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Jack Bogle, RIP
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iSteve commenter Grumpy observes:

“It’s amazing how difficult it is for a man to understand something if he’s paid a small fortune not to understand it.” — John C. (“Jack”) Bogle (paraphrasing Upton Sinclair).

Mr. Bogle was referring to money managers, but his observation probably explains most of the willful ignorance that Mr. Sailer has been pointing out for years.

Mr. Bogle died today, at the age of 89.

From the NYT obituary:

Mr. Bogle built Vanguard, which is based in Malvern, Pa., on a cornerstone belief that was anathema to most mutual fund companies: that over the long term, most investment managers cannot outperform the broad market averages. He popularized and became the leading proponent of indexing, the practice of structuring an investment portfolio to mirror the performance of a market yardstick, like the Standard & Poor’s 500 stock index. …

“My ideas are very simple,” he told the financial columnist Jeff Sommer of The New York Times in 2012. “In investing, you get what you don’t pay for. Costs matter. So intelligent investors will use low-cost index funds to build a diversified portfolio of stocks and bonds, and they will stay the course. And they won’t be foolish enough to think that they can consistently outsmart the market.”

Vanguard is now managing (not very actively) $4.9 trillion. Indexing makes sense based on the Efficient Markets Hypothesis, but what happens when Vanguard takes over the world? Does the EMH still work if most everybody is trying to free ride on those few who do try to outsmart the market?

 
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  1. Dave Pinsen says: • Website

    Peter Lynch called indexing “immoral” because he thought it impeded the capital allocation function of the market.

    • Replies: @Dieter Kief
    , @Anonymous
  2. Buck says:

    Are blue chips overvalued because of the success index funds? What are the valuations between the 500th company in the S&P and the 501st? Or that mid cap which just missed being in the Russell?

    Vanguard’s low rates definitely attracted me when I started investing as a young man in the 90’s although I went with a competitor. Bogle really helped people like me who hate the wisdom of “experts” and the outrageous fees they attached to their advise. It is so easy to buy an index fund and forget about it, knowing you aren’t getting hammered in fees and can just check the ticker to see how you are doing.

    • Replies: @RVBlake
    , @rufus
    , @Anonymous
  3. from Bogle’s wkipedia article FWIW:

    Politically, Bogle was a registered Republican, although he voted for Bill Clinton in both the 1992 and 1996 United States presidential elections, as well as for Barack Obama in 2008 and 2012.

    Another capitalist proudly supporting an Obamanation

    WTF?

    and of course a never-trumper:

    https://www.cnbc.com/video/2017/01/12/bogle-trumps-long-term-policies-bad-for-society-economy-and-market.html

    Bogle: Trump’s long-term policies bad for society, economy and market
    10:18 AM ET Thu, 12 Jan 2017

  4. Anonymous[420] • Disclaimer says:

    At first I thought you were talking about Bob Bogle, co-founder of The Ventures, and I was sad. But then I checked and the guy has already been dead ten years.

    Oh well.

    Bob Bogle
    From Wikipedia, the free encyclopedia

    Bob Bogle
    Birth name Robert Lenard Bogle
    Born January 16, 1934
    around Wagoner, Oklahoma
    Died June 14, 2009 (aged 75)
    Vancouver, Washington, United States
    Genres Instrumental rock, surf rock
    Occupation(s) Musician
    Instruments Guitar, bass guitar
    Years active 1958–2009
    Associated acts The Ventures
    Website http://www.theventures.com

    Robert Lenard Bogle (January 16, 1934 – June 14, 2009) was a founding member of the instrumental combo The Ventures. He and Don Wilson founded the group in 1958. Bogle was the lead guitarist and later bassist of the group. In 2008, Bogle and other members of The Ventures were inducted into the Rock and Roll Hall of Fame in the Performer category.[1]

    Born near Wagoner, Oklahoma, Bogle worked as a bricklayer in California from the age of 15. A self-taught guitar player, Bogle met Don Wilson in Seattle in 1958, where they worked together on construction sites. They went on to form a band, The Versatones, which evolved into The Ventures. Bogle’s lead guitar on the Ventures’ 1960 cover of “Walk, Don’t Run” helped to influence the next generation of guitarists including John Fogerty, Steve Miller, Joe Walsh and Stevie Ray Vaughan. Bogle’s use of the vibrato arm was particularly notable.

    The Ventures’ song “Wild Child” was sampled by the Wiseguys on “Start the Commotion”, giving Bogle his only hit writing credit on the British charts, reaching number 47 and spending 2 weeks on the chart.

    Death

    Bogle died at age 75 on June 14, 2009 from non-Hodgkin lymphoma in Vancouver, Washington.

    • Replies: @tyrone
  5. Does the EMH still work if most everybody is trying to free ride on those few who do try to outsmart the market?

    Why not? Angel investors (and those wealthy individuals who wish to follow their lead in the hope of striking it rich) will still have massive incentives to find the next Google or Apple or Facebook, and more traditional companies will still pay dividends to investors, which gives those older companies an inherit value beyond their current stock valuation.

    Over the long term, the real value of public companies and the real value of the economy grow pretty much in lockstep. That implies there’s no free ride. The noise in the stock market evens out in the end, ultimately reflecting the real underlying value of the companies in it.

    Jack Bogle was a genuinely great man who is not nearly as famous as he should be.

  6. Regarding Sailer’s final sentence, there is an academic literature on that, initiated by Grossman and Stiglitz. Securities markets must retain a small degree of investment profit opportunities so that investors will go to the trouble of eliminating profit opportunities! Securities markets can be close to perfectly efficient, but not exactly perfectly efficient, or else no one would bother to trade actively in hopes of finding profit opportunities. Most people can hold index funds, but if absolutely everyone does so, the system breaks down.

  7. vinny says:

    RIP Jack Bogle, saved us all a lot of money and forced the industry to pretend, at least, to work for its clients.

    To Steve’s second point about all the companies potentially being owned by Vanguard, Matt Levine writes about this a lot and is enjoyable on this and many other financial topics https://twitter.com/matt_levine

    (I was annoyed when Cockburn died and I had never read him despite a bunch of writers I like memorializing him after he passed. Why couldn’t I have heard of him when he was active? I thought. So I try to pass along enjoyable active writers)

    • Replies: @Lot
  8. Vanguard is now managing (not very actively) $4.9 trillion. Indexing makes sense based on the Efficient Markets Hypothesis, but what happens when Vanguard takes over the world? Does the EMH still work if most everybody is trying to free ride on those few who do try to outsmart the market?

    Good question indeed.

  9. V says:

    Does the EMH still work if most everybody is trying to free ride on those few who do try to outsmart the market?

    They’re not free riding; they’re paying. The more dumb money there is executing on a balancing strategy, the more profit potential there is in predicting which ones will be more valuable later. I think the risk is more that the balancing strategy loses in volatile environments, and so you might end up with the index fund and the anti-index fund, which is artificially driving up the price of stock A (which will then cause the balancer to buy more of it, further driving up the price / allowing the fund to cash out), but here you run into cartel problems (or people trading against you, since you have to put the money up ahead of time).

  10. Anonymous[243] • Disclaimer says:
    @jesse helms think-alike

    As of February 2017, Bogle had a net worth of $80 million USD according to Business Insider.

    Meanwhile Kylie Jenner, a 21-year old reality TV and social media personality is worth $900 million.

    • Replies: @J.Ross
    , @Anonymous
  11. vinny says:

    Imagine buying a mutual fund with a load in the Current Year.

    • LOL: E. Rekshun
  12. …what happens when Vanguard takes over the world? Does the EMH still work if most everybody is trying to free ride on those few who do try to outsmart the market?

    That will never happen. Just as there will always be lots of gamblers going to casinos, and some who will beat the odds, there will always be a lot of investors going to managed funds and individual stocks.

    It’s human nature, and there will always be fund salesmen (mea culpa) to cater to it. There will also always be geniuses who will come up with new algorithms and programs, and large investors employing their own management, but for most people indexing is the wisest way to profit from the big game the others will always play.

    And of course there will always be market manipulators who play their own special role in making prices. They will move large blocks of stock and never buy Vanguard.

    Jack Bogle did a great thing and served the needs of conservative investors, but it could also be said that fund managers serve the great number of people who have a need to risk coming in second for the chance to come in first. Most well-managed mutual funds don’t lose terribly, they just get beat, that’s all.

    • Replies: @NoWeltschmerz
  13. @Pincher Martin

    That’s a point that should be meditated on more often, and it puts paid to the whole suite of assumptions underlying Keynesian monetary stimulus. It does not matter what the quantity of money is; it can be any arbitrary amount. At the end of the day, the quantity of money in the economy will precisely purchase the amount of goods and services produced by the economy, minus whatever consumption was deferred (i.e. savings)—no more and no less. Obviously it cannot be any other way. Speculative gains can always be gleaned out of the price action, but any speculative gain is someone else’s speculative loss, and it does not affect the amount of real, total wealth one way or another. The two (and only two) fundamental modes of economic life are the acquisitive and the productive: One can either take scores or grow value. The productive is the primary mode, as it determines what wealth there is to be disposed of in the first place, whilst the waves of acquisition move to and fro across the surface of what has been grown. The two are in all essential details basically different, yet in the nonce everything is intertwined such that it is only the passage of time which separates the incidental from the fundamental.

    • Replies: @Pincher Martin
  14. Markowitz won a Nobel Prize over a half a century ago proving the best way to invest was to have a diversified portfolio. Bogle found a way for the average person to utilize this insight to generate wealth. Averaging 7% returns (post management fees) may not seem so sexy, but over 20 – 25 years the cash piles up.

    Bogle was a great and good man. Made it possible for people like my school teacher parents to retire in upper middle class comfort when their combined incomes got into 6 figures for only a few years at the end of their careers. Also made it possible for me to effectively achieve a 50% discount for my children’s college education. (More than 50% of the 529 account I use to pay for them is made up from investment returns).

    For anyone in the middle class, wealth is achievable via thrift, disciplined savings and time.

    • Replies: @danand
  15. J.Ross says: • Website
    @Anonymous

    I’m okay with some hollow nobody having more than I can ever have so long as I can have something.

  16. Does the EMH still work if most everybody is trying to free ride on those few who do try to outsmart the market?

    Classic question. Answered by Grossman & Stiglitz in one of the most famous papers of the century.

    I see there’s a Wikipedia article about it: https://en.m.wikipedia.org/wiki/Grossman-Stiglitz_Paradox. What I’d add to that article is that an equilibrium gets established in which the return to “fundamental research” equalizes to its cost. Worth trying to read the original AER piece.

    • Replies: @International Jew
  17. Anonymous[420] • Disclaimer says:
    @Anonymous

    Meanwhile Kylie Jenner, a 21-year old reality TV and social media personality is worth $900 million.

    I thought Madge was impressive for having made $590 million by 60. Silly me.

    Taylor Swift is only worth a paltry $320 million, but then again, she isn’t 30 yet.

    By contrast, 73 year old Debbie Harry, without whom Madge wouldn’t have had a clue (as she admits) is said to be worth a miniscule $20 million. However, half of that might be the Andy Warhol portrait of herself she keeps on her wall-or maybe more; Warhols always astound at auction, and D was his favorite pop star by his own admission.

    • Replies: @Redneck farmer
  18. @International Jew

    I meant, that’s what I’d add to the Wikipedia article. Not to Grossman & Stiglitz’s article, because they already make that point!

  19. Thomm says:

    I am surprised that he was ‘only’ 89, since even 15 years ago he looked like he was well into his 80s.

  20. @Peter Johnson

    Oops, I wouldn’t have posted my comment if I’d seen this first. I think your summary is better than mine (and way better than Wikipedia’s).

    • Replies: @Peter Johnson
  21. Lot says:

    “Does the EMH still work if most everybody is trying to free ride on those few who do try to outsmart the market?”

    It isn’t a matter of EMH not working. It is more a force that can be stronger or weaker.

    There is an equilibrium where indexing weakens EMH to the point where active management becomes worth the fees.

    • Replies: @Pincher Martin
  22. Jack Bogle = Bagel jock.

    • Replies: @Hibernian
  23. @Pincher Martin

    Over the long term, the real value of public companies and the real value of the economy grow pretty much in lockstep. That implies there’s no free ride. The noise in the stock market evens out in the end, ultimately reflecting the real underlying value of the companies in it.

    Yes, and rising stock markets lift the prices of most stocks and funds, therefore, most managed funds gain even though they might not gain as much as the index. Many people have a need to try to bet on a winning horse, and they will still make money in a rising market, just usually not as much as an indexer will. That is why Vanguard will never take over the world, and not even the mass market of ordinary investors.

  24. Lot says:
    @vinny

    “saved us all a lot of money”

    Between Vanguard and online brokers, the ability to invest with almost no fees of any sort in hundreds of companies is a modern marvel.

    I don’t think you missed much with Cockburn. He had a fine personal writing style, but was still a lousy looney communist. His website published many viciously anti-American and anti-white articles.

  25. dvorak says:

    Costs matter.

    Active managers have one of the most brilliant ways to be overpaid – describe your fees in terms of something large and irrelevant (assets under management) rather than the relevant metric (fees compared to services/benefit rendered).

    For an average stock fund, an 8% return before a ‘1% management fee’ represented a true fee of 12.5% deducted from the return. And that was before index funds were invented. Today, if your active manager beats the index fund by 1% on average (a nice feat), their ‘1% fee’ represents a true fee of 100% over the index fund services-rendered.

  26. @Lot

    Does the EMH still work if most everybody is trying to free ride on those few who do try to outsmart the market?

    That’s a great way of putting it.

  27. @International Jew

    Thanks.

    To prove his theoretical point, Sanford Grossman quit academia and went off to make himself exceedingly rich as a hedge fund manager. So I guess he showed by example that markets are not exactly efficient, and not everyone should hold index funds.

  28. Dan Hayes says:
    @Lot

    Lot:

    Cockburn was a mixed bag of the good and bad. Sometimes he could be very good, witness the fact that he was sometimes published in the website of Chronicles the paleoconservative magazine. And more to the point, one of his lineal ancestors did a valorous wrecking job on the White House and DC – proving that not all limeys are bad (but most, of course, are!).

  29. @Intelligent Dasein

    That’s a point that should be meditated on more often, and it puts paid to the whole suite of assumptions underlying Keynesian monetary stimulus.

    I think a discussion about Keynesian economics is a different matter. The focus is on the short term, not the long term.

    Money in an economy can sit still in fear. It stops moving because people and institutions stop spending and investing. That has nothing to do with the amount of money available in the economy.

    Keynes understood that. So a Keynesian stimulus, whether tax cuts or government spending, is not about the amount of money available in an economy, but about it’s velocity – i.e., how frequently it is used.

    The idea of the Keynesian stimulus – properly done, and I don’t think it is ever properly done when it is deliberately done – is to churn a moribund economy.

    Most investors (whether indexers or not) don’t really care about any of that. I did say that the real value of companies and the real value of the economy were equivalent “over the long term,” but as Keynes famously quipped, the long term can often be too long for some people.

  30. @Buzz Mohawk

    Yes, and rising stock markets lift the prices of most stocks and funds, therefore, most managed funds gain even though they might not gain as much as the index. Many people have a need to try to bet on a winning horse, and they will still make money in a rising market, just usually not as much as an indexer will. That is why Vanguard will never take over the world, and not even the mass market of ordinary investors.

    Not to mention that most 401(k)s I’ve seen have a terrible selection of investment choices that force a lot of money from individual investors into managed funds of questionable value.

  31. @Dave Pinsen

    Well, indexing for sure was a threat to Peter Lynch’s business model, so he does what he can (not much in terms of sound arguments, if you ask me), to make indexing look bad.

    • Replies: @Carol
  32. Travis says:

    the number of publicly listed companies has plunged since 1998. The number of public companies in the US halved between 1998 and 2018. In 1974, Wilshire Associates created the Wilshire 5000, an index of 5,000 stocks that represented nearly the entire stock market. As new companies went public, the index expanded over the years, reaching a peak of 7,562 on July 1998. Since then, the number of companies has been cut in half to 3,600.

    Fewer and fewer firms are going public since 2001. From 1980 to 2000 there was an average of 325 companies every year that went public. Since then that number has dropped to an average of around 150 a year.

    Leveraged buyouts and mergers are reducing the number of publicly traded firms. Companies are spending nearly all of their profits on stock buybacks, reducing the number of shares available to the public, The private takeover of the financial markets is apparent, as more money is raised privately each year instead of via the public markets. If the IPO market continues to dry up and companies maintain their buybacks, eventually, they will run out of stock to buy, and the stocks market will disappear. The current rate of dieback, if sustained, would see the number of listed companies dwindle to less than 1800 in 20 years. the S&P 500 may well only include 400 firms by then (since most equities do not qualify for the index, because they are too small)

    • Replies: @keuril
    , @coburn
  33. Indexing goes along perfectly well with the logic of the investment market. You gain in security for your investment by indexing and you lose in profiting. In this context of system rationality, there is just no place for morality – and the idea of the free ride is at least tinged with morality – but misleadingly so, in this case.

    • Replies: @Pincher Martin
  34. Tyrion 2 says:
    @Peter Johnson

    Did their work account for how easy it would be to manipulate the market if there were only a small number of active investors and everyone else was an index fund?

    • Replies: @International Jew
  35. Not to be morbid, but it would be interesting to know if his family goes with a cardboard casket.

    • Replies: @RadicalCenter
    , @Anonymous
  36. RVBlake says:
    @Buck

    I went with Vanguard 20 years ago and always did well, only re-allocating once, in 2008, to counter effects of the meltdown. RIP, Jack.

  37. @Anonymous

    I can see the NYT obituary now:Steve Sailer: The columnist of racism, golf courses and Blondie.

    • Replies: @rufus
    , @midtown
  38. anon[309] • Disclaimer says:

    any inefficiencies caused index funds will increase the payoff for the intelligent investors and mutual funds able to exploit the inefficiencies. the system will stay in dynamic equilibrium. worries about index funds are overblown and often given by individuals and entities with a vested interest in being able to continue fleecing with fees.

    • Replies: @Simply Simon
  39. Sean says:

    Unknown unknowns; things we don’t know we don’t know. You are in Taleb territory.

    Also Taleb’s admirer John Gray, and Gerd Gigerenzer.

    https://www.edge.org/conversation/gerd_gigerenzer-smart-heuristics
    We have done studies with Daniel Gray Goldstein in which we ask Americans which city has more inhabitants — San Diego or San Antonio? About two-thirds of my former undergraduates at the University of Chicago got the right answer: San Diego. Then we asked German students — who know much less about San Diego and many of whom had never even heard of San Antonio — the same question. What proportion of the German students do you think got the answer right? In our study, a hundred percent. They hadn’t heard of San Antonio, so they picked San Diego. This is an interesting case of a smart heuristic, where people with less knowledge can do better than people with more. […] We let this run for six months, and after six months the portfolios containing the highest recognized stocks by ordinary people outperformed the randomly picked stocks, the low recognition stocks, and in six out of eight cases the market and the mutual funds.

    • Replies: @Steve Sailer
  40. ic1000 says:

    Sensible and insightful replies to Steve’s EMH question, thanks reg’lar commenters!

  41. @Sean

    The latest estimates are that San Antonio has more people than San Diego. Texas has laws that let big cities annex suburbs while California doesn’t.

    • Replies: @Simply Simon
  42. It’s been interesting to watch Canadian regulators manage Vanguard’s entry into the Canadian financial services market. First, Vanguard Canada was allowed to create a few ETFs to be sold through discount brokers. Eventually they were allowed to expand their line of ETFs. Recently Vanguard Canada was allowed to create a handful of mutual funds to be sold only through registered financial advisors. The point is, in Canada, Vanguard never has been allowed to sell directly to the investor. Financial intermediaries are protected in Canada from direct competition with Vanguard at the retail level.

  43. slumber_j says:
    @jesse helms think-alike

    Well, Jack Bogle was right that Donald Trump isn’t good for “the market,” which is to say capital: he’s good for labor, at least in theory. That’s the point of him.

    I’m principally an investor, and I voted for DJT in full recognition that I was voting against my own short-term interests. In my view and in President Trump’s–insofar as he as an articulable view–some things are way more important than economic growth, in the near term anyway.

    • Replies: @AnotherDad
    , @Anonymous
  44. @Peter Johnson

    He jumped to the private sector to cash in on his academic reputation. If he thought he could beat the market, nothing stopped him from trading on his own account while staying at Penn/Wharton (or wherever he was). In fact, he could become even more mind-blowingly awesome by (1) writing up a winning trading strategy, (2) putting it in some kind of escrow, (3) acting on that strategy to make his killing, and finally (4) unsealing the writeup and submitting it to a journal.

    No one’s ever done that, as far as I know. And I think we both know the reason.

    More generally, accepting investments from strangers is an admission that you are not in possession of any kind of winning investment scheme. Because if you were, you’d just trade on your own account — keeping all the loot, maintaining utter secrecy, and minimizing your market impact.

  45. @Tyrion 2

    I don’t believe they did. But then, I don’t see how such manipulation would work.

  46. Hibernian says:
    @Reg Cæsar

    Isn’t he an Evangelical Christian or am I confusing him with someone else?

    • Replies: @Reg Cæsar
  47. Vanguard is the 2nd largest shareholder in Amazon after Bezos. Well, 3rd if you consider Bezos’s ex will get half. You know, MacKenzie Bezos was not that bad looking for 48 (a year younger than Sanchez) and I always though Jeff Bezos did ok for himself marrying her when he was 29 and she was 23, and then proceeding to have four kids with her. Just because you’re a billionaire doesn’t mean you have to screw around like Donald Trump. If you have the moral fortitude you can be monogamous and alpha at the same time. Of courses, Bezos turned out to neither.

  48. Carol says:
    @Dieter Kief

    And how many brilliant fund managers are there, really? Enough to go around?

    And, more importantly, are they diverse?

  49. Tyrion 2 says:
    @International Jew

    Very broadly, an index fund will hold a proportionately representative sample of the market and this sample must be adjusted to remain proportionately represented over time. Otherwise, it ceases to be an index fund.

    There is a lag and this following is not perfect but, taken at face value, this means that index funds can multiply active investor decision-making.

    Essentially, in a market place with just 1 active investor to every 9 passive investors, that active investor can recruit £9 for every £1 they spend to drive the price higher. Of course, an opposing active investor can do the same and so correct equilibrium might be found regardless.

    Every active investors shout as to what the price should be becomes much, much louder.

    The ways in which this can be abused are manifold. The simplest is that a CEO, with options, can consistently buy back stock and turn, even in a market of only half passive to half active investors, £1 into £2.

    Again, if there were a rational price obvious to most then this would not matter, but there is not. I also suspect the effect would be greatly reduced if most active investors kept this to the fore among their considerations.

    Perhaps all of the above is wrong. I am far from an expert on stock markets etc. I am not even really an amateur. Nonetheless, it seems fairly straightforward that prices can be determined by who shouts loudest and that indexes amplify everyone’s shouts. This means there’ll be more volatility and more room for manipulation.

  50. dearieme says:

    Can I buy a fund that tracks the companies that aren’t in the indexes tracked by the other funds?

    • Replies: @rufus
  51. Don’t forget that Bogle set up Vanguard as a client-owned company, no private shareholders seeking to squeeze profits. That move saved investors billions of dollars – and cost (by choice) Bogle hundreds of millions of dollars in net worth.

    What a mensch.

    • Agree: Carol
  52. @International Jew

    Well, you already have front-runners who position themselves to take advantage of stocks that are about to move into or out of various indexes. That would become more profitable as more people indexed.

    Of course, you could assume that this would create more front-runners, thus reducing their profit to point where it wouldn’t be worth it to most.

    The system always equalizes.

  53. @Lot

    Between Vanguard and online brokers, the ability to invest with almost no fees of any sort in hundreds of companies is a modern marvel.

    Agreed. I don’t think people fully grasp how amazing it is for the average Joe to invest in the world economy at essentially – and sometimes literally – zero cost. It’s transformative, yet no one seems to notice.

    • Replies: @J.Ross
  54. @dvorak

    Right, it’s extremely simple. By definition, a market’s returns represent the aggregate returns of all market participants. Assuming a normal bell curve, the overall market return will outperform half of investors and underperform half of investors. Therefore, if you own the market, you will be guaranteed to outperform half of investors and underperform half of investors.

    Given that almost all money in the markets these days is managed by professionals, by simply owning the market, you are guaranteed to beat half of the professional managers out there without ever lifting a finger. That’s incredible.

    But wait, it gets better.

    This is all before costs. If you index, your costs are essentially zero. Everybody else has to deduct their fees/costs from their returns. This guarantees that you will beat more than half of all professional investors. How many and by how much depends on their costs, but they have costs so you win.

    Indexing wins because it costs less than active investing. You’re guaranteed to beat a majority of professional investors. You better have a damn good reason to give up that deal.

    • Agree: RadicalCenter
  55. gregor says:
    @Peter Johnson

    And because of human psychology, I doubt it will ever be an issue. There is an excellent forum called Bogleheads for Bogle-inspired investing.

    https://www.bogleheads.org/

    Most of the posters are ostensibly committed to Bogle’s indexing philosophy, yet in practice very few of them implement it purely. For example, there are frequent debates over “tilting,” i.e. whether one should overweight small-cap value based on the French-Fama literature, etc. And nowadays you see a lot of what I would call algorithmic strategies (as opposed to traditional stock-picking) many of which are marketed as “indexing,” often designed to target some new “factor.” Point being, in practice it’s hard for people to stick with the pure total market index.

  56. Anon[276] • Disclaimer says:

    OT update on Tulsi Gabbart: She is now a full on race-baiting, racist, foaming at the mouth anti-white, anti- Western Civilization leftist. A counter-establishment candidate she is not. I’m not going to embed the tweet here because I hate Twitter, and it’s such utterly toxic progtard boilerplate.

    Oh well, it was good while it lasted. She had the aura of a possible pro-human, anti-establishment candidate for about two days, until she showed her true colors.

  57. Bill says:
    @dvorak

    Of course, if you compensate managers on the basis of how much they beat the index by (and give them 0 if they fail to beat the index), this gives them a gigantic incentive to take stupid risks. Heads we both win, tails you lose.

  58. @slumber_j

    I’m principally an investor, and I voted for DJT in full recognition that I was voting against my own short-term interests. In my view and in President Trump’s–insofar as he as an articulable view–some things are way more important than economic growth, in the near term anyway.

    Well said slumber_j. Since i’m retired, i guess that makes me an “investor” too. Sure i want my investments to do well, but i’m perfectly happy to live with just the small real growth in the economy that comes from technical innovation and doing things better. What i care about is leaving behind a decent nation for my children. Otherwise, seriously, what’s the point of even being an old man?

    The worse thing that ever happened to the United States is being taken over by people who view it not as a nation, but just as a marketplace where they make a buck.

    • Agree: midtown
  59. keuril says:
    @Travis

    companies maintain their buybacks, eventually, they will run out of stock to buy, and the stocks market will disappear.

    This has mainly been an equity-for-debt swap (of course companies are doing record buybacks when their stocks are overpriced). US corporate debt as a percentage of GDP is already at a record high. What’s more, about half of that debt is at the lowest investment grade credit rating tier, another record. It seems more likely that there will be a contraction (possibly an “accident”) of corporate debt in the years ahead, and that may force companies to start issuing new stock to pay down their debt, perhaps when the stock market is a lot lower. Buy high, sell low, who cares.

  60. @Buzz Mohawk

    Good point.

    But index investors are legion. Federal employees, civilian and military, are a large group of investors. The fed gov Thrift Savings Plan enables them to invest in stocks and bonds entirely through index funds. Right there, that’s a good chunk of the individual-investor market. Add them to private-sector people who choose index funds, and indexing seems pretty dominant in the USA.

  61. @The Alarmist

    That’s wrong. The man just died. Rest In Peace.

  62. Anonymous[151] • Disclaimer says:
    @The Alarmist

    Not to be morbid, but it would be interesting to know if his family goes with a cardboard casket.

    Why would they?

    • Replies: @The Alarmist
  63. Anonymous[151] • Disclaimer says:
    @slumber_j

    Well, Jack Bogle was right that Donald Trump isn’t good for “the market,” which is to say capital

    Then why did the market surge following his victory?

    • Replies: @istevefan
  64. Anonymous[857] • Disclaimer says:
    @Dave Pinsen

    OT- speaking of google games, type in white Christian and see what images they give you. Plenty of KKK, nazi imagery, a book on the end of Christianity, etc. The sad thing is this might not even be mostly due to google but an accurate representation of what the media has been depicting.

    • Replies: @Anonymous
  65. rufus says:
    @Redneck farmer

    Almost certainly , The Sailer Strategy. Vindicated in 2016.

    ( Speaking of heresy in the face of self interested analysts and consultants. )

  66. Paul says:

    The success of Warren Buffett and Peter Lynch undermines the efficient market hypothesis. So-called value investing (finding unvalued stocks and waiting for the market to hopefully recognize their value eventually) does take time researching though. My brother does it successfully, but he is willing to put in the time. As I recall though, Buffett thinks index funds do as well as hedge funds because the latter take too much of the investors’ money.

    • Replies: @Anon
    , @Anonymous
    , @gregor
  67. @jesse helms think-alike

    There really wasn’t a choice in 2008. McCain was actually more “left” on many economic policies than Obama in 2008. He also subscribed to horseshit like climate changes and what not. McCain was essentially a pro-war liberal, the worst of all worlds. I’m not sure what the deal was in 2012. Romney actually sounded very Reagan-like during the summer of ’12. However, he started to sound very neo-con like during the last 2 months of the campaign in fall of ’12. I suspected Romney lost for this reason as he was polling quite strongly during the summer.

    Large fund managers tend to prefer the status-quo, even a flawed one, over any dramatic change because it makes their job easier. Additionally, Obama was good for international trade, even if he was hell-bent on hobbling domestic industry with all kinds of regulation.

    • Replies: @CJ
  68. Back in the 1970s I worked for a couple of years as a programmer in a large investment bank, maintaining and enhancing their portfolio management software. We programmers were expected to become familiar with the principles and practices of portfolio management. One of the surprising things that I learned was that every single year about three-quarters (75%) of portfolio managers perform below the market average. I suspect that this figure has hardly changed.

    One of our instructors explained that human stupidity, arrogance, and greed explain this dismal performance. According to him, almost all portfolio managers are gamblers at heart, relying on “systems”, which they foolishly believe will give them an edge over other managers. By chance, some score a win but most lose. Like all gamblers, winners attribute their luck to clever systems and losers blame an unfortunate and unlikely temporary state of affairs for their losses.

    Mr. Bogle sounds like he was a very modest and exceptionally intelligent fund manager.

    • Replies: @Anonymous
  69. Mike1 says:

    The market return over the last twenty years: Annualized S&P 500 Return (Dividends Reinvested and Inflation Adjusted) is 3.145%. This is your return as an index investor and this is at current nosebleed valuations.
    Not saying it is a bad idea people just need to know what they are actually dealing with. Everyone likes to quote a log term return of 10% which is only true if you cherry pick your start time or go back an incredibly long way. You also need to ignore inflation to get to 10%.

  70. @Dieter Kief

    You gain in security for your investment by indexing and you lose in profiting.

    You gain in both security and profit.

    Warren Buffett’s bet.

    Buffett’s issue isn’t with individual stocks. Rather, it’s with actively managed funds, particularly those that charge high fees, like hedge funds. Buffett acknowledges that in any given year, some fund managers will certainly beat the market. On the other hand, some will lose to the market. And since all of these funds charge fees, investors are at an inherent disadvantage, especially over the long run.

    Warren Buffett’s quote: “My advice to the trustee [of my estate] couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.”

    Warren Buffett on Jack Bogle: “Jack did more for the American investors than anyone I’ve ever known.”

    • Replies: @Dieter Kief
    , @Sean
  71. gregor says:
    @dvorak

    I think it’s worth noting that if you read Bogle, he doesn’t actually base his argument for indexing on any arcane arguments about market efficiency. He instead relies on a much simpler and more elegant arithmetic argument.

    First a tautology: Investors in aggregate must earn the overall gross return of the market. Investors overall get to keep that gross return minus costs. Indexing guarantees you the overall market return and reduces your costs to almost nothing (including tax costs of high turnover portfolios). Deviation from the overall market introduces upside and downside potential must net out to zero across investors. And net of costs, they reduce your expected net return.

  72. rufus says:
    @Buck

    Fun fact, the SP 500 now has only 386 individual issues. Its more selective in methodology than you may think and reflects the general decline in listed shares of the last two decades.

    • Replies: @ScarletNumber
  73. Anon[336] • Disclaimer says:

    Eddie VanHalen, George Lopez, golf…. maybe something for Steve here

    https://www.alternativenation.net/eddie-van-halen-disrespected-at-club-defended-by-a-list-actor/

  74. @Tyrion 2

    There is a lag and this following is not perfect but, taken at face value, this means that index funds can multiply active investor decision-making.

    No.

    If the stock market goes up 10 percent in 2019, indexers will get that 10 percent (minus costs), leaving active investors to also get 10 percent (minus larger costs). There’s no multiplier effect. It’s simple arithmetic.

    Essentially, in a market place with just 1 active investor to every 9 passive investors, that active investor can recruit £9 for every £1 they spend to drive the price higher.

    Recruit?

    You’re an investor, not a recruiter. How are you, as an active investor, going to recruit money?

    You seem to be confusing two issues – investing and manipulating markets.

    • Replies: @Tyrion 2
  75. Tyrion 2 says:
    @Pincher Martin

    What happens when a company first qualifies for becoming part of various index funds? Surely all index funds then need to buy it and they send the price right up?

    Other than that, you’re right…I had never thought through clearly enough about how index funds operate.

    • Replies: @Lot
    , @Pincher Martin
  76. @Buzz Mohawk

    This is true. There will always be those who:

    1) Don’t invest
    2) Sell when there’s a downturn
    3) Try to “beat” the market

    Given this, I doubt Vanguard will ever take over the world although they may force some change within their competition (as they have already done after many, many years of the competition ignoring or ridiculing Vanguard and index investing). The poor will always be among us and so will the market timers and frequent traders.

  77. midtown says:

    I wonder if index investing isn’t turning too many companies into de facto foundations that don’t have to worry too much about fundamentals; the money rolls in regardless. This can make them a playground for SJWs.

    This makes me think that GWB’s plan to partially privatize Social Security would have corrupted the market, in a sense.

  78. Lot says:

    Good polling news:

    “Trump also failed to increase support for the border wall, the POLITICO/Morning Consult poll shows. Fully 44 percent of voters support construction of a border wall, slightly fewer than the 47 percent who oppose it. That is identical to last week’s poll, prior to Trump’s address.”

    44 to 47 on the Wall means it probably has majority or plurality support in swing states. This is the hill Dems want to die on?

    And while support is still 3 points on their side, compare that to: minimum wage increase, expanding Medicare drug benefits, tax increase on incomes above $500,000. Those issues the Dems have 10-25 point more popular support than Trump.

    The only major issue where the GOP is clearly more popular than the Dems is crime control.

  79. Forbes says:

    Glad to see the obit said Bogle popularized index investing–he didn’t invent index investing, as is often attributed to him. A couple institutional managers at Wells Fargo started the first index fund–albeit with some implementation difficulties at the time.

    But Bogle eventually grasped the simplicity of market capitalization-based indexing for managing a portfolio–combined with the age-old investment wisdom of buy and hold for the long term.

    • Replies: @Anonymous
  80. Capitalism croaked decades ago.

    What we got now is CENTRAL BANKER SHYSTERISM.

    The Federal Reserve Bank’s balance sheet must be whittled down immediately in an extreme form of quantitative tightening. The Fed’s balance sheet should be imploded to less than a trillion dollars. Do it in a month.

    The federal funds rate should be raised two times in 2019. The first increase should get the federal funds rate to 6 percent. The second increase should take the federal funds rate to 10 percent. The asset bubbles in stocks, bonds and real estate will implode in a few days, maybe a week.

    Young people should refuse to pay the unpayable government debt. Corporate debt will soon go belly up too. Private debt must be repudiated as much as possible.

    George Washington got pissed off about his scumbag money man factor in London profiting off Washington’s debt servicing. Andrew Jackson famously told the bankers and the East Coast wankers in Boston, New York and Philadelphia to go phuck off. Debt and demography will be the two things that combine to topple ruling classes in many nations.

    The political energy will flow to the political leader who financially liquidates the money-grubbing scum born before 1965. Most intelligent people understand that it has been debt conjured up out of thin air by the CENTRAL BANKER SHYSTERS that has been used to buy off the greedy scum born before 1965. Young people will be energized and rejuvenated once they begin to pull the plug on the greedy money-grubbers born before 1965.

    8 years of ZERO INTEREST RATE POLICY and the bailout of American International Group so they could bailout Goldman Sachs is proof that the globalized financial scam must be obliterated by mass debt repudiation.

    • Replies: @RadicalCenter
  81. Anonymous[291] • Disclaimer says:

    It’s a good thing all immigrants are an unalloyed good for the economy, or indexing may not be a good strategy over the next century!

    America’s post-war success as a homogeneous, high-IQ society with room to grow and most of the world as a dumping ground for products will look like small potatoes by 2100. Wait til you see what we can do with 300 million Guatemalans and Somalis!

    RIP Jack Bogle, he’ll never get to see it.

    • Replies: @Anonymous
  82. Lot says:
    @Tyrion 2

    Pincher is right. If I am an active investor in an index world and bid up XYZ that I am so hot on, the index funds allocation to XYZ increases without them doing anything. The price of XYZ goes up, and they get their extra weighting to XYZ that way.

    Regarding S&P index rebalancing, that happens quarterly and there is a little bit of arbitrage there, but it is well known and pretty slim. Indeed, there is probably a small permanent premium on any stock ranked 501-530 already based on possible addition to the index. #501 doesn’t even need to outperform to join the index: it could get lucky and join because #45 buys out #421, creating an opening.

    Similarly, #490-500’s position in the index is precarious, so will suffer a discount because of possibly leaving it due to one slightly bad quarter (or some big IPOs.)

  83. @Tyrion 2

    What happens when a company first qualifies for becoming part of various index funds? Surely all index funds then need to buy it and they send the price right up?

    I haven’t looked into the literature about it, but I believe you’re wrong. The stock price of most successful companies that make it onto one of the larger market indices has been built up over time long before they ever make it there. Investors generally anticipate these things long before they happen.

    So how are you as an active investor going to take advantage of this unless you can successfully predict – long before it happens – which small companies will make it onto, say, the S&P 500 Index?

    I’m an indexer. But if you show me a fool-proof way to make money off of new company entrants onto the larger indices, then I could become an active investor tomorrow. After all, this is an old phenomenon.

    But you can’t do it.

    • Replies: @Tyrion 2
    , @Anonymous
  84. @Lot

    Correct. The size/liquidity of the S&P stocks makes front-running a bit hard. Still probably a little profit.

    Not my area, but my guess would be that the better opportunity for front runners is the Smart Beta funds. DFA has wiggle room with their trading as does AQR, but if Vanguard, iShares and other big boys who have entered this area have to follow a known index for small and mid-cap stocks, it wouldn’t be that hard to figure what stocks were about to be purchased or sold. But, as always, profit invites more people reducing the arbitrage opportunity.

  85. @dvorak

    Mr. Bogle may have founded Vanguard, but the Alito confirmation hearings made it famous.

    Senator Kennedy was scolding Judge Alito about failing to recuse himself in a legal case involving Vanguard in which the judge had a “conflict of interest”, with the Senator demanding to know, “What is this ‘Vanguard’?” The senator seemed to think it was this ultra-exclusive high-flying hedge fund when it is the Walmart of investing.

    More information is here http://www.anchorrising.com/barnacles/002593.html

  86. @International Jew

    No one’s ever done that, as far as I know. And I think we both know the reason.

    Ed Thorp.

    (That said, the fact that I can only come up with one guy over the past 60 years says something.)

    • Replies: @ScarletNumber
  87. Tyrion 2 says:
    @Pincher Martin

    To qualify for the S&P

    a market cap of $5.3 billion
    its headquarters in the U.S.
    the value of its market capitalization trade annually
    at least a quarter-million of its shares trade in each of the previous six months
    most of its shares in the public’s hands
    at least half a year since its initial public offering
    Four straight quarters of positive as-reported earnings.

    Why do very big individuals not look at companies on the margin of qualifying by market cap and buy enough stock to get them to qualify? Once qualified, they are sure to be bought out by index funds for a profit. Or are they not?

    Also, no need to act like I’m attacking your “indexer” side. I do not invest my paltry funds into equities. I prefer to pay my utility bills etc.

    • Replies: @Almost Missouri
  88. Vanguard doesn’t just have index funds, by the way.

    They also have a small suite of very popular actively-managed funds that mimic many of the advantages their index funds have – i.e., low costs, low turnover, high tax efficiency, etc.

    They also have many ETFs, and their brokerage just started offering free trades on those ETFs last year.

    Something to keep in mind when talking about all the assets under management at Vanguard.

  89. @Tyrion 2

    Yes, I think you are correct, provided it is a situation where the colluding active investors know they have enough capital to overwhelm “prematurely” profit-taking active investors.

    This is basically the standard cartel situation and conundrum.

    What I think Steve and you are getting at is that the wider index-ization of the market is, the lower the threshold at which cartel-like action among the non-indexers can succeed becomes.

    • Replies: @Tyrion 2
  90. Tyrion 2 says:
    @Lot

    Yes, if you own 1% of every company on the index, you will continue to own 1% regardless of price fluctuations.

    Regarding S&P index rebalancing, that happens quarterly and there is a little bit of arbitrage there, but it is well known and pretty slim. Indeed, there is probably a small permanent premium on any stock ranked 501-530 already based on possible addition to the index. #501 doesn’t even need to outperform to join the index: it could get lucky and join because #45 buys out #421, creating an opening.

    Similarly, #490-500’s position in the index is precarious, so will suffer a discount because of possibly leaving it due to one slightly bad quarter (or some big IPOs.)

    Shouldn’t it be huge as about 45% of investment in equities in the US is passive? in other words, suddenly, after qualifying, there’s buyers for almost half of the stock?

    • Replies: @Lot
  91. Tyrion 2 says:
    @Almost Missouri

    Your point is solid. Mine was over-extended through my own fuzzy thinking. Thank you for refocussing it to the core truth.

  92. @Peter Johnson

    The hedge fund made Grossman rich, but what about his clients? What were the return and risk metrics for the fund.

    As best as I can see, his fund did pretty well from 1993 to 2011, earning 13.5% annually compared to 10.1% for the S&P. His currency fund earned, starting in 1998, earned 12.3% annual compared to 5.8% for the S&P.

    Sound great, right. Well, not so fast. First, by 2014, his hedge fund company QFS had closed down all of its fund, citing poor returns.

    Second, even just using his returns from 1993 to 2011, we don’t know what kinds of risks he was taking. Besides, you could have earned 11.2% simply investing in DFA’s Small Value fund over that same time frame. You’d get nearly the same return with far greater simplicity, transparency and diversification.

    Oh, and DFA didn’t have to shut down its small value fund in 2014 due to poor returns.

  93. @Pincher Martin

    Vanguard has more active funds than passive funds, though I would assume that AUM in the passive funds is far higher than in the active funds.

    Regardless, Vanguard’s main argument isn’t that index funds are better than active funds. It’s that low cost is better than high cost. And their right.

    • Replies: @Pincher Martin
  94. @Tyrion 2

    “Why do very big individuals not look at companies on the margin of qualifying by market cap and buy enough stock to get them to qualify?”

    They do. But then they have to handicap for the fact that others are doing the same, meaning that somewhere between part and all of the profit potential is already arbitraged away.

    But yes, someone got in on those trades first and got some profit from it.

    • Replies: @Pincher Martin
    , @Tyrion 2
  95. Why do very big individuals not look at companies on the margin of qualifying by market cap and buy enough stock to get them to qualify?

    What if the company doesn’t make it? What if they have a terrible earnings report in the very next quarter? What if they are already overvalued?

    There’s nothing magical about getting onto the S&P 500.

    Without even looking at the literature on the topic, I bet that if you take all the companies that ever made onto the S&P 500 index, you would find that their stock valuations grew much faster before they made it onto the S&P 500 than they did after they made onto the index.

    So you, as an active investor, would have been much better off investing in them before they made it onto the index.

    Also, no need to act like I’m attacking your “indexer” side.

    I’m not taking it that way.

    • Agree: Tyrion 2
  96. @Almost Missouri

    They do. But then they have to handicap for the fact that others are doing the same, meaning that somewhere between part and all of the profit potential is already arbitraged away.

    True. Anything that anyone can see is not going to be of value to an active investor. Because other active investors will see it, too.

  97. Tyrion 2 says:
    @Almost Missouri

    It is interesting which commenters really know what they are talking about when it comes to the facts of important yet generally poorly understood topics. Thank you! I will now sound like less of a fool to my friends who work in equities.

  98. @J.Ross

    “Wealth – any income that is at least one hundred dollars more a year than the income of one’s wife’s sister’s husband.”

    – H. L. Mencken

  99. Coalite says:

    Indexing can make sense in its early days, but not that over half of the U.S. equity market is passively invested, it’s created a horrific scenario where investment performance is primarily driven by flows into and out of index funds. This leads to massive misallocations of capital, making it that much easier for active managers in the long run.

    Also, the effects it’s having on volatility are dangerous. It has created a self reflexive loop where low volatility begets lower volatility, and vice versa. This is what led to 1987’s Black Monday event and now you have Goldman and JPMorgan expecting another Black Monday type of event, partially due to the rise in indexing.

    • Replies: @rufus
  100. @Citizen of a Silly Country

    You know, I never counted them until I read your post. But you’re right. They have a huge number of actively-managed funds. I haven’t looked at their selection of funds for many years, and it has expanded dramatically.

    Regardless, Vanguard’s main argument isn’t that index funds are better than active funds. It’s that low cost is better than high cost. And their right.

    Yes, but active management has more costs, generally speaking.

    Of course, there are exceptions. Tax-managed funds, for example. And some managers of these index funds understand there are costs to an index fund which are unhelpful to their investors, and so the managers massage how they manage the index fund, even if strictly speaking they shouldn’t.

    But to the degree active management still seeks to profit by trading for winners and parting with losers, they’re running uphill.

    I think this is where Bogle and Vanguard parted ways. Bogle felt the company he founded was getting too far away from his core message.

  101. Henry Louis Mencken had the foresight to stack cases of booze all the way up to the rafters in his basement before the ruling class rats overreacted to Bronfman blind-you-booze from Canada and other similar things and outlawed booze. The WASP ruling class rats phucked up pretty good on that one. The Bronfmans made more bucks after booze was banned.

    Mencken wanted to make sure his fellow Krauts in Baltimore had booze on hand after they played in their brass band.

    Mencken was cranky because he didn’t have any easygoing English blood.

    William Manchester wrote about it.

  102. Indexing can make sense in its early days, but not that over half of the U.S. equity market is passively invested, it’s created a horrific scenario where investment performance is primarily driven by flows into and out of index funds. This leads to massive misallocations of capital, making it that much easier for active managers in the long run.

    People who trade in index funds are not followers of Jack Bogle. He was a buy-and-hold guy.

    Trading has costs and involves timing, and Bogle was strongly opposed to both activities on principle.

  103. @Mike1

    Actually, the real return for the S&P 500 – reinvesting dividends – from 1999 to 2018 was just under 4% annual, which isn’t great compared to the very long term market premium of ~6.5% annual real but isn’t catastrophic either.

    I’d be more worried about real returns for the next decade. Pretty much every valuation method show very low expected returns – and this time around you won’t get any help from your bonds.

  104. Anon[355] • Disclaimer says:
    @Paul

    Also suspect that successful value-investors tend to be contrarian, who can spot bogus narratives, even when there is minimal data to guide them.

    After some life experience, I think this is a largely genetic trait and probably cannot be taught.

    • Replies: @Anonymous
  105. @Pincher Martin

    Yeah, my suspicion is the Bogle was never too excited about the active management side of Vanguard, even with its focus on keeping costs low for active.

    Bogle was an index guy.

    And you’re right, active creates additional costs no matter what, putting you automatically in the hole.

  106. @Pincher Martin

    I see. At times you lose with indexing though, if only compared to others, who risk more or are simply lucky. It depends a little bit.

    But by and large, indexing is no bad idea at all. The Norwegian pension fund indexes and is doing much better than lots of – – – – US-American pension funds for example, which, with the help of statistical tools created by one gentleman by the name of Ron Unz, if I understood this microscopic detail right at all, invested in hedge funds and other risky ventures, all wrapped up in nice looking packages by big, well known banks – – – – and got hurt badly – especially during and after the 2008 meltdown. cf. Matt Taibbi – Griftopia – a book, which in other circumstances might have caused a riot… – It still could.

    • Replies: @Pincher Martin
  107. @Steve Sailer
    No, you are wrong.
    There’s no freeriding on the few people capable of outsmarting the market.
    The system works even if there’s no extra value added by ‘smart’ stock investors, though that could theoreticallly happen, smart investors likely just do the right things for the wrong reasons or because they’ve found some exploit in crowd psychology.
    Literally every investor could loose money (because the average breaks even, but of course the fees add friction), yet the productive companies get their funding and stock rise or fall in some loose, but good enough relation to their actual value.
    Smart large investors do make the whole thing more efficient, but that added value is mostly not happening in the stock market, but in the venture capital phase.
    The stock market is useful and good for the running of the economy, because it allows companies, that have proven themselves already to have access to more capital.
    It’s value lies in exploiting the wisdom of the crowds, not the idiocy of the members of the crowd. And it works, because Americans and their companies have their shit together and know how to make money. With a global index fund, you’re basically betting on humanity of bettering itself (or something related to that anyway), rather than just Americans.
    As long as that’s true, Vanguard and index investing is safe.
    And if it isn’t, then there’s worse things to worry about, than loosing your retirement (war, aliens, pandemics, commies, fascists, whatever…. bad stuff).
    If humanity or any given country fucks up, the respective index fund will give you losses.
    Though at least it would avoid the added overhead, so that’s nice.
    That dampens the shock and gives humanity/given country’s local market a better chance to come back.
    But I wouldn’t assume that the individual investor with delusions of knowledge and being smart adds anything much of value, that can be freeridden.
    There is some exploitable inefficiency, that’s a waste byproduct of the stock market trading process itself. Using algorhithmic High frequency trading and getting a ms faster access to the stock prices one can exploit that. Wont hurt anybody really, might make you rich, but ultimately it has nothing to do with creating value, like building a car, mining Uranium, inventing a spaceship does.
    If there actually is real ineffeciency and undervaluing going in the market, then it’s usually too subtle to exploit at the moment. And it’s devilishly hard to prove, if even Warren Buffet is a clever man, who spots stuff like that or he’s just gotten three standard deviations luckier, than comparable investors. (such individuals must of course exist)
    If most people do the robot investing strategy, the market would be easier to evaluate and individual non-robotic decisions would be less hectic and presumably better informed.
    More risk-tolerant actors can still play and loose, but if loosing is so obvious it’s no more fun.
    And they and people thinking they’ve got a knowledge advantage can go into venture capital or real estate, anyway.
    The market would become more efficient by virtue of the fact, that the finance industry shrinks down to a more efficient size.
    The discovery of Bogle is, that there’s no real inefficiency to be discovered and frantic trading activity just misallocates resources from suckers to banks and mutual funds, who by and large don’t do anything useful at all. That the current market evaluation process is mostly just about generating garbage data and getting garbage results, like reading the entrails of a chicken and then trying to put it into relation to a coming battle. Then after the battle finding something in the entrails that explains your outcome and forgetting the rest.
    Don’t think only because the left hates those finance Wolf-of-Wall street types, that those people aren’t somehow actually more than just stupid monkeys.
    They might look good in a suit and be very manly and alpha, but they ain’t Randian heroes.
    Though mostly they’re not even deficient in character, they’re just fundamentally useless office workers like you get in a government bureacracy or any sufficiently old institution.
    The left is right about them, but just wrong on what should be done against them, because nothing should be done, because they’ll eventually all go broke, because nobody’s buying their bullshit for much longer.
    And those of them that have some mathematical talent can still make bank in Silicon Valley, before it finds it’s own way to rid itself of ridiciolous bullshit work (though, I hope that still is years to come, since I wanna do that). Maybe then people finally find the time to build spaceships, like we were promised.

    I’m not saying the market is bad, we need to regulate those greedy, evil banks and mutual funds. No, this is the beauty of the free(ish) market. It noticed (or Bogle did, but someone would have soon enough seen the cash just lying around) it’s own inefficiency and it’s fixing itself via creative destruction of mutual funds and all those nonsensical appendages.
    The smart money is passive and over decades will outcompete most active approaches.
    It also gives people a better non-scarier option to invest for their own future, by betting it on the economy at large (the publicly traded part anyway and which is a better bet, then taking some measly 1 to 2 percent, a bank offers).

    • Replies: @Anonymous
  108. OT: Down’s Syndrome People Ask to Be Declared An Endangered (Sub)Species

    https://www.endangeredsyndrome.com/

    As you probably know, incidence of Down’s Syndrome births is decreasing because of better prenatal testing combined with abortion (something that the endangeredsyndrome.com people have to tread carefully around lest they trigger the Establishment’s automatic defenses of abortion). Noticing their declining numbers and therefore their diminishing leverage for welfare state handouts, Canadian Downs folks (or more accurately, the people who get paid to look after them) are asking for international Endangered Species status.

    The next question obvious to readers here: if Down’s Syndrome people are an endangered subspecies, aren’t white people too?

    It will probably be an obvious next question for the people at the IUCN (who hand out endangered-ness stickers) too, so their dilemma will be how can they avoid being mean to handicapped people (bad) while still preventing anything beneficial happening for white people (good)?

    They might deny that Downs is a subspecies. This is arguably correct, but it would still leave the poor optics of appearing mean to the underprivileged.

    They might allow it for Downs but deny it for whites, perhaps on the basis of of the extra chromosome, which gives a patina of technical merit but ignores interfertility.

    Or they might let both Downs and whites through, opening the way for everyone who can define themselves as a declining subgroup to make—and win—the same claim.

    • Replies: @Tyrion 2
  109. Anon[209] • Disclaimer says:

    I had reason to deal with vanguard customer service recently when a relative died. I would prefer (almost) to deal with my cable company. Calling in was Russian roulette: would I get someone half way competent? Would it take 30 minutes or 2 hours to find that person who had the answer?

    • Replies: @J.Ross
  110. Anonymous[151] • Disclaimer says:
    @Anonymous

    Enter “Germans” in Google search.

  111. Anonymous[151] • Disclaimer says:
    @Paul

    My brother does it successfully, but he is willing to put in the time.

    What does putting in the time entail? What kind of research? What is his expertise to even do an analysis on his own?

  112. Sean says:
    @Pincher Martin

    Harry Markowitz got the Nobel orixe for his work of optical asset allocation.

    But for his own money he used equal investment in N funds, so that each got 1/N.

  113. Anonymous[151] • Disclaimer says:
    @Jus' Sayin'...

    By chance, some score a win but most lose.

    So why isn’t it 50% then?

    • Replies: @Jus' Sayin'...
  114. J.Ross says: • Website

    The self-appointed guardians of homosexuality and protectors against electoral interference are trying to forcememe a gay backmail story targeting Lindsay Graham.
    The people doing it appear to largely be Muslims, not sure if there’s a reason for that or if it’s a function of the diversity of our dysfunction new congress. The strategy originating among foreigners who do not belong here and who know nothing about our culture would explain how they decided that blackmail rumors about Liberace-famously gay Graham would be a bright idea.
    A bit in the article we get memes becoming real:

    “Over the last three years, we have seen many times where [S]enator Lindsey Graham has told us how dangerous this president could be if he was given the opportunity to be in the [W]hite House. And all of a sudden he has made not only 180 turn around, but a 360 turn around,” she said. “My tweet was just an opinion based on what I believe to be visible to me [a]nd I’m pretty sure there are lots of Americans who agree on this.”

    https://news.grabien.com/story-dems-media-launch-whisper-campaign-lindsey-graham-gay

  115. @Anonymous

    It’s very low fee, the “indexing” of mortuary services..

  116. Tyrion 2 says:
    @Almost Missouri

    White working class people in London fit the following definition:

    Indigenous Peoples at the UN. Indigenous peoples are inheritors and practitioners of unique cultures and ways of relating to people and the environment. They have retained social, cultural, economic and political characteristics that are distinct from those of the dominant societies in which they live.

  117. Anonymous[151] • Disclaimer says:
    @Forbes

    the simplicity of market capitalization-based indexing for managing a portfolio

    What can we read to understand what you mean by this?

    • Replies: @Forbes
    , @Forbes
  118. Anonymous[151] • Disclaimer says:
    @Anonymous

    It’s a good thing all immigrants are an unalloyed good for the economy, or indexing may not be a good strategy over the next century!

    What do you recommend in the alternative?

    • Replies: @Anonymous
  119. Anonymous[151] • Disclaimer says:
    @Pincher Martin

    I’m an indexer.

    How did you come to be one? Would you recommend any literature to the ignorant?

    • Replies: @Pincher Martin
  120. istevefan says:
    @Anonymous

    Right. And recall Kurt Eichenwald who gave his twitter followers this memorable advice about investing if Trump became president.

    • Replies: @Known Fact
  121. Anonymous[151] • Disclaimer says:
    @Anon

    After some life experience, I think this is a largely genetic trait and probably cannot be taught.

    Could you elaborate on what you have observed during that experience and how you came to the conclusion it is largely genetic?

  122. J.Ross says: • Website

    Recent radio atrocities:
    Just now on Michigan Public Radio a story concludes with the reporter inserting words into his interviewee’s mouth because he doesn’t understand how dzernamalizm works.
    The woman says “they need to do their job,” referring to Kent County authorities cooperating with federal officials, as is their job. (When she says they need to do their job, she clearly means they need to not do their job, like the authorities can be trusted to do in her country.) The brat-journalist then says “do their job, and obey the law,” as the end of his piece, but also as an English clarification for a non-English speaker who depends on a translator for most of the piece.
    Just before that a hysterical lawyer described Kent county authorities cooperating with federal officers as “colluding.” So the police working together with federal law enforcement is collusion, like, y’know, the discussion of publicly available polling data.
    This morning on BBC radio, the Inquiry (a program that once claimed that the disarmament of Japan was a great success for banning firearms [which by the way they totally don’t want to do] and a model for the rest of the world) discussed the inevitability and justice of President Trump getting impeached.

  123. Anonymous[151] • Disclaimer says:
    @skill_mostly

    And it works, because Americans and their companies have their shit together and know how to make money.

    Please explain the causal connection.

  124. J.Ross says: • Website
    @Anon

    Was the first thing they said “why are you calling, this is Vanguard, you’re just supposed to trust us?”

  125. Anonymous[237] • Disclaimer says:
    @Buck

    No. Because if blue chips get overvalued by index fund it creates an arbitrage-able opportunity for hedge funds. And there are a gazillion of them, with all kinds of funding, analysts, and computers.

    The average person does not get EMH. Thus expects trivial insights like this to create persistent opportunities.

    Life is not so simple. If there is an obvious opportunity like this it will get arbitraged away.

  126. Anonymous[237] • Disclaimer says:
    @Peter Johnson

    Yes. But as it started to break down, there would be an incentive for people to enter the market and exploit the opportunities. Thus making them disappear. You have to assume indexing forever to have this breakdown occur. And of course we are far from such a situation.

  127. @Tyrion 2

    Sounds like a tall order, even if we put the entire International Jewish Conspiracy® on it.

  128. Lot says:
    @Tyrion 2

    SP500 funds aren’t 45% of the market alone.

    As a stock is added, all the buyers who purchased in anticipation of the addition then sell. Active investors likewise sell both because of the higher price and because of the risk the new but marginal s&p 500 member falls back out.

    The overall effect is pretty small on returns in any case because the 50 bottom members are probably like 2% of the index weighting.

    If this ever became a true issue, it would be an easy fix. Just make a rule that the etf has a year or two to enter and exit positions after the index changes.

  129. @Dieter Kief

    At times you lose with indexing though, if only compared to others, who risk more or are simply lucky. It depends a little bit.

    No, not at all.

    It’s basic arithmetic.

    Indexers choose to only take what the market offers. So if in 2019, the market goes up 10 percent, then indexers will earn 10 percent (minus costs). If the market goes down 10 percent, then indexers will lose 10 percent.

    That also leaves active investors to fight over how to divide their 10 percent return (or 10 percent loss). To the degree one active investor wins that battle, another active investor will lose it. Active investors aren’t fighting indexers in the market; they are fighting each other.

    But here’s the twist. Active investing is more expensive than indexing. It costs more to trade; it costs more in taxes; and active managers are more expensive to pay than are the managers of index funds.

    So active investors are not only fighting each other to get a relatively high return in the market; they are also paying the higher friction costs which are inherent in active investing.

    Studies have shown that most active investors lose that battle when compared to what buy-and-hold index investors. Depending on the sector, around 80 percent of actively-managed funds will lose money relative to index funds. Year after year, decade after decade, generation after generation.

    • Replies: @Anonymous
    , @Dieter Kief
  130. Anonymous[151] • Disclaimer says:
    @Pincher Martin

    That also leaves active investors to fight over how to divide their 10 percent return (or 10 percent loss). To the degree one active investor wins that battle, another active investor will lose it. Active investors aren’t fighting indexers in the market; they are fighting each other.

    Is it your claim that where the market has risen 10 percent, for every active investor that receives a 10 percent pre-expense return, another must receive a 10 percent loss?

    • Replies: @Pincher Martin
  131. @Pincher Martin

    I agree with you – almost completely. Now, you say too, that there are funds, which at times beat the indexers. And that can’t be otherwise, I’d say.

    (And I agree absolutely with your basic line, that indexers on average beat more “sophisticated” ways of investment).

    • Replies: @Pincher Martin
  132. @Dieter Kief

    Now, you say too, that there are funds, which at times beat the indexers. And that can’t be otherwise, I’d say.

    Yes, but they are rarely the same funds. This year a handful of funds will beat the index; next year, it will be a completely different lineup of funds which beat the index.

    So as an active investor, how can you predict which actively-managed fund will win this year?

    The answer: you can’t.

    I know there are likely to be a handful of extremely talented, hardworking managers of active funds who beat the index by a wide enough margin over the next decade to make investing in their fund a good deal. Peter Lynch managed to do it back in the nineteen-eighties, for example. Others have done it, too.

    But how could I possibly identify who those managers are before their success? Even a two- or three-year track record isn’t enough to be sure. And by then you’ve already lost out on a lot of the gains that those talented managers will eek out over a decade.

    Even Peter Lynch failed when he came back to recreate his own success.

    • Replies: @Dieter Kief
  133. danand says:
    @NJ Transit Commuter

    “Averaging 7% returns (post management fees) may not seem so sexy, but over 20 – 25 years the cash piles up.”

    Piled up if investing was in the USA’s S&P. Worked a little less well for Japanese who started investing in their Nikkei 225 ~1990 (a time when the world consensus was that we would soon all be speaking Japanese). Japans GDP was ~5T then, and is about the same currently ( nominal, no adgustments for in/deflation). Which is a main justification for US open boarders. “We don’t want to be the next Japan.”

    • Replies: @Anonymous
  134. @Steve Sailer

    Yes, and Texas suburbanites wait in trepidation wondering if they will be the next victims of a tax and spend entity such as San Antonio, Dallas or Austin. What is really scary is these cities have separate taxing entities besides the city and county which constantly vote tax increases by their Board of Directors with little recourse by the taxpaying public. In many cases they don’t have to increase the tax rare because property values have inflated, thus they will brag about not increasing the tax rate much to the chagrin of those who know the relationship between property values and tax rates.

    • Replies: @Known Fact
    , @anonymous
  135. @Pincher Martin

    It’s difficult to make predictions – especially about the future – – Mark Twain said that, but I think, that this insigth is older than Mark Twain. – German Genius comedian Karl Valentin once stole it from Mark Twain – and he too got away with the claim, that this insight came strictly out of his head… Mundus vult decipi! – And maybe even more so: The world wants to be entertained – and maybe that’s the biggest gain of all this fancy investment business – for those who need it, at last: That it adds tension to their lives. A well-hidden secret, the tension-driven risky investments – but a social-economic truth nonetheless, I guess.

  136. @istevefan

    Surprised he didn’t sell his kids, too

  137. @Simply Simon

    Annexation also helps dampen down those inner-city crime stats

    • Replies: @Reg Cæsar
  138. Dissident says:

    It’s difficult to make predictions – especially about the future – – Mark Twain said that,

    Isn’t the quote about predictions from Yogi Berra? I believe a lot of quotes are mis-attributed to Twain. Though I suppose that could very well be the case for Berra as well.

  139. Anonymous[151] • Disclaimer says:
    @danand

    Which is a main justification for US open boarders. “We don’t want to be the next Japan.”

    Doesn’t Japan have a high standard of living?

    • Replies: @Reg Cæsar
  140. Daniel H says:
    @International Jew

    More generally, accepting investments from strangers is an admission that you are not in possession of any kind of winning investment scheme. Because if you were, you’d just trade on your own account — keeping all the loot, maintaining utter secrecy, and minimizing your market impact.

    From what I understand, back in the 1960s Warren Buffett wanted to get out of the business of managing other people’s money. He wanted to apply his genius to his portfolio only. So he wound up his last limited partnership and distributed the cash, but for tax or legal reasons the investors had the option of keeping shares in a dying New England textile manufacturer, that he still thought could be made sustainable, and which would be the corporate legal structure for his investment strategy henceforth. Well, the rest is history. Occasionally, Buffett does make comments to the effect that he should have liquidated Berkshire too and then he could have kept the entire pie for himself.

    • Replies: @Steve Sailer
  141. @Anonymous

    Stupid snark. When you throw dice the result is by chance. Why don’t boxcars come up 50% of the time?

  142. @Anonymous

    Is it your claim that where the market has risen 10 percent, for every active investor that receives a 10 percent pre-expense return, another must receive a 10 percent loss?

    Gains and losses among all active investors must balance out, and that balance will be equal to the market’s overall return. Yes, that’s true.

    The index investor who buys and holds the market will not be part of active trading (except incidentally). So active investors must fight for gains above the market return amongst themselves.

    • Replies: @Anonymous
  143. CJ says:
    @Abelard Lindsey

    McCain was essentially a pro-war liberal, the worst of all worlds.

    He was also hot-tempered, vindictive, dishonest and stupid. One of the worst major-party presidential candidates of modern times, and yes there’s a lot of competition.

    • Agree: Jim Don Bob
  144. Anonymous[151] • Disclaimer says:
    @Pincher Martin

    The index investor who buys and holds the market will not be part of active trading (except incidentally). So active investors must fight for gains above the market return amongst themselves.

    Would it be more meaningful, and as accurate, to say that active investors must fight for any gains amongst themselves? Why is the baseline here the market return?

  145. Paul says:
    @Anonymous

    Peter Lynch (in his books Beating the Street and One Up on Wall Street) tells what to look for in a stock. He gives some metrics to which you should pay attention. For example, you should be wary, as I recall, if a company has a debt to equity ratio of more than twenty percent. You also want a company that seems to have a viable plan for making money going forward. It is not as if you need to worry about a stock’s price each day. (Prices are always bouncing around.) You do need to pay attention to quarterly and yearly reports. For automobile stocks, as I recall, the longer the average car has been on the road, the better is the time for buying automobile stock.

    The tricky part is narrowing down which stocks (there are so many out there) to examine in the first place. Stock screeners can help narrow the field. A book titled The Warren Buffett Way also has some good tips. Hope that helps.

    • Replies: @Anonymous
  146. J.Ross says: • Website
    @Citizen of a Silly Country

    I hear they are now moving to make it impossible to invest in bitcoin unless you are an accredited investor.

  147. @Hibernian

    Isn’t he an Evangelical Christian or am I confusing him with someone else?

    Whatever. Anagrams aren’t numerology. They can be ironic, too.

  148. @Anonymous

    open boarders

    This misspelling is so common I’m beginning to think it’s deliberate.

    • Replies: @danand
  149. Benjaminl says:

    Off-topic: big NYT article about David Reich and ancient DNA, busy trying to Shape The Narrative…

    https://www.nytimes.com/2019/01/17/magazine/ancient-dna-paleogenomics.html

    People who live in a place today often bear no genetic resemblance to people who lived there thousands of years ago, so the idea that something in your blood makes you meaningfully Spanish is absurd…

    They were surprised, in part, because archaeologists since the 1960s had been trained never to assume the purity or coherence of a people, a slippery slope to the conclusion that certain peoples came by their advantages “naturally.”…

  150. @Known Fact

    Annexation also helps dampen down those inner-city crime stats

    City-county consolidation (Miami, Jacksonville, Indianapolis) is a great gift to Republicans. Which is why the goo-goos stopped their crusade for “regional government”.

    Some cities, like San Antonio, already contain most or all of their suburbs, with few or no independent ones. Omaha is like that, too. When Omaha wanted to annex a nearby parcel, the votes of the tens of thousands in the city were thrown together with the tens of tens in the parcel. The latter had no chance!

    • Replies: @Simply Simon
  151. @Anonymous

    Would it be more meaningful, and as accurate, to say that active investors must fight for any gains amongst themselves? Why is the baseline here the market return?

    Two reasons.

    First, the index investor is only after the market return. He’s not greedy. He leaves the battle of stock-picking to the active investors. He’s like the computer at the end of War Games who has finally figured out that the only winning move is not to play.

    The second reason is that in some years the total market return will be a huge loss for all investors, and then active investors are usually not fighting for gains, but for whoever can get the smaller losses.

    In a year when the total market is down 10 percent, and you’re only down 5 percent, you had a helluva good year as an active investor.

  152. @Anonymous

    Warren Buffett in the 2005 Berkshire Hathaway Report:

    With unimportant exceptions, such as bankruptcies in which some of a company’s losses are borne by creditors, the most that owners in aggregate can earn between now and Judgment Day is what their businesses in aggregate earn. True, by buying and selling that is clever or lucky, investor A may take more than his share of the pie at the expense of investor B. And, yes, all investors feel richer when stocks soar. But an owner can exit only by having someone take his place. If one investor sells high, another must buy high. For owners as a whole, there is simply no magic – no shower of money from outer space – that will enable them to extract wealth from their companies beyond that created by the companies themselves.

    Indeed, owners must earn less than their businesses earn because of “frictional” costs. And that’s my point: These costs are now being incurred in amounts that will cause shareholders to earn far less than they historically have.

    To understand how this toll has ballooned, imagine for a moment that all American corporations are, and always will be, owned by a single family. We’ll call them the Gotrocks. After paying taxes on dividends, this family – generation after generation – becomes richer by the aggregate amount earned by its companies. Today that amount is about $700 billion annually. Naturally, the family spends some of these dollars. But the portion it saves steadily compounds for its benefit. In the Gotrocks household everyone grows wealthier at the same pace, and all is harmonious.

    But let’s now assume that a few fast-talking Helpers approach the family and persuade each of its members to try to outsmart his relatives by buying certain of their holdings and selling them certain others. The Helpers – for a fee, of course – obligingly agree to handle these transactions. The Gotrocks still own all of corporate America; the trades just rearrange who owns what. So the family’s annual gain in wealth diminishes, equaling the earnings of American business minus commissions paid. The more that family members trade, the smaller their share of the pie and the larger the slice received by the Helpers. This fact is not lost upon these broker-Helpers: Activity is their friend and, in a wide variety of ways, they urge it on.

    After a while, most of the family members realize that they are not doing so well at this new “beat-my-brother” game. Enter another set of Helpers. These newcomers explain to each member of the Gotrocks clan that by himself he’ll never outsmart the rest of the family. The suggested cure: “Hire a manager – yes, us – and get the job done professionally.” These manager- Helpers continue to use the broker-Helpers to execute trades; the managers may even increase their activity so as to permit the brokers to prosper still more. Overall, a bigger slice of the pie now goes to the two classes of Helpers.

    The family’s disappointment grows. Each of its members is now employing professionals. Yet overall, the group’s finances have taken a turn for the worse. The solution? More help, of course.

    It arrives in the form of financial planners and institutional consultants, who weigh in to advise the Gotrocks on selecting manager-Helpers. The befuddled family welcomes this assistance. By now its members know they can pick neither the right stocks nor the right stock-pickers. Why, one might ask, should they expect success in picking the right consultant? But this question does not occur to the Gotrocks, and the consultant-Helpers certainly don’t suggest it to them.

    The Gotrocks, now supporting three classes of expensive Helpers, find that their results get worse, and they sink into despair. But just as hope seems lost, a fourth group – we’ll call them the hyper-Helpers – appears. These friendly folk explain to the Gotrocks that their unsatisfactory results are occurring because the existing Helpers – brokers, managers, consultants – are not sufficiently motivated and are simply going through the motions. “What,” the new Helpers ask, “can you expect from such a bunch of zombies?”

    The new arrivals offer a breathtakingly simple solution: Pay more money. Brimming with self-confidence, the hyper- Helpers assert that huge contingent payments – in addition to stiff fixed fees – are what each family member must fork over in order to really outmaneuver his relatives.

    The more observant members of the family see that some of the hyper-Helpers are really just manager-Helpers wearing new uniforms, bearing sewn-on sexy names like HEDGE FUND or PRIVATE EQUITY. The new Helpers, however, assure the Gotrocks that this change of clothing is all-important, bestowing on its wearers magical powers similar to those acquired by mild- mannered Clark Kent when he changed into his Superman costume. Calmed by this explanation, the family decides to pay up.

    And that’s where we are today: A record portion of the earnings that would go in their entirety to owners – if they all just stayed in their rocking chairs – is now going to a swelling army of Helpers. Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all of the losses – and large fixed fees to boot – when the Helpers are dumb or unlucky (or occasionally crooked).

    A sufficient number of arrangements like this – heads, the Helper takes much of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of doing so – may make it more accurate to call the family the Hadrocks. Today, in fact, the family’s frictional costs of all sorts may well amount to 20% of the earnings of American business. In other words, the burden of paying Helpers may cause American equity investors, overall, to earn only 80% or so of what they would earn if they just sat still and listened to no one.

    Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

    *****

    Or, as Fred Schwed put it more succinctly in the title of his book: Where are the customers’ yachts?

  153. anonymous[117] • Disclaimer says:
    @Simply Simon

    Yes, and Cuomo II, governor of New York, wants Onondaga County (many R’s) to merge with the city of Syracuse (all D’s), to support the city’s dysfunctional people (many more gun crimes and stabbings than one would expect from such a small city), and especially, its broken school district.

    If that ever happens, I am moving.
    Anywhere.

  154. Anonymous[151] • Disclaimer says:
    @Paul

    Thank you Paul.

  155. Forbes says:
    @Anonymous

    What is meant is the weighting (or proportion) in the portfolio is determined buy the market capitalization (price * shares outstanding) of each company as against the total portfolio.

    My 5-stock index fund has companies with market capitalization ($ in billions) of 50, 100, 150, 200, and 250, for a total of capitalization of $750 billion, then the weight (or proportion) of each stock will be respectively 6.67%, 13.33%, 20%, 26.67%, and 33.0%, by dollar amount, of the total portfolio. This is only the initial state, which no longer matters after day 1..

    If you had a $750 investment in that 5-stock index mutual fund, you would own the equivalent of $50, $100. $150, $200, and $250 in the respective companies.

    The simplicity is that as the stock prices change for each company, so does the market cap–and the portfolio naturally re-balances based on the new market capitalization weighting. (The initial state no longer matters.) There is no buying and selling of shares attempting to re-balance and match the initial state–the starting weighting or proportions.

    I hope that helps.

  156. @Daniel H

    Does the Renaissance hedge fund only trade on their own account for their premiere fund? I think so …

  157. @Reg Cæsar

    “When Omaha wanted to annex a nearby parcel, the votes of the tens of thousands in the city were thrown together with the tens of tens in the parcel.”
    A similar situation exists in the Austin TX area. It involves the Austin Community College(ACC) seeking to establish community colleges in neighboring towns and villages. The residents of each independent school district are put to a vote on whether or not to join ACC in having a junior college built in their district. Intense lobbying for a yes vote is conducted by representatives of ACC and the teachers and others (like contractors and architects) who would benefit. As usual with this kind of matter, voter turnout is very light and the proposition easily passes. What the taxpayers don’t realize is the ACC is constantly promoting bond issues and since the parent ACC is Austin ISD based the bond issues pass because Austin ISD has the majority of the votes. Meanwhile the bonded indebtedness of ACC is over $450 million and their administrative staff is expanding like a balloon.

  158. @International Jew

    Actually, a fair amount of hedge fund managers/mutual fund managers do liquidate their funds so that they can pursue their strategies in a more pure, concentrated way. As Buffett said, fat wallets are the enemy of high investment returns.

    So the best strategy seems to be a three step process:

    1. Come up with a good strategy
    2. Use that strategy to acquire big-time AUM and get the benefit of the strategy and fees
    3. Once the fund becomes too unwieldy – and you have plenty of money – fire your clients and continue using the strategy with your own money.

  159. @Anonymous

    The research shows that an individual investor has an edge over professionals in micro-cap stocks, not because we’re smarter than they are, but because they can’t invest in micro-caps. Too much money.

    Also, the value premium/anomaly is far, far larger in micro-caps than in mid and large-cap stocks. (See Lu Zhang’s work for that. He shows that a lot value premium research is BS because researchers include micro-caps which are loaded with the value premium but inaccessible.)

    Think of it like a pond or small lake that’s loaded with fish but the industrial fisherman – who are really good at fishing – can’t fit their boats into. You may not be as good a fisherman as they are or have their awesome equipment, but it doesn’t matter because you’ve got a massively better fishing hole.

    An individual investor has a huge edge over institutional investors by buying micro-cap value stocks. Of course, the question is what to buy. I’m make a couple of suggestions.

    1. Learn about investing to design a simple quantitative screen for buying stocks. I’d start with Quantitative Value by Wes Gray and What Works on Wall Street by O’Shaughnessy. They’re all about using metrics to screen for stocks.

    2. Use a stock screener – which already have screens for you to use but it’s good to know why they work – such as Portfolio123 or Stockopedia. (I really like quality, value, momentum QVM screen.) Paul Novell at Investing for a Living also has a nice value/momentum micro-cap service.

    3. Apply all of that to micro-cap. You could do global micro-caps, but probably want to stick with U.S. micro-caps due to better liquidity.

    But be warned, investing in simple but not easy – and that goes double for micro-caps.

  160. rufus says:
    @dearieme

    yes, as our mod would say, this has been split and lumped in every imaginable way now. As a former futures broker Ill say, this bring you closer to, ” the tic.” Avoid the friction of commerce. Of course your still going to get your ass handed to you.

  161. @anon

    I could not agree more. Some years back I was the beneficiary of a highly unexpected inheritance from a first cousin once removed who happened to be childless. After paying off debts we contacted a local Edward Jones stockbroker. To make a long story short I soon found out my investments were going nowhere eaten up as you say by fleecing fees. Having enough of this I cashed out of EJ and purchased Vanguard no-load index funds which appear to be doing okay.

  162. rufus says:
    @Coalite

    Save it bro… Smarter men have tried. Step in and exploit these inefficiencies ? call back

  163. danand says:
    @Reg Cæsar

    Reg,

    “This misspelling is so common I’m beginning to think it’s deliberate.”

    A bit a pun, the USA is currently “open to boarders”: persons not intending to “melt” into the fabric of (what was?) America. Or perhaps while spellcheck assisted thumb typing; it’s just spellcheck doing Apple’s bidding?

    #151,

    “Doesn’t Japan have a high standard of living?”

    Graphed are Japanese wages for the last few decades. No growth Japan has remained relatively cohesive, has not yet succumbed to outside invasion, and as it shrinks in population, environmentalist applaud. On the other hand both Corollas & fishing boats are ~2X the price they were in 1990 (as the rest of the world moves on/forward?). Not sure most other peoples would be as sanguine with a similar economic trajectory?  Maybe some, perhaps even most here, would accept the trade-off?

    source: tradingeconomics.com

    source: tradingeconomics.com

  164. gregor says:
    @Paul

    I don’t know about your brother specifically, but as a general rule claims of great investment returns should be taken with a grain of salt. Some people just like to brag. Some people have selective memories. And a lot of people don’t really know how to benchmark or even calculate their performance correctly.

    A classic example is an old ladies’ investment group that sold over a million books touting their investment success before someone noticed they calculated their returns incorrectly. Really incorrectly. Like counting additional principal as pure investment return.

    https://en.wikipedia.org/wiki/Beardstown_Ladies

    • Agree: Pincher Martin
    • Replies: @Anonymous
  165. @Charles Pewitt

    Yeah, because young people aren’t subject to human nature, and they’re not self-interested (“greedy”) like those bad older people. Come on.

    Also, your plan of massive immediate interest rate hikes will severely harm the millions of non-plutocrat Americans who have adjustable-rate mortgages and home-equity lines of credit.

    How about having the fed gov refinance all residential mortgages, up to a certain mortgage balance, at one percent interest? The economy would get ongoing and repeated boosts as each group of debtors gets the benefit of the Refi. As people pay much less in mortgage interest, they’d have more income available to spend, save, and invest.

    Agree with you wholeheartedly about the financial scam that’s impoverishing us.

  166. Anonymous[222] • Disclaimer says:
    @Anonymous

    No specific recommendations, just an observation that indexing is premised on indefinite economic growth (Bogle’s Princeton thesis was published in 1951 IIRC), and the United States has most definitely peaked already.

    Buying and holding the entire market is not “investing” in any meaningful sense. It’s just throwing up a hail mary that the current global economic system can keep shambling on, giving index “investors” 7% returns year after year forever. All the studies done on indexing vs. active investing have been done in the United States or nations which have enjoyed her benign imperialism since the end of WWII.

    Investors do due diligence. Indexing is a cargo cult.

    • Replies: @Pincher Martin
  167. Anonymous[420] • Disclaimer says:
    @gregor

    A classic example is an old ladies’ investment group that sold over a million books touting their investment success before someone noticed they calculated their returns incorrectly. Really incorrectly. Like counting additional principal as pure investment return.

    https://en.wikipedia.org/wiki/Beardstown_Ladies

    I knew a woman who said that she had been invited to join the group, but had not. She worked in a manufacturing plant I consulted in in downstate Illinois in the early 90s, if I recall. I had no idea who these women were until she mentioned them.

    From another Wiki article,

    https://en.wikipedia.org/wiki/Beardstown,_Illinois

    The Beardstown Ladies
    Main article: Beardstown Ladies

    From 1984 to 1993, a group of 16 late-aged women were picking stocks in the Dow Jones and over the course of nine years were claiming returning of 23.4% on their stocks. Once they went public with the amazing returns, they gained national recognition for their success. The Beardstown Ladies, with an average age of 70 (1994), were asked to appear on The Donahue Show, CBS’s Morning Show, NBC’s The Today Show, and ABC’s Good Morning America. For six straight years they were honored by the National Association of Investors Corp’s “All-Star Investment Clubs”. In 1993, they produced their first home video for investors called, The Beardstown Ladies: Cooking Up Profits on Wall Street. By 1994, they wrote their first book, The Beardstown Ladies’ Common-Sense Investment Guide, which sold over 800,000 copies by 1998 and was a New York Times Best Seller. The Beardstown Ladies become a global phenomenon and TV stations from Germany, Brazil, and Japan were interviewing them and taping their monthly meetings in Beardstown. The seeds of scandal were planted in late 1998: a Chicago magazine noticed that the group’s returns included the fees the women paid every month. Without them, the returns dwindled to just 9%, underperforming the Dow. An article in the Wall Street Journal led the ladies to hire an outside auditor, which proved they had indeed misstated their returns.[13] Time magazine jokingly stated that they should be jailed for fraud and misrepresentation. As of 2006, the Beardstown Ladies were still buying stocks. Their books can be bought from Amazon.com for mere pennies.

  168. @Anonymous

    How did you come to be one? Would you recommend any literature to the ignorant?

    I began investing in the late nineteen-nineties so my recommendations will be dated. But I doubt the approach to indexing has change much. And if it has, you can find good advice over at the Bogleheads Forum.

    So with that I’m mind here are my book recommendations. I have listed them in order from the easiest to understand to the most difficult to understand (but they are all pretty easy if you have any understanding of basic math and investing).

    The Bogleheads’ Guide to Investing by Taylor Larimore.

    Common Sense on Mutual Funds by Jack Bogle.

    All About Asset Allocation by Richard Ferri.

    The Only Guide to a Winning Investment Strategy You’ll Ever Need by Larry Swedroe.

    The Four Pillars of Investing by William Bernstein.

    The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk by William Bernstein.

    These writers are all on the same team, so to speak, but they differ somewhat in how they would build their portfolios, with Bogle preferring to keep things simple with a single stock index fund, and Ferri, Swedroe, and Bernstein recommending more complicated portfolios to take advantage of non-correlated asset classes.

  169. @Anonymous

    No specific recommendations, just an observation that indexing is premised on indefinite economic growth (Bogle’s Princeton thesis was published in 1951 IIRC), and the United States has most definitely peaked already.

    Yes, it’s premised on continued growth, but if the country ever stops growing you’ll have much greater concerns than where you have invested your money.

    Or perhaps you’re one of those Paulites whose investment advice is to buy gold. If so, best of luck to you when you’re fighting to keep people out of your cave and raiding your stash.

    Contrary to Ron Paul’s advice, the best time to buy stocks is when the market collapses. As Buffett says, it’s like storm clouds raining down money.

    Buying and holding the entire market is not “investing” in any meaningful sense.

    Sure it is. Trying to guess which stocks will go up and down is more like throwing up a Hail Mary. A bet on the market is the much safer bet.

    All the studies done on indexing vs. active investing have been done in the United States or nations which have enjoyed her benign imperialism since the end of WWII.

    Given that public markets are new to the rest of the world, where else would someone study about them? Communist Russia or China? Pre-Meiji Japan? Mars?

    • Replies: @Anonymous
  170. anon1 says:

    Costs matter. Fees matter. Expenses matter. Indexing is one way around this. But there are other ways too. Be a do-it-yourself (DIY) investor. With an easy to open online brokerage account you can buy your own stocks, bonds and other financial instruments. You are effectively cutting out the middleman here (the highly paid investment and mutual fund managers) and keeping all your gains for yourself. Most money managers actually do beat the index – BEFORE fees and expenses are subtracted. Nor are index funds necessarily a panacea. For example NORTEL once composed about 35% of the TSE index. This company no longer even exists. I never bought this stock because I didn’t believe in the hype about it. Had I been an index investor I would have lost a third of my money. I currently have a portfolio of about one million dollars in my retirement account. (RRSP). This consists of 22 stocks all of which pay dividends. (I won’t buy a stock that does not pay, and fairly consistently raise, its dividend). Last year I received about $43,ooo.oo dollars in dividends. Once every month I used this income to buy more stocks. My total annual expenses are about $120.00 dollars. With mutual funds this would be about $25,000.00 (The average stock mutual fund in Canada has a MER of about 2.5%).

  171. Forbes says:
    @Anonymous

    I should’ve said the simplicity lies in that the investment manager doesn’t have to re-balance the portfolio due to price changes of the stocks held. As such, the investor in the index mutual fund continues to hold a portfolio that remain perfectly weighted, based on the market capitalization of the companies held in the portfolio.

  172. Anonymous[145] • Disclaimer says:
    @Pincher Martin

    Lol. Yes, pre-Meiji Japan would be an excellent place to study markets, since the first futures markets appeared in Japan in the 17th century. Whoops!

    I can’t tell if you’re an economist because of your dumb, blind faith in the market and inability to consider the effects of assumptions, or just a Dunning-Kruger sufferer who picked up one book about investing which happened to be pro-indexing and now you think you’re smart for figuring out that management costs are bad.

    Not a goldbug, I don’t know why you think I advocate buying market highs(?), and I specifically said I’m not making recommendations.

    Many people do much better than the market. Yes, it takes time and effort and indexing has been a better option for many, under the specific circumstances of the past century, which have been ideal for indexing. If you don’t think you can compete in stocks, find something else. 7% ain’t hard to beat!

    • Replies: @Pincher Martin
    , @J.Ross
  173. @Anonymous

    Lol. Yes, pre-Meiji Japan would be an excellent place to study markets, since the first futures markets appeared in Japan in the 17th century.

    Great. Now tell us what rice and sashimi futures were like under the Tokugawa Bakufu, you doodling moron.

    I can’t tell if you’re an economist because of your dumb, blind faith in the market and inability to consider the effects of assumptions, or just a Dunning-Kruger sufferer who picked up one book about investing which happened to be pro-indexing and now you think you’re smart for figuring out that management costs are bad.

    Just one of many things you can’t tell.

    Many people do much better than the market.

    No, “many people” don’t. Fewer than one in ten managers over the course of more than fifteen years, and that percentage gets even smaller when talking about investors.

    Yes, it takes time and effort and indexing has been a better option for many, under the specific circumstances of the past century, which have been ideal for indexing. If you don’t think you can compete in stocks, find something else. 7% ain’t hard to beat!

    The value of indexing has nothing to do with anything specific to the last century. There was no value added to indexing because of growth in the 20th century, nor because of the Pax Americana, nor because of anything else unique to the last hundred years.

    There’s nothing unique, for example, about the value of low costs or the extreme difficulty of timing or the extreme difficulty of predicting winners and losers in the stock market. None of those things will change in the 21st century, dufus.

    • Replies: @Anonymous
  174. Anonymous[222] • Disclaimer says:
    @Pincher Martin

    Great. Now tell us what rice and sashimi futures were like under the Tokugawa Bakufu, you doodling moron.

    ^salty because I made you look stupid.

    There was no value added to indexing because of growth in the 20th century, nor because of the Pax Americana, nor because of anything else unique to the last hundred years.

    Yes, American hegemony and global corporate colonialism had no effect whatsoever on the economy. NONE. I mean, a guy that thinks the NYSE is the first market ever told me so, so it must be right!

    “Investors” != dumb money (you) dollar cost averaging into index funds. Yes, that group is a subset of investors. So are private equity and CRE firms that do much, much better than the market. So are VCs. So are people who invest locally in businesses that they know inside and out because they’ve been patronizing them for a decade. So are private real estate investors who do much better than market. So are hard money lenders financing the private RE investors. So are crypto investors that hodl, as are crypto investors that arb the exchanges. So are options traders operating what amount to one-man quant shops out of their home offices. Many investors in the above industries/hobbies outperform the market by a wide margin. And, yes, many lose their shirts. That doesn’t mean beating the market is impossible, it just means investing is highly g-loaded and most people can’t cut it.

    Before you try to tell me you’re only talking about people buying shares in publicly traded companies – remember that Warren Buffet doesn’t operate through an eTrade account.

    • Replies: @Pincher Martin
  175. J.Ross says: • Website
    @Anonymous

    Reminder: almost everyone who invokes Dunning-Kruger unintentionally illustrates it.

  176. @rufus

    the SP 500 now has only 386 individual issues

    According to Wikipedia this isn’t true.

  177. @Anonymous

    ^salty because I made you look stupid.

    The only person you could possibly make look stupid is your mother.

    There were no public markets of note in Tokugawa Japan that are relevant to this discussion. If you think the average individual Japanese could make a buck by investing in rice futures in Edo Japan … well, you’re only embarrassing your mother again.

    Yes, American hegemony and global corporate colonialism had no effect whatsoever on the economy. NONE. I mean, a guy that thinks the NYSE is the first market ever told me so, so it must be right!

    They had no effect. Zero.

    Global corporate colonialism? Is that why U.S. financial markets back in the twenties provided such a windfall for American investors? Because of overseas markets that were a trivial fraction of U.S. corporate profits? Or was it because of the U.S. Army, which was not even among the fifteen largest in the world at the time?

    That’s beyond silly. Even in the 1950s, trade was less than 5 percent of the U.S. economy. The U.S. market rose more back in the 1920s than it did in the 1990s. A lot more.

    All that’s needed for investors in the market is economic growth and a sane set of laws that protects investors. That’s it. End of story.

    “Investors” != dumb money (you) dollar cost averaging into index funds. Yes, that group is a subset of investors. So are private equity and CRE firms that do much, much better than the market.

    Hedge funds are the equivalent of credit cards for the rich. Whereas credit cards use exorbitant interest rates to milk the poor, hedge funds use exorbitant fees to milk the rich.

    The only way most private equity funds make money is by finding suckers like you – except they are suckers with money. Tiger Woods, for example, invests in a hedge fund. As do many other dumb celebrities. The smart guys run the hedge funds and charge the fees.

    Why in God’s name do you think Warren Buffett made the bet he made against hedge funds? Do you think he’s stupid? Or that you’re just way smarter than him about markets?

    So are people who invest locally in businesses that they know inside and out because they’ve been patronizing them for a decade.

    Prove it.

    Successful business owners do better than passive investors, of course, but that’s not investing. That’s hard work and high risk, and you’re only counting the survivors. The people who try to start a business and fail aren’t usually counted when a dumbass like you is surveying the field.

    Before you try to tell me you’re only talking about people buying shares in publicly traded companies – remember that Warren Buffet doesn’t operate through an eTrade account.

    I AM talking about passive investing. Unless you’re a pitiful day trader, that’s not work. It’s what you do with your surplus savings from work.

    And the best way to do that is by buying and holding low-cost index funds.

    That doesn’t mean beating the market is impossible, it just means investing is highly g-loaded and most people can’t cut it.

    Says the guy who has yet to demonstrate that he can even do simple math.

    When you make a trade in the markets, you can be sure that the guy on the other end of that trade is smarter than you.

  178. @Citizen of a Silly Country

    Thorp first became famous for writing Beat the Dealer.

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