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Old 07-06-2009, 12:34 PM   #21
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I am not a stock guy, but if I was forced to have exposure to the market, why would you not just buy a handful of stock directly?

You don't actually believe the mutual fund guys can make better guesses than you, do you?
In my case, yes!! 99.44% of Americans over age 13 could make better guesses individual stock investment choices than I could.
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Old 07-06-2009, 12:44 PM   #22
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You don't actually believe the mutual fund guys can make better guesses than you, do you?
The index fund guys don't make any guesses at all.

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Old 07-06-2009, 01:15 PM   #23
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I am not a stock guy, but if I was forced to have exposure to the market, why would you not just buy a handful of stock directly?

You don't actually believe the mutual fund guys can make better guesses than you, do you?
I'm buying in bulk - I get thousands of stocks for a $100 minimum purchase and no transaction fee, plus they'll manage the portfolio for under .10% in some cases. That is $100 per year on a $100,000 investment. And it is easier to track for tax purposes when I own the one fund vs. many stocks held within it.
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Old 07-06-2009, 01:42 PM   #24
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The index fund guys don't make any guesses at all.

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The only guesses they are exposed to are the ones from the committee who decides which stocks go in and which go out of the index........
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Old 07-06-2009, 02:39 PM   #25
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I'm buying in bulk - I get thousands of stocks for a $100 minimum purchase and no transaction fee, plus they'll manage the portfolio for under .10% in some cases. That is $100 per year on a $100,000 investment. And it is easier to track for tax purposes when I own the one fund vs. many stocks held within it.
sounds good in principle. Can the expense ratio be verified, or does one take that on trust? One has to operate on the assumption that the very best Chicago school minds will be trying to figure out how to game the game for their benefit.
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Old 07-06-2009, 02:51 PM   #26
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sounds good in principle. Can the expense ratio be verified, or does one take that on trust? One has to operate on the assumption that the very best Chicago school minds will be trying to figure out how to game the game for their benefit.
If it is Vanguard what you see is what you get. Oh and they are working for you as you own the company...

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The only guesses they are exposed to are the ones from the committee who decides which stocks go in and which go out of the index........
My understanding is this is mostly computer driven for index funds and you can follow the tracking error to keep them honest.

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Old 07-06-2009, 03:05 PM   #27
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Oh and they are working for you as you own the company
betcha the Vangard guys that "work for you" drive more expensive cars and live in bigger houses than most of their clients
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Old 07-06-2009, 03:10 PM   #28
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betcha the Vangard guys that "work for you" drive more expensive cars and live in bigger houses than most of their clients
Which could indicate Vanguard clients are being fleeced. Or that Vanguard employees are likely to be deeply in debt.
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Old 07-06-2009, 03:11 PM   #29
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sounds good in principle. Can the expense ratio be verified, or does one take that on trust? One has to operate on the assumption that the very best Chicago school minds will be trying to figure out how to game the game for their benefit.
There's a certain very limited element of trust involved as there could be deceit or fraud at a number of steps in the ownership of mutual funds.

But the mutual funds and ETF's I invest in are SEC regulated. They file statements quarterly and annually that includes disclosures of things like expenses, holdings, etc. I typically flip through the annual reports and do actually take a look at the holdings, the expenses, the expense ratios and that sort of thing.

Expense ratios are just one of many "expenses" involved with mutual fund ownership. There's brokerage commissions, bid/ask spreads, and market impact costs. But I typically focus on low turnover funds that keep these "non expense ratio" expenses to a minimum. A surrogate for looking at expense ratios is looking at tracking error - in other words, how does the fund performance compare to the index they seek to track.
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Old 07-06-2009, 03:14 PM   #30
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betcha the Vangard guys that "work for you" drive more expensive cars and live in bigger houses than most of their clients
Actually I've heard quite the opposite. Most (virtually all?) of the VG guys don't enjoy the typical wall st salaries. Many feel underpaid (don't we all though). Apparently it is a nice place to work though with good benefits and a little less stress due to being essentially a non-profit. The DW works at a competing firm and a few of her co-workers have left to work at VG in a city nearby, and so I'm generalizing a little here.

I don't mean to sound crass, but have you ever heard of Vanguard before? You realize it is a fund company that is founded on the philosophy of low cost investing, right?
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Old 07-06-2009, 03:40 PM   #31
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Actually I've heard quite the opposite. Most (virtually all?) of the VG guys don't enjoy the typical wall st salaries. Many feel underpaid (don't we all though). Apparently it is a nice place to work though with good benefits and a little less stress due to being essentially a non-profit. The DW works at a competing firm and a few of her co-workers have left to work at VG in a city nearby, and so I'm generalizing a little here.

I don't mean to sound crass, but have you ever heard of Vanguard before? You realize it is a fund company that is founded on the philosophy of low cost investing, right?
I am not American and have been completely out of stocks/funds for many decades, so I am genuinely as ignorant of this as you suspect. When I want excitement (ie. more than 4.5% CD yield) I do private mortage lending...I have this worry that money that gets too far out of sight will not come back.

I am playing a bit of devil's advocate with you, not to be cute, but in order to understand. If the VG guys are complaining about low compensation, I AM impressed. The benchmark to the underlying index sounds like a good transparent discipline as well.

by the way, just because you have a para-communistic structure - doesn't mean a devil will not get in there and figure out a scam. Behind Lenin soon comes Stalin in such situations.

I am surprised you give any credence to SEC oversight though, in light of recent events...I assume they will be more careful for 20 years or so.
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Old 07-06-2009, 04:36 PM   #32
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I am not American and have been completely out of stocks/funds for many decades, so I am genuinely as ignorant of this as you suspect. When I want excitement (ie. more than 4.5% CD yield) I do private mortage lending...I have this worry that money that gets too far out of sight will not come back.

I am playing a bit of devil's advocate with you, not to be cute, but in order to understand. If the VG guys are complaining about low compensation, I AM impressed. The benchmark to the underlying index sounds like a good transparent discipline as well.

by the way, just because you have a para-communistic structure - doesn't mean a devil will not get in there and figure out a scam. Behind Lenin soon comes Stalin in such situations.

I am surprised you give any credence to SEC oversight though, in light of recent events...I assume they will be more careful for 20 years or so.
Yes, Vanguard is widely respected in the US investing community. They are mutually owned by the shareholders, so any "profit" goes back to the shareholders. It isn't really "para-communistic" - whatever that means?? There are a few other truly mutual investment sponsors and insurance companies in the US, along with Credit Unions which are basically mutually owned banks. In general, these mutually owned companies are fairly highly regarded and in my opinion are able to do a better job of looking out for their customers since the customers own the fund company/bank/insurance company (unlike privately owned companies that have a duty only to their public or private shareholders).

I guess I can't fault you for not being familiar with them. I don't think they offer funds to non-US markets, other than exchange traded funds that you could probably purchase through a broker. I know very little about private mortgage investing, so I'm similarly ignorant of the players in that market.

SEC regulation is still rigorous for investment companies and publicly traded companies. "Hedge funds" in America (like Bernie Madoff's) fall under a different regulatory framework than mutual funds. They are only lightly regulated by the SEC as long as they follow certain rules. Perhaps this is what you are thinking of? I don't invest in hedge funds for a number of reasons.

I like the SEC regulation of mutual funds just fine. And I think investors around the world like the regulation, security and certainty of the US capital markets (one of the limited things the US is really good at! ).
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Old 07-06-2009, 05:05 PM   #33
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I suspect most of the people at Vanguard are either call center account representatives or administrative support/IT. Same with USAA, which hires here in Arizona for (usually) salaries that distinctly middle income.
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Old 07-06-2009, 05:43 PM   #34
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I suspect most of the people at Vanguard are either call center account representatives or administrative support/IT. Same with USAA, which hires here in Arizona for (usually) salaries that distinctly middle income.
Right on. Even their CFP's/advisors are salaried and not in sales positions like at many competing firms.
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Old 07-06-2009, 07:41 PM   #35
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It isn't really "para-communistic" - whatever that means?? There are a few other truly mutual investment sponsors and insurance companies in the US, along with Credit Unions which are basically mutually owned banks.
I am just saying, just because something is a cooperative, this is no guarantee of being immune from monkey business or incompetence.

Speaking as a former hippy, and later Ayn Rand fan, I am very sceptical regarding alternate industrial structures.

I am half joking by referring to a cooperative as a communistic entity.

I prefer the "owner is in the store" model, as a general rule, when buying a service or product.

I also deal with cooperatives vs private firms in my profession, and the smart money sees cooperatives as future acquisitions by private firms.

Sometimes the exception proves the rule. I wonder why VG is able to succeed without private ownership?

I will wiki it.
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Old 07-07-2009, 03:23 PM   #36
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The only guesses they are exposed to are the ones from the committee who decides which stocks go in and which go out of the index........
Yep! That's what always bugged me. That plus the icky market weighting.

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Old 07-07-2009, 05:39 PM   #37
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The only guesses they are exposed to are the ones from the committee who decides which stocks go in and which go out of the index........
I'm curious - are you talking about the index itself, or the fund manager who might only buy a sampling of the stocks that make up the fund?

If the former - I agree in cases like the DOW (which is why I ignore it as much as I can), but with the S&P500, etc - I wouldn't think a bit of selection makes much difference in the long run.

For the latter - I suppose, but most index funds come pretty darn close to the index itself, which is sort of a "virtual investment" anyhow - no trading costs or anything in that number.

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Old 07-07-2009, 06:46 PM   #38
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sounds good in principle. Can the expense ratio be verified, or does one take that on trust? One has to operate on the assumption that the very best Chicago school minds will be trying to figure out how to game the game for their benefit.
If we're being paranoid here, let me ask you this? How do you know that your broker really purchased and is holding all those shares of individual company stock you think you own? Have you ever seen the stock certificates? Me neither.

It takes a certain amount of trust for a modern economic system to function. If you don't have that, you might as well stock up on ammunition and canned goods.
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Old 07-07-2009, 08:19 PM   #39
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If we're being paranoid here, let me ask you this? How do you know that your broker really purchased and is holding all those shares of individual company stock you think you own? Have you ever seen the stock certificates? Me neither.
I think Kroeran's paranoia is appropriate for someone whose knowledge of the American stock market consists of no personal experience and only what they read in American newspapers.
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Old 07-08-2009, 10:07 AM   #40
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If we're being paranoid here, let me ask you this? How do you know that your broker really purchased and is holding all those shares of individual company stock you think you own? Have you ever seen the stock certificates? Me neither.

It takes a certain amount of trust for a modern economic system to function. If you don't have that, you might as well stock up on ammunition and canned goods.
Yup.

Think of how much faith you put in when dealing in real estate too.
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