21–30 of 85 posts
IOW the overhead here is in the noise IMO.
I expected to see (1995) tagged to the end of this article. I personally know 3 people who run their own money ( Having said that, this isn't exactly easy. You need to know 1) if a stock is going into the index 2) when its going into the index 3) how much the index will buy 4) how much the index buy will affect the price of the stock the first 3 are trivial for some index funds, though most have rules that allow them…
What kind of ROI do they get doing this? Better than 5%?
I expected to see (1995) tagged to the end of this article. I personally know 3 people who run their own money ( Having said that, this isn't exactly easy. You need to know 1) if a stock is going into the index 2) when its going into the index 3) how much the index will buy 4) how much the index buy will affect the price of the stock the first 3 are trivial for some index funds, though most have rules that allow them…
It would take a bit of effort to grab the data for all stocks entering the S&P for the last (say) 5 years, and then compare how these stocks did between the announcement and the joining of the index, but this data is vital to making the case that there is some market inefficiency here. Since the author doesn't bother to do this work, how can they justify their conclusions?
They can't even manage to get the 'easy route' right (letting someone else do the work). They cite 'one estimate' of a $4.3 billion cost but don't bother to tell use who made that estimate, giving the readers no chance to check its validity.
Lazy, lazy journalism IMO. At least quote your source, Bloomberg!
It's 500 stocks. How many randomly selected stocks do you need to almost equal the performance?
Buying a new entrant on the day it debuts is not required to come very close to matching the index performance.
The article points out that Vanguard “mitigates a good portion” of the risk by gradually building positions over time in stocks.
Problem solved.
This is basically the primary trading strategy employed in the The Ugly Americans . The time period covered is mid 1990's https://en.wikipedia.org/wiki/Ugly_Americans:_The_True_Story...
Was The Ugly Americans good? I really enjoyed Bringing Down the House .
It might, however, be a good enough reason to side-step this issue and use Total Stock Market (VTSMX) instead of one based on an index that frequently drops/adds stocks.
So, the writer of this article failed to give any proof other than citing the case of one specific stock (American Airlines). Even then, it failed to give any useful comparison (sure, the stock gained 11% in 4 days, but how did the rest of the market do?) It would take a bit of effort to grab the data for all stocks entering the S&P for the last (say) 5 years, and then compare how these stocks did between the announc…
"Over a course of a year, front-running -- of stocks going into and coming out of indexes -- costs investors in S&P 500 tracker funds at least 0.2 percentage points, according to research published last year by Winton Capital Management Ltd., a quantitative hedge fund that analyzed data from 1990 to 2011. That’s equal to $4.3 billion in lost income in 2014."
That paragraph includes a link to https://www.wintoncapital.com/assets/Documents/WWP_HiddenCos...