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Bogle Sounds a Warning on Index Funds

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Re: Bogle Sounds a Warning on Index Funds

#191

Post by xkjkls »

xenadu02 wrote: post #109
jonknee wrote: post #99

Earlier quoted context omitted.

The pressure to increase profits exists regardless of ownership, if anything having large institutional funds own the majority lessens the pressure (vs an activist fund or something similar). If they're leaving money on the table someone is going to take it.

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.

I'd say it's a lie that Wall Street is known for short term thinking. Hell, it is even a unofficial motto of Goldman Sachs to "be long-term greedy".

Are there a large number of activist investors who want certain companies to trim fat? Yes. I wouldn't always say that trimming fat is always synonymous with short term thinking. For all the companies that are underinvesting in the future, there are 5 whose management has given them mission creep to invest in areas that incinerate capital. Especially in the current interest rate environment.

Re: Bogle Sounds a Warning on Index Funds

#192

Post by dmoy »

pedrosorio wrote: post #175
ceejayoz wrote: post #134

Earlier quoted context omitted.

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)

Northern China -> UK by container is like in the neighborhood of 5+ weeks.

China -> US is around 2 weeks, US -> EU is around 1 week.

So depending on where it was coming from, might make sense?

I dunno enough about the routes.

Re: Bogle Sounds a Warning on Index Funds

#193

Post by walshemj »

soVeryTired wrote: post #34
mcguire wrote: post #29

Earlier quoted context omitted.

How do these financial institutions vote their shares?

Blackrock have a history of rubber-stamping executive pay packages. In the past, they've voted in favour of proposed CEO pay packages in something like 99% of cases. Some people have argued that doing so benefits Blackrock execs themselves because high pay then becomes the norm. https://www.pionline.com/article/20170418/ONLINE/170419868/b...

Which is why I preferer UK Investment Trusts I can vote on the board and their remuneration.

Re: Bogle Sounds a Warning on Index Funds

#194

Post by xkjkls »

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…

Exactly. Once an index fund is making active decisions about the management of a company, it's no longer a passive investment vehicle (though they never really are in the first place, given indexes like the S&P 500 are decided by a committee).

Re: Bogle Sounds a Warning on Index Funds

#195

Post by james_s_tayler »

jandrese wrote: post #139
ethbro wrote: post #133

Earlier quoted context omitted.

Given: (1) sensors necessary to autonomously navigate, (2) large stretches of rural America (out west, maybe 100+ miles to the nearest police station), (3) adaptable human adversay, (4) no humans to injure on the vehicle ... I just don't see how you economically protect a vehicle (vs cargo value). And more sensors simply mean more things to steal. The minimum law enforcement response time along your entire route is t…

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…

As my IT teacher always used to say "don't go to jail for 50 bucks, go for 50 million"

Re: Bogle Sounds a Warning on Index Funds

#196

Post by pedrocr »

This seems quite easy to fix. Just give me the option of voting my shares in the underlying companies of the index funds I own. I just want to own the market average but I'm happy to be an activist investor in the decisions I happen to care about.

Index funds may even want to differentiate themselves by having good research teams to advise me on what to decide and having convenience options where I get to set specific generic voting policies that they will then implement automatically for me.

Re: Bogle Sounds a Warning on Index Funds

#197

Post by xkjkls »

pdog wrote: post #82

Of the proposed solutions, some combination of the following three items would be a solid first step (incremental without being too drastic): * Full public disclosure by index funds of their voting policies and public documentation of each engagement with corporate managers. * Require index funds to retain an independent supervisory board with full responsibility for all decisions regarding corporate governance. * Ma…

> Make it clear that directors of index funds and other large money managers have a fiduciary duty to vote solely in the interest of the funds’ shareholders.

That's easy to say, but deciding what the shareholders interest is can be incredibly difficult. On any difficult decision, like "should this merger be approved", index funds taking any position is the same as active management.

Re: Bogle Sounds a Warning on Index Funds

#198

Post by xkjkls »

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?

I'd say this article probably overstates risks. US Equities are only about 30% passive, depending on how you measure it, and there probably is substantial run-rate for an even greater concentration.

Here's a pretty good article: https://www.aqr.com/Insights/Research/Alternative-Thinking/A...

Re: Bogle Sounds a Warning on Index Funds

#199

Post by gomox »

turc1656 wrote: post #104
gomox wrote: post #41

Earlier quoted context omitted.

I find your comment fascinating but even though I think I understand perfectly what an index fund is, I don't quite understand what it is that S&P sells for so much money. Could you clarify this for me? I.e. who buys from you, and what is it they buy?

jkulubya's comment is largely correct. And you most likely do understand what an index fund is. It's just that most people don't realize there are two sides to the product - the theoretical and the real. The index is a theoretical product (intellectual property). The fund is the real-world implementation. A fund manager takes a look at one of our S&P products and says "I want to make a fund off this" and S&P contract…

Very interesting. I always assumed that the SP500 index composition was some sort of loss leader for SP where the brand awareness created by the SP500 name served as proof of legitimacy for some other service.

Never thought the index composition could be a cash cow in itself. Im intrigued at how the IP is protected, in legal terms (i.e. what exactly is copyrighted or patented or trademarked or trade secrets), if you are able to comment on that aspect?

Re: Bogle Sounds a Warning on Index Funds

#200

Post by xkjkls »

koboll wrote: post #40
alehul wrote: post #9

Earlier quoted context omitted.

Index fund investors are classified as "passive investors," while others are "active investors." The main investment risk to index funds growing is that, if everybody is a passive investor, then the passive investors are worse off as there are very few active investors who actually try and value companies appropriately. On the other hand, if the market is littered with active investors, then the market is likely more…

As an "active investor" your competition is HFT algos on servers located as physically close as possible to the stock market in order to achieve superhuman reflexes. Which you have absolutely zero hope of beating. I'd rather see slower, predictable gains than bet my nest egg trying to go toe-to-toe with hyperefficient machines -- or hand it off to some Manhattan finance bro making that bet on my behalf.

> As an "active investor" your competition is HFT algos on servers located as physically close as possible to the stock market in order to achieve superhuman reflexes.

That's usually not true at all. HFT makes up a huge portion of market volume, but for almost all investors is basically negligible to their return, despite what Michael Lewis might scare you into believing. HFT firms make a comparatively small profit in the universe of Wall Street, so they aren't eating your returns.

That's not to say actively managing your money is not difficult. You're mostly competing against sophisticated investors and firms with a far greater capital and knowledge base than you. It's just that in general, the majority of capital being bet against you is not from High Frequency Trading

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