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Vanguard Is Growing Faster Than Everybody Else Combined

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Re: Vanguard Is Growing Faster Than Everybody Else Combined

#201

Post by nikcub »

sytelus wrote: post #160

Total market cap of S&P 500 have increased from $13T to $21T from 2012 to 2017 without having corresponding underlying financial growth in companies. This $8T difference feels tantalizingly close to new investment money flowed in via ETFs. I am wondering if current rise in S&P 500 can almost entirely attributed to new money flowing in to ETFs. If this thesis is correct then we can continue to expect more bull market…

> This $8T difference feels tantalizingly close to new investment money flowed in via ETFs

FT says it is about $2T net in the past 8 years, and about a third of volume today[0].

Also an interesting article because it talks about the potential issues on market volatility ETF inflows introduce

[0] https://www.ft.com/content/d12ac93c-a507-11e6-8b69-02899e8bd...

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#202

Post by cylinder »

dsacco wrote: post #163
cylinder wrote: post #161

Well, now's the time to leave equities or go active. I've never heard of anyone getting rich by following the herd.

If your goal is to get rich, sure. But going with the herd isn't necessarily unsafe. The goal of "getting rich" is generally incongruous with passive investing either way. The risk/reward profile of active investing and index fund investing are completely different, so that will be more than a decision of upside you want to pursue.

It remains to be seen how risky passive index investing is now that so much money is in it.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#203

Post by unlmtd »

Unlimited liability is a lie. Equity is liability. Zero is not the floor of DJI. A dollar is 1.5g of gold, so the real 100 year chart is very flat, and that's without re-indexing costs. I'll have the full amount, in species please. Ohh and I didn't even touch on fiduciary risk. If you want to hold equity, have the actual paper certificates in your physical possession. They will tell you that 'we can't do that' but it's BS. Take delivery of your shit, the tide is going out.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#204

Post by yborg »

headmelted wrote: post #125

As a Vanguard customer, I can understand why people are so enthusiastic about their products, and have known for a while that passive investment, and Vanguard in particular, was growing while active management was on the decline. At no point did I think the difference in inflows was anywhere close to 8.5x. And it does worry me. I'm familiar with the contention that even having some active players in the market will a…

>such a small share of such a large market

I think you underestimate the size of the active players in the market, especially considering leverage, which they generally are to the hilt.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#205

Post by hvis »

bdonlan wrote: post #81
ipsum2 wrote: post #70

Earlier quoted context omitted.

> And the bigger indices grow, the larger the opportunities for active traders to profit. I'm having trouble understanding why this is the case. Care to clarify?

Index funds buy or sell blindly, at whatever the prevailing best price is. Naturally, if there were only index funds in the market, the price would vary randomly. That being said, consider what would happen if stock prices did start to vary randomly - if you had actual research suggesting the price was too high or too low, you could trade accordingly. This would net you a profit, and also help push the price in the o…

But the "correct" price is the one the investors are willing to buy at, right?

Imagine that 99.98% of all investors are index funds, and there is a company BigCo that is at some point is at the top of the market. So pretty much every index fund invests in it.

Then suppose BigCo makes some move that would traditionally be a mistake. Like it has some scandal, the sales drop off, etc. Say it even has a bad quarter.

How do I, an active investor (among the remaining 0.02%), make profit from the arbitrage? For the stock price of the company to fall, there'd have to be no buyers at the given price. But the index funds will keep investing in it. Why would it drop off even a little?

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#206

Post by nommm-nommm »

cJ0th wrote: post #100

The fact that Vanguard is growing faster than everybody else combined is interesting indeed. The article itself, however, reads like one big ad for Vanguard. The fact that the NYT is somewhat affiliated with them ("They number well over 20 million and include New York Times employees: Vanguard runs the company’s 401(k) retirement plans.") doesn't help either. What I miss is a critical examination of the situation. Th…

So you can't report on Apple if you own an iPhone?

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#207

Post by zeroer »

hesdeadjim wrote: post #190
zeroer wrote: post #105

Earlier quoted context omitted.

That's really debatable. After 10~15 years of investment in Betterment or Wealthfront, in all likelihood all of your investments will be in the black, and there will be no opportunities for loss harvesting. But you're still stuck paying the 25 basis points per year unless you sell (and thus incur the capital gains, anyways).

I've got a fair bit of money in Wealthfront and tax loss harvesting has directly saved me quite a bit of money over the last couple years. For instance, the beginning of last year was tumultuous and their tax loss harvesting let me realize around ~55k in losses. The market then shot back up and my investments were right back where they were barely a month later. Because I had a source of capital gains in 2016, I basi…

I'm really talking about what happens after you've been invested with them for over a decade. Wealthfront has not yet existed for 10 years, so I know you haven't had your money invested with them for that long. The fact that tax loss harvesting can be beneficial is not in question.

Once you tax loss harvest once, you lower your cost basis on the investment to less than you originally paid. You can only subsequently tax loss harvest on the same security to the extent that the value of the investment is lower than your new lower cost basis. This will become harder as time goes on and you have previously tax loss harvested many securities.

Their white papers all use a timeframe of 10 years to show that Wealthfront is cost effective. I'm pretty sure they don't want customers thinking through all the implications of longer investment time horizons.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#208

Post by Paul-ish »

kolbe wrote: post #162
headmelted wrote: post #125

As a Vanguard customer, I can understand why people are so enthusiastic about their products, and have known for a while that passive investment, and Vanguard in particular, was growing while active management was on the decline. At no point did I think the difference in inflows was anywhere close to 8.5x. And it does worry me. I'm familiar with the contention that even having some active players in the market will a…

> the less active money there is around, the less accurate our concept of a correct value can be The problem is deeper than that. Active shareholders actually give a shit about corporate governance. Collectively, they put honorable and competent people on the board of directors, and make sensible decisions when other issues are put to shareholder votes. Vanguard and other indexing funds could barely care. Their incen…

Some researchers have looked at the effect of passive investors on corporate governance[1] :

> Still, these funds retain the power of voice, the ability to exert shareholder influence on management and governance-related proposals. But critics say passively invested funds, with their lower fees, lack the resources and often the will to monitor their large and diverse portfolios. The Economist calls them “lazy investors.”...

> My fellow researchers and I set out to test that claim. In our forthcoming research paper in The Journal of Financial Economics, we show that passive institutions do indeed positively shape firms’ governance policies. Our findings run contrary to the presumption that passive investors lack the willingness and ability to influence firms’ policy choices.

> The results of our analysis suggests that passive investors affect firm governance in several ways. For example, we found that an increase in passive ownership is associated with a statistically significant increase in the share of independent directors on firms’ boards. In addition, firms with higher passive investor ownership were more likely to remove firm takeover defenses (for example, so-called “poison pills” and limitations on shareholders calling special board meetings). They were also less likely to have the unequal voting rights of a dual-class share structure.

[1] https://hbr.org/2016/05/research-index-funds-are-improving-c...

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