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Bogle Sounds a Warning on Index Funds

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Re: Bogle Sounds a Warning on Index Funds

#181

Post by conanbatt »

eloff wrote: post #156
conanbatt wrote: post #150

Earlier quoted context omitted.

Index-funds also have a huge risk: as they become too large, they become distorting how pricing of companies work: i.e. just IPO'ing gets you purchasers. At some point, the phrase "passive management > active management" will become verifiably false.

This. I haven't heard anybody talking about this before, but it seems like there's an unavoidable tipping point here. I wonder if we've already reached it. Rightly or wrongly I trust my stock picking over an index fund now. At least I can take responsibility for the outcome.

I think just as the market will find a balance between passive/active, individual investors will most likely also find benefit in doing part passive part active.

Re: Bogle Sounds a Warning on Index Funds

#182

Post by conanbatt »

xal wrote: post #160
conanbatt wrote: post #150

Earlier quoted context omitted.

Index-funds also have a huge risk: as they become too large, they become distorting how pricing of companies work: i.e. just IPO'ing gets you purchasers. At some point, the phrase "passive management > active management" will become verifiably false.

It takes a long time and after IPO before useful indexes pick you up.

A bureaucratic detail.

Re: Bogle Sounds a Warning on Index Funds

#183

Post by throwawaymath »

jandrese wrote: post #162
throwawaymath wrote: post #153

Earlier quoted context omitted.

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 interp…

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

This is also incorrect. HFT firms routinely hold positions for days and weeks. It would be inefficient and strange to literally deplete all positions and begin fresh anew each day. Executing orders with extremely low latency is not equivalent to be perfectly symmetric in buy and sell orders.

I encourage you to learn more about the topic you're talking about, because what you're saying is substantially at odds with how the industry actually works. At this point I'm curious how you would define market making, because it's very ironic for me (and anyone else reading) to hear you say these things and talk about what is or is not "an accurate representation of the big picture."

Re: Bogle Sounds a Warning on Index Funds

#184

Post by smileysteve »

ethbro wrote: post #145
jandrese wrote: post #139

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…

> You can get a 50 BMG rifle for a few thousand dollars and put a hole right through an engine block.

So, how does a single, or even a 2 driver truck prevent this TODAY? The only reason I can think is conspiracy felony murder of 1 or 2 people w/ clubs, guns, cell phones has a higher risk than conspiracy felony larceny?

You've concocted a great hollywood heist scene; but if you're Fast and the Furious driving through South America, it's The Rock and the Swat team hanging out in cargo hold you have to worry about; not whether the truck has an autonomous driver or not.

Re: Bogle Sounds a Warning on Index Funds

#185

Post by justin66 »

et2o wrote: post #88
justin66 wrote: post #50

Earlier quoted context omitted.

> If the index funds allow their investors to vote on everything, to some extent they stop being an index fund that passively tracks the market. That doesn't really follow. Tracking the index and voting are two separate concerns. That's part of the point of Bogle's objections (I think - I can't read the article, I can only read about it), that they're involved in management already, even though that's not part of the…

I have to disagree. > Tracking the index and voting are two separate concerns I do not believe this is really true. The entire point of exercising shareholder rights by voting is to improve the performance of the company. A shareholder's decisions might be right (improved stock value) or wrong (reduced stock value), but you can't argue that it's passive involvement in the company. Changes in a company's stock price w…

I don't see you disagreeing that the hypothetical voting shares via proxy is essentially more "passive" than the decision making they're doing now. I believe what you're saying is that they simply shouldn't vote at all.

I guess that's basically the most "passive" option, but it would have some weird results. I believe - and I'm well informed but not an expert when it comes to this - we'd find that at a lot of companies, if you take away the large institutional investors, the portion that remains includes a large number of activist shareholders of various stripes. Those activists would necessarily be strengthened in some ways by the majority of shareholders sitting out every vote.

There's an utterly pretentious Rush lyric that comes to mind, about choosing not to decide still being a choice, or something.

edit: I see that Bogle kind of hit the same point: 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.

Re: Bogle Sounds a Warning on Index Funds

#187

Post by hartator »

Author complains about high barrier of entry to create a new index fund, but all solutions he list are just even more barriers of entry.

The common sense of not putting new laws until clear evil has been observed should be applied here.

Re: Bogle Sounds a Warning on Index Funds

#188

Post by darawk »

walshemj wrote: post #186
darawk wrote: post #176

Earlier quoted context omitted.

A long time. What are you getting at?

So index funds would have to hold AT&T long term.

Did you read what I said about that?

> 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

#189

Post by ethbro »

smileysteve wrote: post #184
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…

> You can get a 50 BMG rifle for a few thousand dollars and put a hole right through an engine block. So, how does a single, or even a 2 driver truck prevent this TODAY? The only reason I can think is conspiracy felony murder of 1 or 2 people w/ clubs, guns, cell phones has a higher risk than conspiracy felony larceny? You've concocted a great hollywood heist scene; but if you're Fast and the Furious driving through…

> So, how does a single, or even a 2 driver truck prevent this TODAY

See my last paragraph.

Defending an unmanned vehicle is the walls vs guards argument: it's far harder to build an impassible, unguarded wall than it is to build a difficult, guarded one.

Re: Bogle Sounds a Warning on Index Funds

#190

Post by xkjkls »

gregorymichael wrote: post #2

A bit click-baity, but the warning here from the father-of-index-funds is not that they've become a bad investment, but that their popularity is leading toward a handful of financial institutions holding controlling interests in most of the largest companies. Pretty interesting unitended consequence.

Yeah, it's not surprise that corporate governance is at its worse state in decades. Too many companies have boards filled with management sycophants who never due real work in guiding corporations in the interests of shareholders.
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