Live data from Hacker News

Bogle Sounds a Warning on Index Funds

wsj.com

161–170 of 234 posts

Re: Bogle Sounds a Warning on Index Funds

#161
> Limit the voting power of corporate shares held by index managers. But such a step would, in substance, transfer voting rights from corporate stock owners, who care about the long-term, to corporate stock renters, who do not... an absurd outcome.

This sounds like the most viable strategy to me. Just don't let index funds vote. I don't understand his objection at all. The index fund managers are not long term investors in these corporations. The people who own the index's shares are, and they are deferring their votes to the managers right now.

Re: Bogle Sounds a Warning on Index Funds

#162

Earlier quoted context omitted.

HFT is basically a tax on each transaction that gets applied because you don't have as accurate a view of the market as the guy who is down on the wire. If you're strategically buying shares in a company and holding them then HFT is not your competitor. If you're a day trader trying to flip stocks by holding them for a couple of seconds at a time HFT is why you're bankrupt. But it's also not true that HFT folks creat…

Your second and third paragraphs are incorrect. Day traders flipping stocks every few seconds won't lose money because of HFT firms, they'll lose money because of trading fees. Trading every few seconds is a wildly unrealistic strategy for most people to pursue on their own. On an average, per-trade basis the fees associated with buying and selling are several orders of magnitude higher than the profit margins of any…

At the end of the day how much position does a HFT firm hold? If nothing has gone wrong it is zero.

Just because they're stuck holding the bag on trades that end up being cancelled sometimes and have to wait for them to unload doesn't means they're making markets. If a market doesn't already exist the HFT firm is not going to create it.

They absolutely do increase the volume figures on markets, and that can be interpreted as making markets, but it's not an accurate representation of the big picture.

Re: Bogle Sounds a Warning on Index Funds

#163
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…

If Coke could take an action that would make them $1 million but cost Pepsi $1 billion, why wouldn't the two companies come to an agreement for Pepsi to pay Coke a one time sum of X where X is between $1m and $1b for Coke to not do it? A single entity owning both corporations should not be necessary for the efficient outcome to occur in this hypothetical.

Re: Bogle Sounds a Warning on Index Funds

#164

Earlier quoted context omitted.

> Believe it or not, sometimes products are unloaded on one coast, transported by rail, then loaded on a ship on the other coast. 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?

Because if you're in Kansas, there is no water route to the Pacific Ocean?

The original quote was this:

> sometimes products are unloaded on one coast, transported by rail, then loaded on a ship on the other coast.

Not sure how Kansas is relevant...

Re: Bogle Sounds a Warning on Index Funds

#165
post #138

Earlier quoted context omitted.

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.

If you can reduce legal risk(accidents) by 50x or 100x and extend the road time by 2x or 3x, then paying a security person seems like a doable call. Especially if you can pass some of that premium risk mitigation on to the customer, if load value dictates. Raw hourly cost may not even be the primary point under the manpower line of reasoning. It is certainly important, but not necessarily the key issue.

You can't increase road time with a human driver at the wheel, that's a safety issue.

While it's already dubious to hire a driver for an autonomous truck, it's even sillier to pretend that the driver is useful when you're having the truck do the work while the driver sleeps. Extending road time by 3x means running the truck 24 hours a day, and keeping a person awake that long will not improve safety.

Re: Bogle Sounds a Warning on Index Funds

#166
post #161

> Limit the voting power of corporate shares held by index managers. But such a step would, in substance, transfer voting rights from corporate stock owners, who care about the long-term, to corporate stock renters, who do not... an absurd outcome. This sounds like the most viable strategy to me. Just don't let index funds vote. I don't understand his objection at all. The index fund managers are not long term invest…

How long has AT&T been in the dow jones index or IBM or Coca Cola ?

Re: Bogle Sounds a Warning on Index Funds

#167
I don't understand why this is a problem. The actions of index fund managers are constrained enough to be almost automatic (hence the rock bottom fees). They just balance the portfolio to track an index. With this constraint, how does it give them power over corporations?

Re: Bogle Sounds a Warning on Index Funds

#168
post #145

Earlier quoted context omitted.

These thieves have to steal from a moving vehicle? Sure it's not impossible, but it's more Hollywood heist than something you'd see in real life. It will almost certainly happen a few times, but for practical purposes the amount of stuff stolen before the guys are caught will be less than what it costs to hire tens of thousands of rent-a-cops to sit in the backs of trucks. Plus, these are thieves we are talking about…

You can get a 50 BMG rifle for a few thousand dollars and put a hole right through an engine block. Unload truck at your leisure. That's not even getting into ways to make an automated system stop by putting up an emergency / stop sign in the middle of the road. The risk to stealing is directly proportional to the chance of getting caught, which broadly correlates into something unexpected happening, which is drastic…

This assumes the truck has no way to call for help when something goes wrong, or that people driving on the same road won't call the cops on you. Long haul trucking doesn't usually happen on deserted backroads.

I'm just saying that the worry about theft is probably overblown. It's almost certainly going to be rare enough that a regular insurance policy will be sufficient protection. People can be hired for exceptional cargo, but that's true today too.

Re: Bogle Sounds a Warning on Index Funds

#169

Earlier quoted context omitted.

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 yo…

Think of the 500 (or any index strategy) as being like a story and the methodology is like the book that tells the story. You can't rip off our story and write your own book that essentially plagiarizes the 500 and claim it as your own. If you were to, for example, write a story about a rich kid who's parents were murdered and when he grew up he became a vigilante who wore a disguise to conceal his identity and worked with the chief of police to fight corruption in his city, I have a feeling you might get sued. This happens in the movie industry from time to time. That's why script readers are exceedingly careful on what they read because there have been a number of cases where someone submits a story which then gets passed along but eventually passed-on and then a while later the studio ends up making a movie written by someone else who submitted a scrip with similar story elements and the studio gets sued by the first writer claiming they ripped them off and just paid someone else to rewrite their story. Sometimes it's true, sometimes it's not.

The reason this same legal principal applies to index products is because it's surprisingly difficult to even match an index's composition and weighting even with the methodology document in hand. So the odds of you creating your own strategy and that just so happens to be damn near identical to another index is essentially impossible. So just like the entertainment businesses, they look at it on a case by case basis and examine whether or not the "spirit" of the strategy has been violated or it's creative elements have been stolen. It's done case by case because it can get pretty nuanced and subjective just like music, books, and films.

Re: Bogle Sounds a Warning on Index Funds

#170
post #141

Earlier quoted context omitted.

Not really; you can look at BNSF (bought by Buffet) vs Union Pacific. Buffet takes the long view, as a result BNSF has been spending billions on capital projects and hiring. Wall St is known for encouraging short-term thinking.

BNSF is spending money on capex because it's the smart thing to do in that industry right now. That's not a consequence of a Buffet investment. Buffet also invested in Heinz and they immediately fired thousands and are cutting costs left and right.

Buffett lays out some reasons why it's tougher for brands like Heinz.

https://www.cnbc.com/video/2018/05/07/buffett.html

Post reply on HN