Vanguard Is Growing Faster Than Everybody Else Combined • Hacker News Board

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#291

Post by kd0amg » Wed, Apr 19, 2017, 5:58 PM UTC

lr4444lr wrote: post #285

malchow wrote: post #197

Earlier quoted context omitted.

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…

I think the other commenters hit on the important points and anticipated my distinctions. Note that I said "on a significant level". That did not imply blind or absolute faith. There are other investment options to match your bullish outlook if you think CAPM and EMH are wrong to the approximation that suits your involvement, knowledge, and risk profile, but you chose an index ETF. Why?

Perhaps GP believes he does not have the skills to identify market inefficiencies, or believes he does not have the skills to identify fund managers who have the skills to identify market inefficiencies. Those would seem to rule out picking securities himself or choosing an actively-managed fund.

Or maybe he just believes the market might stay irrational longer than he can stay solvent.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#292

Post by matwood » Wed, Apr 19, 2017, 6:06 PM UTC

grzm wrote: post #282

zeroer wrote: post #281

Earlier quoted context omitted.

There is a harm. In 15 years, if you decide you don't like Wealthfront, in order to move, you will have to sell all your assets and incur the capital gains.

This is true any time you move brokerages, is it not? If, at some time in the future, you chose to move from Vanguard to Wealthfront to take advantage of tax loss harvesting, you'd pay capital gains tax as well.

> This is true any time you move brokerages, is it not?

No. If you own the assets directly, and they are traded on the exchange (like the ETFs WF/Betterment use) they can be transferred around without triggering a sale event. Target date funds and the like would probably have to be sold.

I have my tax advantage at VG and my taxable has been all over the place finally settling with CS for now.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#293

Post by dlwdlw » Wed, Apr 19, 2017, 6:15 PM UTC

zip1234 wrote: post #150

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…

I think you have identified that this is a self-correcting problem but are selling yourself short by thinking that the economy will be destabilized. If everyone goes towards passive investments, there will be huge opportunities in active investment because the passive investing is not correctly identifying value. These opportunities are likely to cause an outflow from passive into active if that is where the money is…

I actually think there is a valid point in that idealogies have a momentum of sorts. Passive investors historically have had privileged access to isolated "pie" via a barrier-to-entry of patience. Without this barrier-to-entry, which happens when passive-investing becomes the go-to default, the pie is distributed amongst larger people so the "patience" arbitrage is reduced. Active investors have access to smaller pie as the flow is going to passive investing but if the denominator reduces faster than the numerator individuals still receive more pie despite total pie decreasing.

So the momentum of the idealogy has shifted from people trying to beat the market to people throwing up their hands and following heuristics. The larger the momentum of the heuristic the more robust it is. (Which is bad, in an antifragile vs robust sort of way)

To use a real world example, you could say that the overall restaurant industry is vibrant only because individuals naively underestimate the difficulty in starting one. The naive trying is what produces a competitive landscape that discovers 'quality'.

Similarly, the naive trying to get VC capital (despite the majority of ideas not having the scale/growth potential needed to fit the VC model) creates a vibrant technology and new-lifestyle scene.

So during a momentum re-stabilization phase, it's possible that the truck topples over the railing instead of back onto the road. Also, the overall reduction in number of individual of thinkers also increases the impact of bad-faith agents in positions of unfair leverage.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#294

Post by grzm » Wed, Apr 19, 2017, 6:26 PM UTC

matwood wrote: post #292

grzm wrote: post #282

Earlier quoted context omitted.

This is true any time you move brokerages, is it not? If, at some time in the future, you chose to move from Vanguard to Wealthfront to take advantage of tax loss harvesting, you'd pay capital gains tax as well.

> This is true any time you move brokerages, is it not? No. If you own the assets directly, and they are traded on the exchange (like the ETFs WF/Betterment use) they can be transferred around without triggering a sale event. Target date funds and the like would probably have to be sold. I have my tax advantage at VG and my taxable has been all over the place finally settling with CS for now.

Okay, you have me a little confused now :) I read my parent as saying that in order to move investments out of Wealthfront, you'll need to sell and pay capital gains. I read your comment saying this isn't necessarily the case. There seems to be some disagreement here. What am I misunderstanding? The ins and outs of investments and tax ramifications can sometimes seem very opaque to me, so I appreciate any education on this front.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#295

Post by SwellJoe » Wed, Apr 19, 2017, 6:35 PM UTC

Chaebixi wrote: post #254

SwellJoe wrote: post #89

Earlier quoted context omitted.

I don't understand how companies like that can thrive (but many do). If I have to pick up the phone to solve a problem even once, I'm angry. If I have to call them twice, I'm looking at alternatives. I may decide not to switch if the alternatives are even worse...but, I'm looking to get out of the shitty relationship I find myself in with that company. (This frustration is fresh in my mind because Security Metrics ju…

> If I have to pick up the phone to solve a problem even once, I'm angry . > If I have to call them twice....I'm looking to get out of the shitty relationship I find myself in with that company. [emphasis mine] You are way too sensitive and demanding, IMHO. You're probably a developer: is this how you want people thinking of you when you inevitably push a bug? I can understand looking elsewhere after a pattern of pro…

I wasn't saying anything about demanding perfection. I was saying that talking to someone on the phone is the worst customer service experience in common use.

It is because I have empathy for the person on the other side that I'm angry at the corporation for making me have a conversation I really don't want to have. I am always nice to the person I speak to, despite being angry at the company they work for for wasting my time and making me interact with them in a way I really don't want to.

My anger is over the fact that I've been given no option but a phone call.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#296

Post by ctkrohn » Wed, Apr 19, 2017, 6:35 PM UTC

hsitz wrote: post #272

ctkrohn wrote: post #262

Earlier quoted context omitted.

If the Efficient Markets Hypothesis (in its stronger forms) is false, there should be managers who are able to identify the cheapest stocks within the S&P 500 and thereby outperform the index. A disbeliever in EMH should look to identify these managers and pay them some fee, rather than simply investing in the index and trying to minimize fees. I think it's plausible that these managers exist, but they're impossible…

You say "A disbeliever in EMH should look to identify these managers and pay them some fee". In the next breath you say that even if the EMH is false "individuals investors should act as if it were true". This makes your post somewhat ambiguous; not so clear about which position you're advocating. How "plausible" is it that these managers are "impossible to identify ex ante."? Why is it plausible? "Impossible" seems…

Here's perhaps a better way to say what I'm getting at: identifying and investing with a manager that predictably outperforms a benchmark is just as difficult an intellectual challenge as constructing a portfolio that outperforms that same benchmark. Both of these tasks are so difficult as to be essentially impossible for an unsophisticated retail investor.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#297

Post by hyperpape » Wed, Apr 19, 2017, 6:36 PM UTC

pembrook wrote: post #289

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 flows to Vanguard are largely driven by retail investors and I think you are grossly overestimating the pricing value that "active" retail investors provide. Retail investors don't act as a rational pricing mechanism. 99% of them don't discount future cash flows, examine balance sheets, or evaluate growth prospects. In fact they statistically buy high and sell low which only serves to make boom and bust cycles mo…

What makes indexing worse in the short term?

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#298

Post by jessriedel » Wed, Apr 19, 2017, 6:37 PM UTC

kolbe wrote: post #243

_delirium wrote: post #170

Earlier quoted context omitted.

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 st…

What would you think about a system where a major institution (e.g. Vanguard) holds index funds, but the shareholder voting for each company in those funds is done by a different in-house team whose compensation is tied to the performance of that particular company? (More realistically, you'd just need a different team for each company in a given industry, but one team could vote for multiple companies that don't compete with each other.) It's "passive investing with active shareholder governance" in the sense that only voting, not dollars, are actively directed.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#299

Post by nradov » Wed, Apr 19, 2017, 6:43 PM UTC

ctkrohn wrote: post #262

malchow wrote: post #197

Earlier quoted context omitted.

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…

If the Efficient Markets Hypothesis (in its stronger forms) is false, there should be managers who are able to identify the cheapest stocks within the S&P 500 and thereby outperform the index. A disbeliever in EMH should look to identify these managers and pay them some fee, rather than simply investing in the index and trying to minimize fees. I think it's plausible that these managers exist, but they're impossible…

Logically even if the EMH is false that doesn't necessarily imply the existence of investment managers who can reliably identify mispriced securities. It's entirely possible that the EMH is false and yet no one is able to take advantage of that. But your recommendation makes sense either way.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#300

Post by cowsandmilk » Wed, Apr 19, 2017, 6:43 PM UTC

kolbe wrote: post #239

Paul-ish wrote: post #208

Earlier quoted context omitted.

Some researchers have looked at the effect of passive investors on corporate governance[1] : > Still, these funds retain the power of voice, the ability to exert shareholder influence on management and governance-related proposals. But critics say passively invested funds, with their lower fees, lack the resources and often the will to monitor their large and diverse portfolios. The Economist calls them “lazy investo…

I don't know how to say this, but I would trust a common sense understanding of human behavior over research. If there's one rule in life, it's that high finance will exploit legal and immoral loopholes to accumulate wealth, and there is plenty of opportunity for that here, despite the rigorous academic studies done by an institution that is highly connected to the people who can profit off of it.

You claim that Vanguard doesn't care about corporate governance, but that doesn't match their voting record.

For instance, at the 2016 Alphabet meeting, they voted for Alphabet shareholders having one vote per share and adoption of a majority vote for election of the board. Those are the very core corporate governance oddities that Alphabet is using to allow the founders and Eric Schmidt to have total control of the company and Vanguard voted their shares towards better governance.

Obviously, since Eric Schmidt and the founders have the majority of the votes, these didn't pass, but they voted the way you would have liked and against management.