Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Vanguard Is Growing Faster Than Everybody Else Combined

mobile.nytimes.com

Post reply on HN
Print view View original

321–330 of 358 posts

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#321

Post by jannotti »

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…

Is it really worth saying that Lotto winners "Identified the correct lottery numbers"? It's true, I guess. But it doesn't really have any value, if that's all you mean.

(And yes, I understand that you agree with the conclusion there. But I'm saying what's the point of the verbal gymnastics in the first place?)

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#322

Post by ralfd »

fictioncircle wrote: post #186
KKKKkkkk1 wrote: post #181

Earlier quoted context omitted.

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 a…

Al Gores real job on the Apples board had been to have Steve Jobs back. Jobs wanted a card blanche to lead Apple (and never be fired again) so he picked a respectable board loyal/friendly to him.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#323

Post by milesvp »

hyperpape wrote: post #297
pembrook wrote: post #289

Earlier quoted context omitted.

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?

To expand on random_comments mention of volatility. Volatility is a big deal. Stock markets can be expected to beat inflation by several percentage points over the "long run", but "long run" is often defined in economics as "greater than your life expectancy". So there's a chance that you'll have to pull money out before it has a chance to grow, or worse, after it's lost a lot of value.

Generally you should avoid putting money into stock markets with anything less than a 10 year window unless you love risk. And you should never put your emergency fund in the stock market since stock market crashes and needing said emergency fund tend to be highly correlated, which means when you pull your money out, you are all but guaranteed to be selling low.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#324

Post by random_comment »

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…

> If the Efficient Markets Hypothesis (in its stronger forms) is false, there should be managers who are able to identify the cheapest stocks

This isn't how causation works.

> 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.

It is as much work to identify good fund managers as it is to identify good company managers. You might as well save some money if you go this route and invest in a portfolio of companies directly.

> Furthermore, a smart manager will charge fees that are equal to the alpha they generate.

Warren Buffett seems quite smart, I mean he made it to rank #1 on the world's rich list and I think he's one of the few on the top #100 that did it by investing in other companies rather than just building his own. Judging from his 40 year performance data he's generated rather more alpha than any other manager. He charges fees that are very close to 0.00001% for being a partner with him.

That would seem to contradict your point.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#325

Post by kgwgk »

VLM wrote: post #313
kgwgk wrote: post #302

Earlier quoted context omitted.

> passively rebalancing What does that mean?

In real estate you'd call it investing via a gentrification strategy. Lets say in a net inflow market where the net flow is going in and supply (of new stocks) isn't keeping up with demand, you buy company A B and C and greater supply/demand effects (plus inflation, I suppose) mean they all go up, A goes up 10%, B 20%, C 30% and your investment strategy is to own equal dollar values of A B and C. Perhaps A is large c…

Thanks for the detailed response. I don't get the relevance to the question discussed, though (not your fault).

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#326

Post by collinmanderson »

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…

Isn't the real issue that there wouldn't be as much liquidity?

As more shares of a company are held by passive investors, the fewer are available to trade on a daily basis, right?

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#327

Post by ethbro »

kgwgk wrote: post #325
VLM wrote: post #313

Earlier quoted context omitted.

In real estate you'd call it investing via a gentrification strategy. Lets say in a net inflow market where the net flow is going in and supply (of new stocks) isn't keeping up with demand, you buy company A B and C and greater supply/demand effects (plus inflation, I suppose) mean they all go up, A goes up 10%, B 20%, C 30% and your investment strategy is to own equal dollar values of A B and C. Perhaps A is large c…

Thanks for the detailed response. I don't get the relevance to the question discussed, though (not your fault).

VLM wrote about it excellently from the buyer's side, but I was thinking about it more from the market side.

Depending on the weighting method of the index you're tracking (and other indices that include your stocks), the indices need to rebalance purely in response to "price changes happened and reallocation is needed."

This requires buying at minimum (or buying and selling as VLM pointed out). That buying moves the market when there's a significant amount of money in index following funds.

The initial comment was about reaping arbitrage when (I think) the price the index following funds made diverges from the actual (ex index involvement) price.

I was wondering how that's operationally relevant or whether the "Don't fight the Fed" rule comes in, given that there's a massive amount of money in index funds.

Someone with more knowledge would have to chime in as to the effect in aggregate of rebalancing playing against active moves (for fundamental reasons).

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#328

Post by SwellJoe »

Chaebixi wrote: post #310
SwellJoe wrote: post #295

Earlier quoted context omitted.

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 wastin…

> I was saying that talking to someone on the phone is the worst customer service experience in common use. I disagree with that pretty strongly. The phone is the second-best method for communicating a complex or unusual problem, only behind a face-to-face meeting. Anyway, the worst customer service experience in common use is actually the fixed-option support menu (that usually obscures how to contact a real person)…

I may have a more pained relationship with phones than average. I hate talking on the phone.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#329

Post by sharemywin »

Suncho wrote: post #273
zip1234 wrote: post #150

Earlier quoted context omitted.

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…

> These opportunities are likely to cause an outflow from passive into active if that is where the money is. Sure. But it's unclear where the equilibrium is between the volume of passive investing and the volume active investing (or if there is one). In the meantime, the increasing share of passive investment is causing the prices on all these assets to become more correlated. This increases systemic risk. When every…

It not so much the economy as the market. If everyone is blinding buying s&p500 every month those stocks will continue to climb regardless of actual "value" based on fundamentals.
Post reply on HN