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A Professor Who Was Right About Index Funds All Along

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Re: A Professor Who Was Right About Index Funds All Along

#191

Post by akiselev »

yborg wrote: post #119
nostromo wrote: post #112

Earlier quoted context omitted.

The irony of course is that Buffett became one of the world's richest people by being an active investor.

Precisely by being an investor in the old sense, the sense of being a businessman who allocates capital. He buys entire companies based on his analysis of their financials and management, and then operates them as businesses. He tries to take stakes in companies in deals where he holds an advantage, such as his Goldman Sachs investment. I don't consider him a stock picker, he's a very shrewd businessman.

He's absolutely a stock picker, not a businessman. That's the definition of value investing, which is his self proclaimed mode of investment. He looks for undervalued (by the stockmarket) companies with good cash flow, competent management, room to grow, etc. and waits until the market price catches up to his expectations. Meanwhile, he leaves the management alone to do their best work while reinvesting the cash flow (from dividends) into other undervalued companies. Most financial institutions were probably undervalued after the 2008 collapse so if Buffet saw an undervalued cash flow positive business, that's why he invested.

Re: A Professor Who Was Right About Index Funds All Along

#192

Post by saryant »

stale2002 wrote: post #128
kolbe wrote: post #111

I'm going to use this as an opportunity to yet again rail against the idea of indexing. It's a good thing in theory, but like most things, when it's taken to extremes, it's horrible. Passive investments wherein the investor takes zero interest in these investments are and have always been a terrible idea, and nothing in modern history has facilitated this more than index funds. When you give a friend of a friend $10,…

Then how come index funds get so much return? If index funds are so bad and destroy companies, you would expect them to not get good returns. But that's not the case, they get great returns!

They get the same returns as the market, minus fees.

Since equities have seen great returns post-08, broad-market equity index funds have also seen great returns.

Re: A Professor Who Was Right About Index Funds All Along

#193

Post by aczerepinski »

gist wrote: post #143
nostromo wrote: post #112

Earlier quoted context omitted.

The irony of course is that Buffett became one of the world's richest people by being an active investor.

Often overlooked is the fact that Buffett has used celebrity to his advantage. [1] Buffett gets to do deals (on better terms no less) that others can't as a result of his celebrity and this has been the case for a long long time. [1] In the same way Trump has but with a much better track record.

His returns were better in his early days before he was famous enough to benefit from this, so its hardly the reason he got so rich.

Re: A Professor Who Was Right About Index Funds All Along

#194

Post by AznHisoka »

edanm wrote: post #179
kolbe wrote: post #115

Earlier quoted context omitted.

I appreciate your opinion, but when I see that companies like JNJ are 67% owned by Mutual Funds and Institutional Investors[1], most of whom are low-cost and inactive, it tells me we've gone too far. An I am not advocating for more finance professionals. Paying active managers to invest for you can cause the same problems I'm talking about. I'm advocating for personal responsibility and attentiveness. [1] http://fina…

Do you really think the average stock owner has the ability or training to asses companies, in their spare time? Honest question. I'd answer no, considering that even trained professionals aren't so amazing at it.

I think we as hackers can use our abilities to analyze certain companies better than the professionals.

Example 1: track the Google rankings of companies that rely a lot on search engine traffic. see if any have dropped a lot from a major algorithm change (i.e. Demand Media)

Example 2: use the Facebook graph API to do the same for companies that rely a lot on Facebook for traffic.

Example 3: at the end of every month create a profile on weightwatchers.com. Note the user id number. Use this to extrapolate the number of users that signed up every month.

Example 4: track the number of websites that installed a JS script for vendors like Hubspot.

Example 5: every month scrape Ecommerce sites and track the increase % of reviews for major brands.

Re: A Professor Who Was Right About Index Funds All Along

#195

Post by tedmiston »

0xCMP wrote: post #169
Applejinx wrote: post #130

Earlier quoted context omitted.

What if you get a computer to do it?

Still has fees. Unless you use something like Robinhood through a partner.

There's some gray area with Vanguard ETFs fees [1] for example:

> Vanguard mutual funds & ETFs (exchange-traded funds)

> There are no commissions when you buy and sell low-cost Vanguard mutual funds and ETFs.

> If you buy and sell the same Vanguard ETF® in a Vanguard Brokerage Account more than 25 times in a 12-month period, you may be restricted from purchasing that Vanguard ETF through your Vanguard Brokerage Account for 60 days.

That said, mimicking could entail more than 25 transactions per ETF per year. I don't know that we really have the ability to predict the number of trades that the robo-advisor will do from the outside though.

[1]: https://investor.vanguard.com/investing/trading-fees-commiss...

Re: A Professor Who Was Right About Index Funds All Along

#196

Post by CyberDildonics »

hilop wrote: post #86
jbuzbee wrote: post #23

I'm a big believer in index funds and have been putting my money into them for a long time. But... you have to wonder where this is all ending up as more and more people move to passive index funds. The power of the market is based on millions of individual opinions on the price of a company's stock. On average, over time, these collective opinions will be correct. But say in the extreme case, it got to the point whe…

Alliances Bernstein wrote a Paper arguing that index fund investing is essentially communism -- letting some arbitrary authority control the economy.

Philosophy doesn't have much place when it comes to individual incentives.

Re: A Professor Who Was Right About Index Funds All Along

#197

Post by graycat »

> “I can’t believe that the great mass of investors are going to be satisfied with an ultimate goal of just achieving average returns.”

Ah, instead he believes he can talk "the vast majority of investors" into believing that they can significantly beat "average returns"? Hmm. Maybe in Lake Wobegon.

IIRC the index fund idea, W. Sharpe's work, etc. DOES need stock pickers also doing their best. Or, for anything with any promise in public a stock market, there has to be some smarts in there someplace. The reason throwing darts works so well is because of the stock pickers with the smarts working hard to buy the winners and sell the losers.

Re: A Professor Who Was Right About Index Funds All Along

#198

Post by adventured »

yborg wrote: post #119
nostromo wrote: post #112

Earlier quoted context omitted.

The irony of course is that Buffett became one of the world's richest people by being an active investor.

Precisely by being an investor in the old sense, the sense of being a businessman who allocates capital. He buys entire companies based on his analysis of their financials and management, and then operates them as businesses. He tries to take stakes in companies in deals where he holds an advantage, such as his Goldman Sachs investment. I don't consider him a stock picker, he's a very shrewd businessman.

Buffett made most of his money in deals that were nothing like the Goldman Sachs arrangement. Very few of his big returns provided him any special advantage like that.

His biggest returns for the first 3/4 of his adult life involved him going against the market when equities were out of favor and scooping up extremely large positions in the likes of The Washington Post, GEICO, American Express, Wells Fargo and Coca Cola.

His extraordinary history of stock picking is what enabled him to begin buying entire substantial businesses in the first place. The stock picking is what accumulated the capital necessary to buy Blue Chip Stamps and See's Candies. The Buffett partnerships for example were not built around buying up entire businesses and operating them for decades to reinvest the cash flow, and yet his returns were dramatic - regularly stomping the Dow - during those years precisely because he was such a great stock picker.

Re: A Professor Who Was Right About Index Funds All Along

#199

Post by ThrustVectoring »

jganetsk wrote: post #89
jbuzbee wrote: post #23

I'm a big believer in index funds and have been putting my money into them for a long time. But... you have to wonder where this is all ending up as more and more people move to passive index funds. The power of the market is based on millions of individual opinions on the price of a company's stock. On average, over time, these collective opinions will be correct. But say in the extreme case, it got to the point whe…

Warren Buffett says it's OK, and has an excellent explanation for this. If I recall correctly: imagine you take all the investors in the US economy and put them in a room. Divide the room in halves. One side contains all the active investors, the other side contains all the passive investors. If each side owns roughly half of the economy, their returns will be equal. In that case, it's better to sit on the side with…

"owns roughly half of the economy" is doing a lot of work. It's not necessarily true that the choices that active investors make average out to be roughly equivalent to the choices that passive investors make. Like, the active investors could very well own the better-performing half of the economy, because they put in the work to figure out what portion of the economy is actually worth more than the market thinks it is.

Re: A Professor Who Was Right About Index Funds All Along

#200

Post by tanderson92 »

tedmiston wrote: post #195
0xCMP wrote: post #169

Earlier quoted context omitted.

Still has fees. Unless you use something like Robinhood through a partner.

There's some gray area with Vanguard ETFs fees [1] for example: > Vanguard mutual funds & ETFs (exchange-traded funds) > There are no commissions when you buy and sell low-cost Vanguard mutual funds and ETFs. > If you buy and sell the same Vanguard ETF® in a Vanguard Brokerage Account more than 25 times in a 12-month period, you may be restricted from purchasing that Vanguard ETF through your Vanguard Brokerage Accou…

This clearly only applies to actual Vanguard accounts, not Vanguard ETFs held in other brokerage accounts.
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