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Bogle Sounds a Warning on Index Funds

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Re: Bogle Sounds a Warning on Index Funds

#121

Post by empath75 »

> "There is no America, there is no democracy, there is only IBM and ITT and AT&T and DuPont, Dow, Union Carbide, and Exxon … The world is a college of corporations inexorably determined by the immutable bylaws of business. The world is a business, Mr. Beale, it has been since man crawled out of the slime. And our children will live, Mr. Beale, to see that perfect world in which there’s no war or famine, oppression or brutality. One vast and ecumenical holding company for whom all men will work to serve the common good, in which all men will hold a share of stock, all necessities provided, all anxieties tranquilized, all boredom amused."

Network -- 1976

Re: Bogle Sounds a Warning on Index Funds

#122

Post by jandrese »

yourapostasy wrote: post #111
elsonrodriguez wrote: post #87

Earlier quoted context omitted.

Hijacking trucks filled to the brim with sensors sounds like a recipe for jail time. The logistics of stopping and looting a truck involves too many parties, and ensuring that each party is following enough security protocols to not be identified via face, vehicle, or gait will ensure that only a few small sophisticated heists will ever be successful.

> ...filled to the brim with sensors... 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 co…

Sensor packages and near-AI compute clusters constantly get cheaper as the technology improves.

Today it doesn't make sense, but in 10-15 years when a full self-driving solution costs maybe $1k? It's a no brainer, especially for long haul trucking.

I'd guess that putting a security guard on a truck will be an exceptional occurrence, probably only used when the truck is hauling an especially valuable cargo or going through a known trouble spot.

Re: Bogle Sounds a Warning on Index Funds

#123

Post by jandrese »

pmiller2 wrote: post #79
ethbro wrote: post #76

Earlier quoted context omitted.

> Of course electric automated trucks could change all that. Unmanned trucks crossing long distances of rural America sounds like a recipe for hijacking loads.

Automated trucks don't necessarily have to be unmanned.

They do if you are automating them to avoid having to pay human drivers. It's kind of silly to go to all of the effort to automate a truck and then make someone sit on their thumbs behind the wheel for hours on end.

Re: Bogle Sounds a Warning on Index Funds

#124

Post by whatok »

gammateam wrote: post #39
dasil003 wrote: post #33

Earlier quoted context omitted.

Right, because when shadowy groups get unimaginable leverage and power the first thing they do is apply affirmative action pressure to address gender imbalances.

> Right, because when shadowy groups get unimaginable leverage and power the first thing they do is apply affirmative action pressure to address gender imbalances. Yes, that is exactly what happened, dasil003 https://newsroom.statestreet.com/press-release/corporate/sta... State Street has 2.7 Trillion AUM

State Street also used that as a marketing stunt to launch an ETF while they were being sued for sexual harassment and pay discrepancies between male and female employees. Marketing is marketing is marketing.

Re: Bogle Sounds a Warning on Index Funds

#125

Post by gammateam »

whatok wrote: post #124
gammateam wrote: post #39

Earlier quoted context omitted.

> Right, because when shadowy groups get unimaginable leverage and power the first thing they do is apply affirmative action pressure to address gender imbalances. Yes, that is exactly what happened, dasil003 https://newsroom.statestreet.com/press-release/corporate/sta... State Street has 2.7 Trillion AUM

State Street also used that as a marketing stunt to launch an ETF while they were being sued for sexual harassment and pay discrepancies between male and female employees. Marketing is marketing is marketing.

yes, and also 300 companies added female directors

nothing exists in a vacuum

Re: Bogle Sounds a Warning on Index Funds

#126

Post by jandrese »

AnthonyMouse wrote: post #89
Hermel wrote: post #72

Earlier quoted context omitted.

Non-intervening usually means the vote according to the recommendations of the board, and not that they abstain from voting.

That seems like a different kind of problem though. If funds that vote according to the recommendations of the board own >50% of the company, the board becomes unaccountable. (Unless they apply different rules to board elections, but then we're back to the original problem because the minority activist can elect their own board.)

This seems to be mostly in keeping with the spirit of index funds. It's a hands off approach that lets the company run itself.

In theory an index fund should never own that much of a company, because that means it would own >50% of all publicly traded companies. The whole point is to spread the risk evenly so you can realize the average returns without having to put any thought into it. It shouldn't mean it's buying $100k shares of GE and also $100k shares of Mom&Pop Pickle Fork Inc.

Re: Bogle Sounds a Warning on Index Funds

#127

Post by apo »

He also warned in 2017:

Bogle noted that trading would dry up if the stock market comprised only indexers and there were no active investors setting prices on individual issues. Everyone would just buy or sell the market.

...

Shareholders of index funds could then suffer more than owners of actively managed funds, and they could take their losses harder due to the perceived security they feel precisely because they merely own the market and aren’t trying to beat it. That might make active investors feel a bit of schadenfreude for indexers who have been free-riding at their expense, but the feeling probably wouldn’t last. The greater price swings that could ensue in a heavily indexed, less-active market are likely to exacerbate losses for everyone.

https://www.marketwatch.com/story/john-bogle-has-a-warning-f...

It seems a good bet that this warning, like most pre-downturn warnings, will only become obvious during the next major downturn.

Re: Bogle Sounds a Warning on Index Funds

#128

Post by jkulubya »

turc1656 wrote: post #106
jkulubya wrote: post #73

Earlier quoted context omitted.

I think the comment is referring to the canonical list of the constituent securities of an index such as the S&P 500 or DJIA. You pay license fees to S&P to name any fund you create “S&P XYZ Fund”. I suspect you could legally create a fund with the constituents of the S&P 500 without paying them, but you wouldn’t be able to advertise that fact easily.

You would not be able to legally recreate the 500 and just not use the name. We once had a problem within our Custom division (where clients retain the IP but pay us to do everything for them) and one client basically created something that was substantially similar in rules/methodology to another client's product and one client sued the other. Our employees were called to present testimony in court but it was settle…

I’ve read your other comments in this thread and I mostly follow and agree. I’m getting lost on this one though.

How does this monopoly(?) on the 500 work? Aren’t I able to go out tomorrow and buy the different input securities of an index, and market that as “jkulubya’s awesome fund wink wink”? (Easier said than done)

One wrinkle I see with this scheme is that I probably have to publish my own index value because yours is your ip.

Re: Bogle Sounds a Warning on Index Funds

#129

Post by jandrese »

bluGill wrote: post #18
brianliou91 wrote: post #3

This is fascinating. Selfishly though this seems to signal for investors of index funds (such as myself) that they will only continue to be good investments unless major government regulation occurs. Does anyone know of any investment risk to index funds if everyone is now doing it?

The risk is because index funds don't do stock analysis (instead they buy and hold all stocks) they will invest in bad companies and prop their price up. Then when the bad company goes bankrupt (as everyone paying attention knows will happen) the index funds are left holding all the stock suddenly worth nothing. Which is to say the traditional more expensive managed funds that actually pay attention to the fundamenta…

The caveat is that doing active management can get expensive in a hurry, which is why traditional funds tend to underperform index funds. It's cheaper to have some simple rules that a computer can execute and occasionally eat losses than it is to hire a bunch of experts to do tons of work to avoid those losses and end up costing more than you would have lost.

Ultimately the problem domain of monitoring every publicly traded company and prognosticating their actions is huge, and the job is so messy that it will never be cheap. There should be an information theory paper on this somewhere.

Re: Bogle Sounds a Warning on Index Funds

#130

Post by Glyptodon »

fipple wrote: post #119

The summary: if Coke and Pepsi are owned by different guys, Coke will take an action that makes them an additional $1 million, even if (especially if) it causes Pepsi to lose $1 billion. Most commonly, cut prices. 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…

Even without index funds the drive towards large portfolios and diversification would do the same thing. I'd go so far as to say that unified ownership of competing firms by large investors is just unhealthy in general. Not really sure what can be done about it though since many companies are rather multi-industry.
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