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Hidden Dangers of the Great Index Fund Takeover

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Re: Hidden Dangers of the Great Index Fund Takeover

#31

Post by stingraycharles »

enraged_camel wrote: post #18
darawk wrote: post #10

The extremely simple and correct solution here is to not let index funds themselves vote. Only allow the votes to be cast directly by the index share holders. Problem solved, I don't know why people keep hand wringing about this and not suggesting the supremely obvious solution here.

Solutions to complex problems are rarely simple or obvious.

More precisely, it might be simple but not easy: it’ll be quite difficult an operation to collect votes from the tens of thousands of shareholders of the funds, and votes are happening all the time on a global scale.

Re: Hidden Dangers of the Great Index Fund Takeover

#32

Post by pishpash »

stanferder wrote: post #4

Isn't it possible for the index funds to simply not wield the power they have, and abstain from every vote? I was surprised that funds that are not actively managed are still actively engaging with public companies.

This makes a lot of sense, actually. But it is difficult to define what is passive vs. active, and there will be many loopholes to create "activity".

Re: Hidden Dangers of the Great Index Fund Takeover

#33

Post by hughpeters »

This is such a fascinating problem. On the one hand Jack Bogle's invention of the index fund has been so good for retail investors but because the process currently requires a middle man - i.e. one of the big three - these index funds have slowly become bloated with power.

What if the algorithm Vanguard uses was open sourced and could be self-hosted by independent investors?

Where each investor owns their portfolio outright and adjustments to the portfolio are made automatically by a free index manager bot that runs the simple algorithm an index fund manager like Vanguard would.

Why wouldn't something like that work?

Re: Hidden Dangers of the Great Index Fund Takeover

#34

Post by ravenstine »

kds3 wrote: post #6

> Index funds “are great for investors,” says Elhauge, “but part of the reason they’re great for investors is exactly because of the anti-competitive effects.” Elhauge says the trusts of the late 19th century that gave rise to today’s antitrust laws also involved a form of common shareholding. > She might want Coca-Cola to take big risks to crush Pepsi, and invest capital in new products and markets to do so. An inve…

> So the way we can solve this problem is to outlaw shares ownership of competing companies? Seems like a fair solution.

Your suggestion is for people to take big risks and put all their eggs in a few baskets. Not only is this totally opposed to why people make multiple investments, but doing so could make the market more volatile because any fluctuation or current event could encourage people to suddenly "switch sides".

Re: Hidden Dangers of the Great Index Fund Takeover

#35

Post by Forge36 »

hughpeters wrote: post #33

This is such a fascinating problem. On the one hand Jack Bogle's invention of the index fund has been so good for retail investors but because the process currently requires a middle man - i.e. one of the big three - these index funds have slowly become bloated with power. What if the algorithm Vanguard uses was open sourced and could be self-hosted by independent investors? Where each investor owns their portfolio o…

Having spoken with few people, the process is still mostly people, building algorithms in Excel. Much of what drives decisions is research, and personal decision's, not automation.

I've heard AI trading has done very poorly as the system isn't predictable, it's people making decisions in ways which can become self fulfilling prophesies.

Algorithms when distributed would also fall victim to the fastest person benefiting the most

Re: Hidden Dangers of the Great Index Fund Takeover

#36

Post by kds3 »

ellisv wrote: post #19
pfortuny wrote: post #15

Earlier quoted context omitted.

No because that is essential for hedging, and hedging is good.

I absolutely agree. If you could only invest in one tech company, who would have invested in Apple/Amazon/Google instead of IBM? These are now large, successful companies that were able to succeed because investors were able to hedge and invest in an entire sector.

> If you could only invest in one tech company, who would have invested in Apple/Amazon/Google instead of IBM?

IMHO there shouldn't be Apple/Amazon/Google/IBM companies as they are today. I want Google and other companies be splitted to AdWords, GoogleSearch, YouTube, Android, Waymo companies. And they should not use their dominant/monopolistic position in search/ads areas to get unfair advantage in other areas.

So you would have to choose your investment between Android/Apple/WinMobile OS, AdWords/AdMob ads, Waymo/Cruise cars, Google/Yahoo/DuckDuckGo search, YouTube/Vimeo videos.

Re: Hidden Dangers of the Great Index Fund Takeover

#37

Post by deadbunny »

hughpeters wrote: post #33

This is such a fascinating problem. On the one hand Jack Bogle's invention of the index fund has been so good for retail investors but because the process currently requires a middle man - i.e. one of the big three - these index funds have slowly become bloated with power. What if the algorithm Vanguard uses was open sourced and could be self-hosted by independent investors? Where each investor owns their portfolio o…

I think the problem with this would be brokerage fees for buying/selling. If a fund is rebalancing 10% of their holdings the fees are a rounding error, if I'm rebalancing 10% of mine as an individual the fees would be a noticeable percentage.

Re: Hidden Dangers of the Great Index Fund Takeover

#38

Post by echelon »

Forge36 wrote: post #35
hughpeters wrote: post #33

This is such a fascinating problem. On the one hand Jack Bogle's invention of the index fund has been so good for retail investors but because the process currently requires a middle man - i.e. one of the big three - these index funds have slowly become bloated with power. What if the algorithm Vanguard uses was open sourced and could be self-hosted by independent investors? Where each investor owns their portfolio o…

Having spoken with few people, the process is still mostly people, building algorithms in Excel. Much of what drives decisions is research, and personal decision's, not automation. I've heard AI trading has done very poorly as the system isn't predictable, it's people making decisions in ways which can become self fulfilling prophesies. Algorithms when distributed would also fall victim to the fastest person benefiti…

What sorts of things do you track and model in Excel? I've been looking at fundamentals and the business landscape. What should I add?

Re: Hidden Dangers of the Great Index Fund Takeover

#39

Post by encoderer »

deadbunny wrote: post #37
hughpeters wrote: post #33

This is such a fascinating problem. On the one hand Jack Bogle's invention of the index fund has been so good for retail investors but because the process currently requires a middle man - i.e. one of the big three - these index funds have slowly become bloated with power. What if the algorithm Vanguard uses was open sourced and could be self-hosted by independent investors? Where each investor owns their portfolio o…

I think the problem with this would be brokerage fees for buying/selling. If a fund is rebalancing 10% of their holdings the fees are a rounding error, if I'm rebalancing 10% of mine as an individual the fees would be a noticeable percentage.

There are no brokerage fees anymore.

But fractional share ownership is not widely popular and would require an aggregator anyway.

Re: Hidden Dangers of the Great Index Fund Takeover

#40

Post by lifeisstillgood »

mushufasa wrote: post #28
darawk wrote: post #10

The extremely simple and correct solution here is to not let index funds themselves vote. Only allow the votes to be cast directly by the index share holders. Problem solved, I don't know why people keep hand wringing about this and not suggesting the supremely obvious solution here.

I built a site for people to do this www.yourstake.org

Fantastic.

How do you get the fund to vote on the investors behalf ?

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