Bogle Sounds a Warning on Index Funds

Has someone actually worked out that tons of sensors will cost far less than people-driven trucks? As it is, fuel is the big cost, followed by driver salary [1]. L5 autonomous driving is not going to come cheap, that gear is going to price as close to 3X driver salary as they can get away with, on the assumption they can run close to around the clock. Whose margin is getting compressed for the additional sensor gear?

This doesn't even touch upon that as soon as L5 is available and if 24x7 L5 operations approved, you suddenly just increased industry transport capacity 3X, leading to a sudden oversupply in certain segments and scenarios, while still requiring a certain baseline to handle peak load demands. That chaos will cause a lot of margin compression, and lots of rosy profit projections from L5 autonomous driving without drivers will turn into a race for finding more customer demand.

I can see some modest sensor gear, but nothing fancy, and not a lot of them. Perhaps high resolution visual and night vision cameras coupled with lots of street camera access, with lots of back-end software processing will deter most theft attempts?

We might ironically get to L5, only to stick lower-paid security guards on a random number of trucks.

[1] https://www.thetruckersreport.com/infographics/cost-of-truck...

That being said - you're incorrect about about competition between active investors and HFT. That's a common misconception. HFT primarily occupies a marketing making role, which means they try to play both sides of the spread very quickly for a very, very small profit on each trade. There are elements of valuation here, but what's really much more important is very small holding times and low latency turnaround. The ideal goal of an HFT operation is a trading strategy which earns a profit 51% of the time and trades very frequently.

In contrast, active investors - whether quantitative, fundamental or some mix thereof - care more about being correct on fewer bets, which have more money behind them and which are held for longer periods of time (hours, days, weeks or months). These funds are not competing with HFT: HFT only competes with HFT. This is because HFT activity and active investing activity are completely alien to one another. HFT has a material impact on the profit margins (slippage), volume and liquidity available to active investors, but strictly speaking they don't actually compete (except in the narrow sense that you "compete" with a car salesman to buy a car for a better price).

HFT is a relatively tiny portion of the financial industry which gets outsized attention. It's generally more accurate to think of HFT firms as financial utility providers rather than investing firms.

In theory it might only be one! If there's only one active investor, and they find stocks that the index funds have not priced correctly, then the active investor can pounce, make some money, and move the stock toward a more accurate price. The more they do this, the more money they will make, and the more resources they will have for finding and taking advantage of mis-priced stocks.

The real trick is telling what an "accurate" price is, so that you can evaluate whether the market is working properly. Since the purpose of the market is to find the accurate price, asking whether the price it finds is accurate seems like begging the question.

Is the stock market pricing risk accurately now? Was it pricing risk more accurately 40 years ago, before the growth of index funds? There have been plenty of bull and bear markets during that time... and some nasty unexpected shocks.

That is surprising, since shipping by water is dramatically cheaper than any other form of surface shipping, even factoring the extra distance to sail down to the Panama Canal. What's the point of adding the land leg?

If the two companies are owned by the same guy, they have the incentive not to compete with each other since their owner cares about the sum of their profits. This is why one wouldn’t be allowed to acquire the other. But the effect is the same when a single index fund owns a large chunk of both companies. The companies are encouraged to compete not too fiercely with each other.