effect of a (let's be honest, inevitable) market crash? You'd be able to realize quite a bit of loss as that is happening by selling assets. Then as the market recovers and assuming those assets are actually worth more than the crash-adjusted value, you would be able to harvest losses again on that asset.

Take a look at this chart of the SP500 over time: http://www.macrotrends.net/2324/sp-500-historical-chart-data

(Make sure to turn off inflation-adjusted)

I think you'll see that in the last 90 years, even the worst market crashes don't take the index down to a level lower than what it was 15 years prior. To put it another way, pick any time in the past 90 years, the S&P 500 is always higher 15 years later than that date and every day afterwards. Maybe slicing up your investments into finer-grained categories than the entire S&P 500 will help ... but I'm very skeptical that anyone can TLH for long periods successfully.

If you want to pay a perpetual 25 basis points per year for Wealthfront or Betterment, go ahead, but it seems unlikely to me you'll come out ahead of a simple index fund if you are investing long term.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#250

Post by posguy »

arcbyte wrote: post #146
posguy wrote: post #104

Earlier quoted context omitted.

Its the plight of the newsreader, whereby you add nothing when writing about a subject, do no research on it, and avoid thinking critically about the news you've been told to publish or read to the viewers on TV. Newsreaders are not journalists, and being unable to form an opinion of their own, they are often willing to regurgitate anything their sources tell them without fail.

I don't know what world you're living in. The news is too full of opinion these days. If only I could find a source that JUST reported the facts I would give them all my money.

That was my point, rather than research a topic and give the reader/viewer hard facts, major "news" orgs bring in opinion panels that degrade the conversation and add nothing of value.
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