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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

#331

Post by kgwgk »

ethbro wrote: post #327
kgwgk wrote: post #325

Earlier quoted context omitted.

Thanks for the detailed response. I don't get the relevance to the question discussed, though (not your fault).

VLM wrote about it excellently from the buyer's side, but I was thinking about it more from the market side. Depending on the weighting method of the index you're tracking (and other indices that include your stocks), the indices need to rebalance purely in response to "price changes happened and reallocation is needed." This requires buying at minimum (or buying and selling as VLM pointed out). That buying moves the…

Passive trackers do not need to rebalance in response to price changes when full replication is used, at least for market-cap weighted indices (I know there are also indices which are not exactly market-cap weighted and rebalance a few times per year, and of course some trading is required when the composition changes).

I think the relevant mispricing introduced by passive investing is the relative one. The question is not that passive investors are driving the S&P 500 index higher than it should. The thing is that they are failing to distinguish company A, which should ouperform because it's doing well, from company B, which should underperform because it's not doing so well.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#332

Post by TheCoelacanth »

ethbro wrote: post #279
scrooched_moose wrote: post #231

Earlier quoted context omitted.

I assume they're basing it on the combined market cap of the S&P 500 [1], the most common passive fund championed by Buffett [2]. At a market cap of $18 trillion, .1% would be $18 billion. Although, they may be basing it on old data, as of March 31 it's closer to $21.2 billion 1) http://siblisresearch.com/data/total-market-cap-sp-500/ 2) https://www.fool.com/investing/2017/02/26/warren-buffett-jus...

I think the question might have been what a "systemic mispricing of 0.1%" means. If the majority of the market is passively rebalancing, does the true value matter or does the weighting swamp it? I see how one would make money on arbitraging pre- and post-90s mandatory rebalancing by major passives. I'm less clear on how one arbitrages difference between the prices passives are investing at and a "true" price.

> I'm less clear on how one arbitrages difference between the prices passives are investing at and a "true" price.

If the market is systematically over-pricing companies, you create a private company and then take it public to cash in on the inflated prices. If the market is systematically under-pricing companies, you buy up a company for less than it is worth, and then run it as a private company for profit-making purposes.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#333

Post by kolbe »

jessriedel wrote: post #298
kolbe wrote: post #243

Earlier quoted context omitted.

Whether they are mentally capable of making good decisions is another story. But presuming those people exist, then the system should at least be structured in such a way that they're incentivized to use them to properly manage their own assets, rather than in more shifty/nefarious ways. Tell me what you think the result of this scenario might look like. A manager wants to conduct an LBO that grossly undervalues a st…

What would you think about a system where a major institution (e.g. Vanguard) holds index funds, but the shareholder voting for each company in those funds is done by a different in-house team whose compensation is tied to the performance of that particular company? (More realistically, you'd just need a different team for each company in a given industry, but one team could vote for multiple companies that don't com…

I don't like it. It suffers from the same problems, but just window dresses them. There's no way to make that team financially culpable without charging fees related to the results, and those fees are largely what people are trying to avoid when using these low lost index funds. And those fees need to be very sizable to be consistent with the value of the decisions they're making.

I think a better approach would be to pass through voting to the owners, but given that most shareholders don't know enough for their vote to be more than a random guess, that wouldn't much solve the problem, either. But at least the people who are affected by the decisions being made are the ones making the decisions.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#334

Post by kolbe »

cowsandmilk wrote: post #300
kolbe wrote: post #239

Earlier quoted context omitted.

I don't know how to say this, but I would trust a common sense understanding of human behavior over research. If there's one rule in life, it's that high finance will exploit legal and immoral loopholes to accumulate wealth, and there is plenty of opportunity for that here, despite the rigorous academic studies done by an institution that is highly connected to the people who can profit off of it.

You claim that Vanguard doesn't care about corporate governance, but that doesn't match their voting record. For instance, at the 2016 Alphabet meeting, they voted for Alphabet shareholders having one vote per share and adoption of a majority vote for election of the board. Those are the very core corporate governance oddities that Alphabet is using to allow the founders and Eric Schmidt to have total control of the…

So you found one anecdote where they cast a meaningless vote in a direction that you agree with (not necessarily the correct direction, but whatever), and you think this constituted a rebuttal to my statements? I'm sure there are hundreds if not thousands of instances where Vanguard voted in a direction you agree with, but that doesn't change my argument.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#335

Post by sf_rob »

zeroer wrote: post #315
grzm wrote: post #294

Earlier quoted context omitted.

Okay, you have me a little confused now :) I read my parent as saying that in order to move investments out of Wealthfront, you'll need to sell and pay capital gains. I read your comment saying this isn't necessarily the case. There seems to be some disagreement here. What am I misunderstanding? The ins and outs of investments and tax ramifications can sometimes seem very opaque to me, so I appreciate any education o…

I stand corrected. I thought they had their own mutual funds that they charge an expense ratio on, but I took a closer look at their site and it looks like they put you in third-party mutual funds from e.g. Vanguard and iShares. Since this is the case, you can just do a transfer-in-kind to another brokerage if you want to leave, and this is not a taxable event. (Sorry for my mistake!)

Looking further, they don't support outgoing ACATS (what most brokerages do), but do support DTC which I'm not at all familiar with[1]. So hopefully you could do Betterment until the TLH stopped being worthwhile and do a direct security transfer to another brokerage.

Although Betterment offers fractional shares, which is confusing, not sure if they're actually ETNs representing fractional ownership of ETFs. I don't know how that works legally.

[1] http://support.bettermentforadvisors.com/customer/portal/art...

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#336

Post by icebraining »

rsync wrote: post #218
headmelted wrote: post #166

Earlier quoted context omitted.

^^ Effectively this. My concern is that if everyone is in the passive investing boat then we're no longer following the market, we're making the market, and it's a big departure from the philosophical under-pinnings behind the idea of passive investing. (We started out letting active players make the market by placing good/bad bets and winning/losing. We got a market that was at least trying to find the right price a…

"My concern is that if everyone is in the passive investing boat then we're no longer following the market, we're making the market, and it's a big departure from the philosophical under-pinnings behind the idea of passive investing." I'm intrigued by your suspicion ... but I can't put my finger on the exact manner that this might play out ... it's really hazy. It seems to me that the effect of everyones money going…

Size-based index funds are just one type, there are others, including ones that track stock of high dividend yielding companies. Just because passive investors aren't trading daily doesn't mean they won't adjust to better funds, forcing companies to pay out.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#337

Post by icebraining »

GFischer wrote: post #169
spcelzrd wrote: post #152

Earlier quoted context omitted.

Buffett would take the other side of that bet. http://longbets.org/362/

Pretty close to finishing. Is Buffett still winning?

He made a recap last year, was winning by quite a bit: https://www.yahoo.com/news/buffett-most-mportant-investment-...

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#338

Post by StavrosK »

snotrockets wrote: post #288
StavrosK wrote: post #134

Earlier quoted context omitted.

I don't know what that is, I'm afraid. Is it something Vanguard would provide? If it's a US government thing, I don't live in the US, I would just like to invest in index funds (so anything that resembles Vanguard is fine with me).

AFAIK there are non-trivial tax liabilities and reporting requirements in the US for non US persons investing in the US. Just to be on the safe side, I wouldn't directly invest in another country without consulting a tax professional first. If you want to invest in a US index, you can probably find a ETF traded in your country of residence that tracks a US index. It'd cost a bit more than Vanguard's, but would cost y…

That's good to know, thank you. I managed to find a good brokerage firm (TD Direct Investing) in the EU, but I didn't know that buying US ETFs would have tax liabilities in the US. I will ask TD, thank you.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#339

Post by StavrosK »

uiri wrote: post #260
StavrosK wrote: post #134

Earlier quoted context omitted.

I don't know what that is, I'm afraid. Is it something Vanguard would provide? If it's a US government thing, I don't live in the US, I would just like to invest in index funds (so anything that resembles Vanguard is fine with me).

SSNs are issued by the Social Security Administration for the purposes of keeping track of social security (read: government-backed retirement pension). The Internal Revenue Service keeps track of taxes and uses SSNs to keep track of all taxes (including payments into social security). Some individuals (such as yourself) are not eligible to receive a SSN. For those individuals who need an identification number for US…

Oh, thank you, that's good to know. I would rather not get involved in this if I can help it, I'll have to figure out something else, thanks again.

Re: Vanguard Is Growing Faster Than Everybody Else Combined

#340

Post by peferron »

StavrosK wrote: post #134
peferron wrote: post #109

Earlier quoted context omitted.

Can you request an ITIN?

I don't know what that is, I'm afraid. Is it something Vanguard would provide? If it's a US government thing, I don't live in the US, I would just like to invest in index funds (so anything that resembles Vanguard is fine with me).

Sorry, I missed the part where you mentioned living in the EU. One of the siblings comments has a good explanation for ITINs. My wife used hers to open a Vanguard account despite having no SSN at the time. She did have a visa and a US address though, so I'm not sure how it would work for you (and if it would be worth the trouble; probably not).

I'm a French citizen, and wish I could help you regarding investing in the EU, but unfortunately I only got interested in it after moving to the US. Back in France it seemed like most people invested in real estate rather than in the markets.

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