Bogle Sounds a Warning on Index Funds • Hacker News Board

Re: Bogle Sounds a Warning on Index Funds

#171

Post by njarboe » Fri, Nov 30, 2018, 9:03 PM UTC

> Force giant index funds to spin off their assets into a number of separate entities, each independently managed. Such a drastic step would—and should—face near-insurmountable obstacles, for it would create havoc for index investors and managers alike.

Set a cap of $1 trillion or $500 billion that any single firm can have under management. This probably only breaks up Vanguard and BlackRock. Not sure how this would cause havoc. Seems like we need to relearn the reason anti-trust laws we passed in the US and start using them again.

I do think Vanguard has been a great boon for American investors and would not like them punished for their success. Not sure how to square that fact with the need to break them up.

Re: Bogle Sounds a Warning on Index Funds

#172

Post by dwighttk » Fri, Nov 30, 2018, 9:09 PM UTC

dj-wonk wrote: post #95

dwighttk wrote: post #86

Earlier quoted context omitted.

you are correct. That's why they don't really compete with each other. You put it on a train for a long distance and then trucks pick it up to spread it out from there.

Sometimes people use "compete" in a casual way that overlooks key economic connections. Competition is a force that is always present, even if it is not currently the "most obvious" factor in play at a given time. I think any definition of competition must be relative to the sphere of economic activity. So, when it comes to transportation in general, rail and trucks do compete -- by this I mean they offer services wi…

that's what my "really" was meant to convey... "they don't compete with each other" would be contra what you said, "they don't really compete with each other" isn't. A different way of saying it is "Trucking is not competitive with trains at certain distances"

Re: Bogle Sounds a Warning on Index Funds

#173

Post by newnewpdro » Fri, Nov 30, 2018, 9:11 PM UTC

chimeracoder wrote: post #117

xenadu02 wrote: post #108

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.

> 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?

Isn't passage through the Panama Canal expensive?

Re: Bogle Sounds a Warning on Index Funds

#174

Post by OrwellianChild » Fri, Nov 30, 2018, 9:17 PM UTC

savanaly wrote: post #163

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…

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.

These are not negotiated activities operating in an environment of collusion. They are the result of separate corporations operating in an environment assumed to be competitive. Individual corporations will take strategic actions that may harm their competitors disproportionately to the benefit they receive. It is not zero-sum, and would be economically value-destructive for shareholders of both (while possibly beneficial for consumers).

Re: Bogle Sounds a Warning on Index Funds

#175

Post by pedrosorio » Fri, Nov 30, 2018, 9:22 PM UTC

ceejayoz wrote: post #134

chimeracoder wrote: post #117

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?

Shipping via Panama doubles the distance, and it's probably half the speed as well. Some products will likely benefit from shaving off two or three weeks from China to the EU.

Why would you ever go through America to ship something from China to the EU? (which are 6/7 time zones apart vs 17/18 going in the other direction)

Re: Bogle Sounds a Warning on Index Funds

#176

Post by darawk » Fri, Nov 30, 2018, 9:22 PM UTC

walshemj wrote: post #166

darawk wrote: 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 ?

A long time. What are you getting at?

Re: Bogle Sounds a Warning on Index Funds

#177

Post by gammateam » Fri, Nov 30, 2018, 9:24 PM UTC

whatok wrote: post #146

gammateam wrote: post #125

Earlier quoted context omitted.

yes, and also 300 companies added female directors nothing exists in a vacuum

Nothing exists in a vacuum just like solely attributing companies adding female directors to a marketing stunt. There was large momentum on this front already that would have happened with or without this.

The point is that this is a positive use of centralized private ownership

The only real rebuttal would therefore be negative uses of centralized private ownership

Re: Bogle Sounds a Warning on Index Funds

#178

Post by nabla9 » Fri, Nov 30, 2018, 9:31 PM UTC

kolbe wrote: post #93

nabla9 wrote: post #59

Earlier quoted context omitted.

As long as there are at least some active investors left they can, because they follow price changes set by active investors passively. If index funds start to create systematic valuation errors, active strategies start to perform better and they start to outperform index funds. This is not the case, because index funds beat active fund management constantly over longer periods. (The article raises concerns of corpor…

>index funds beat active fund management constantly over longer periods This was only the case because 'long periods' include the periods in which free riders (indexes) were small relative to the active and activist shareholders.

This is still the case and nothing indicates that things have changed.

Index funds have two main benefits:

* Lower cost,

* Never miss a new trend. At any moment only handful of stocks are responsible for disproportionate growth and index funds catch them all.

Re: Bogle Sounds a Warning on Index Funds

#179

Post by whack » Fri, Nov 30, 2018, 9:35 PM UTC

scott_s wrote: post #142

jandrese wrote: post #120

Earlier quoted context omitted.

It's a side effect of having real number feedback on how you're doing. Management can't just make up their own metrics anymore, there is a third party that tells you how well you are doing, and that third party wants to see constant growth or they'll start dropping your price and the financial press will pick up on that and start writing articles about how millennials are killing the rail industry. It takes real gump…

Your comment still assumes active investors who are looking for value stocks. Index funds don't discriminate, they just buy stocks in the entire market.

Index funds don't discriminate against stocks, but they can discriminate against directors and executives who don't deliver their desired profits and returns. Ie, by voting them out. This is already starting to happen. See: https://www.barrons.com/articles/passive-investors-are-the-n...

Re: Bogle Sounds a Warning on Index Funds

#180

Post by ethbro » Fri, Nov 30, 2018, 9:52 PM UTC

jandrese wrote: post #168

ethbro wrote: post #145

Earlier quoted context omitted.

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 exceptiona…

Have you ever driven interstate east of the Rockies and west of the Mississippi?

If not, you'd be surprised how bare it is. Especially if automation kills the truck stops.

We'll see. The means are trivial for any enterprising farmer, and I think the moral calculus drastically changes once you remove risk to a human driver from the equation.