What would happen if the entire stock market used Bogle's principles?

[Ken11]

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Originally Posted by eta2020 I think you will not break Bogleheads investing strategy if you buy excellent index funds like VIG or SCHD. Those index funds select what to buy based on things like earnings growth, competitive advantage etc etc. And they sport annual fees of 0.10 and 0.07 percent. The above mentioned index funds will drive prices of their holdings. They are not passive.

I agree.
However, is active investing really a part of Bogle's investing principles?
Just cause Vanguard has a variety of funds doesn't mean they all align with the central Bogle strategy.
To me Bogles key points are to focus on very broad diversification, low costs and buy/hold.
That's not active investing.

[eta2020]

Quote:

Originally Posted by Ken11 I agree. However, is active investing really a part of Bogle's investing principles? Just cause Vanguard has a variety of funds doesn't mean they all align with the central Bogle strategy. To me Bogles key points are to focus on very broad diversification, low costs and buy/hold. That's not active investing.

It is not active in terms of person driving decisions. Index drives what to purchase. This is why you have such a low fees. IMO it follows Bogle's investing principle.

[ChiliPepr]

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Originally Posted by nun Interesting, so indexers need the stock pickers to be successful. Maybe indexers should be a little less evangelical and should encourage the market timers and stock pickers in their own self interest.

Exactly... Basically, any index is the top XX of the YYY market (the top 500 of the US market is the S&P500). The top securities are determined by the active investors. People who invest in Indices are saying that they think that the collective average knowledge of the active investors is better than what they could do year over year. Without active investors you would never know who belongs at the top.

[mathjak107]

indexing is not as passive as you think. someone is making decisions about what stays ,what goes and how long failing companies stay in the indexes.

think about the fact if poor decisions were not made about certain failing companies being in the index so long the returns would have been better.

the point is someone at the top is making decisions and picking stocks.

each fund does not buy every stock in an index, rather the fund family picks and chooses which stocks to own in their particular representation of an index.

with indexing the "stock pickers " are just not fund managers deciding what to buy and sell but there certainly is someone or someones in the chain doing that as the indexes are maintained. and altered.

look at how long the indexes sat with big failing companies before they were swapped out. bad decsion ..

finally when you assemble a portfolio you have to make a decision about which indexes to include.

[Ken11]

I agree its a matter of degree.

To me trading as necessary to maintain correlation to an index is much less active than I consider "active investing" to be. The low fees tend to support that.

In any case, how much of such "index correlation chasing" do you think goes on in the V total stock fund? Perhaps decoupling an equity fund from a given index has some performance advantages??

[Midpack]

There are various types of indexes and several methods of weighting. I haven't studied each of them in detail, but I thought most include X number of stocks by some metric (often market cap). And the methodology re: what stocks are included, how rebalanced, etc. is typically public ("rules based"), so there really isn't anyone making arbitrary, biased or frequent choices.

The broad or composite indexes include thousands of stocks, or all stocks for a given category. Again what stocks, rebalancing, etc. are clearly defined, and would fit most definitions for "passive" funds.

It's probably accurate to say most if not all commonly known traded/held index funds are passive in comparison to actively managed funds. Are there funds that call themselves "index funds" that are actually actively managed? Wouldn't surprise me, but I don't know of any...

[eridanus]

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Originally Posted by Ken11 If everyone is passive and invested in passive funds then the function of the market intended to reward or punish business performance would be eliminated. This is bad.

There would be less volatility (no panic selling or buying on the rumor) but the market would still reward and punish (real) business performance. If Apple becomes a Nokia, it would get bumped from an index (presumably).

To expand on what mathjak wrote: Company stock would rise or fall depending on whether the index professionals include or kick out a stock. IPOs might seek approval from a professional because a stock is meaningless, or almost so, without being in an index. In the end, we'd be trusting the financial advisors more than we do now.