Creating an index

[Boho]

I just put this in my old intro thread but when I read it I got all psyched and decided it deserved its own thread.

If I create an index and someone creates a mutual fund that tracks my index, I'd be paid, right?

 

[ERD50]

Why don't you tell us?

Nothing else, if you believe the indexers. I happen to believe you need to know more so I do the research.

-ERD50

 

[easysurfer]

I just put this in my old intro thread but when I read it I got all psyched and decided it deserved its own thread.

If I create an index and someone creates a mutual fund that tracks my index, I'd be paid, right?

No way would I trust your index as from your previous posts, I'm sure that index will be riddled with market timing tendencies .

 

[Whisper66]

I guess you could if you had a contract to collect royalties like it appears some of the big guys do. https://www.bogleheads.org/forum/viewtopic.php?t=57076

Good luck with that idea. (Don't quit your day job to do this!)

 

[Boho]

I was wondering whether if I define under what conditions something is included in the index so precisely that anyone could create the index themselves, if it wouldn't be considered an index. I think it would be. So, yeah, the most timed index might be a gimmick that works.

 

[MRG]

It's good to know about indexes; when to create them and drop them. Here's some information:

When should indexes be avoided?
Although indexes are intended to enhance a database's performance, there are times when they should be avoided. The following guidelines indicate when the use of an index should be reconsidered:

Indexes should not be used on small tables.

Tables that have frequent, large batch update or insert operations.

Indexes should not be used on columns that contain a high number of NULL values.

Columns that are frequently manipulated should not be indexed.

 

[ERD50]

No way would I trust your index as from your previous posts, I'm sure that index will be riddled with market timing tendencies .

Some likely tickers (all available!):

BOTWX - Bouncing Off The Walls Index Fund

SOTDX - Strategy Of The Day Index Fund

or for those really reaching for the latest and greatest, up-to-date, not thought of by mere mortals yet:

SOTHX - Strategy Of The Hour Index Fund

and there is always the:

RPSIW - Rock Paper Scissors I Win Index Fund


-ERD50

 

[marko]

and there is always the:

RPSIW - Rock Paper Scissors I Win Index Fund


-ERD50

As a heavy owner of TRPrice's RPSIX fund...NOW I know what it stands for!!

 

[Boho]

I guess you could if you had a contract to collect royalties like it appears some of the big guys do. https://www.bogleheads.org/forum/viewtopic.php?t=57076

"Most ETF's and open-ended index funds are paying index providers somewhere in the range of 1.5 and 16 basis points (0.015%-0.16%) in licensing fees."

Sounds good. Now I just want to make sure do the right things to make sure nobody uses my index for commercial purposes without making a deal with me. And I need the time to do this. There have been a few kinds of indexes I wanted and couldn't find so it's not like the market is saturated.

 

[Boho]

For example, I'd like to see an international fund that's especially good when you want to diversify an all US portfolio. Maybe I'd include the 50 large cap, under valued international stocks that had the least correlation to the S&P over the previous 6 months.

 

[exnavynuke]

"Most ETF's and open-ended index funds are paying index providers somewhere in the range of 1.5 and 16 basis points (0.015%-0.16%) in licensing fees."

Sounds good. Now I just want to make sure do the right things to make sure nobody uses my index for commercial purposes without making a deal with me. And I need the time to do this. There have been a few kinds of indexes I wanted and couldn't find so it's not like the market is saturated.

I don't mean to burst your bubble, but first you have to make an index. Then you have to get fund managers to hear of your index. Then you have to make fund managers decide to look into your index instead of the other 10k things they already have on their plate. Then you have to make them think your index is worth a damn. Then they have to somehow conclude that Random_Investor_01 will also think your index is a better place to put their money than any other place they could put it. Then.. and only then, do you have a shot at them deciding they need to make a fund to track your index so they can sell that to their clients.

So, what I'm saying I guess is that I can't believe Vanguard isn't at your door offering you money for your index already... it's practically a done dead.

 

[COcheesehead]

Before ETF's, folks would use UIT's, unit investment trusts to create the things you call an index, but what really are themes or strategies.
Dogs of the Dow was one UIT for example.

 

[bingybear]

This is really a copyright/patent question. These companies that get paid for using someones index (and name) are getting the $ because the index name is marketable. If you come up with an index, copyright it, prove it's worth and publicize it so the name become ubiquitous... then you might get paid for it.

 

[MRG]

Why stop with an index? Start your own fund. Heck there's only 250 fund companies in the US. Start your own, than only use your indexes! Cut out the middle people.

 

[Boho]

Why stop with an index? Start your own fund. Heck there's only 250 fund companies in the US. Start your own, than only use your indexes! Cut out the middle people.

An index that nobody pays me for still seems like a legitimate index. A fund seems more complicated and if nobody buys it it's a failure. But I wonder what expenses would be involved.

 

[exnavynuke]

An index that nobody pays me for still seems like a legitimate index. A fund seems more complicated and if nobody buys it it's a failure. But I wonder what expenses would be involved.

What makes an index that nobody buys or hears of a bigger success than a fund that nobody buys or hears of?

 

[Boho]

What makes an index that nobody buys or hears of a bigger success than a fund that nobody buys or hears of?

I'm not sure about the full purpose of an index but it just seems like some basic compiled information that someone thinks may be of some use to someone. It's probably sometimes so easy to create that there's hardly any loss whether someone uses it or not. If it gets one mention in an article in a couple of years, that publicity may be enough to pay for it, assuming the entity that created it cares about publicity.

 

[Chuckanut]

When I started investing many years ago I created my own total market index by purchasing to many 'recommended' funds in small amounts over a period of several years. Besides being a paperwork and tax headache, it really did not perform that well.

Alas, nobody paid me.

 

[bingybear]

I'm not sure about the full purpose of an index but it just seems like some basic compiled information that someone thinks may be of some use to someone. It's probably sometimes so easy to create that there's hardly any loss whether someone uses it or not. If it gets one mention in an article in a couple of years, that publicity may be enough to pay for it, assuming the entity that created it cares about publicity.

I doubt you just want to make an index. You likely either want the notoriety or the ability to monetize it. These are very different things. There was a reasonably well known financial columnist Jim Jubak who started his own fund some years back. It was expensive as I recall, over 2% ER and really did not perform well. I believe it liquidated. So it is not all that easy to get known, set up a fund and make it really successful.

I'm not sure if you want to define an index really. It may be defining an investment strategy if you are setting up events that will shift the portfolio.

Its like blogging... you can be the best and most knowledgeable and still have no followers. It often more about making yourself known. Or at least that is what I gather from your posts here.

 

[Boho]

It often more about making yourself known. Or at least that is what I gather from your posts here.

Yeah, but it could be low risk. The problem is I don't know even the basics like what stock information I can use for commercial purposes, how to make sure people know it's an index that they're not entitled to use for commercial purposes, whether the SEC would be involved, etc. But I'm sure there's information out there on all that and I'll find it if I really go through with this.

 

[Boho]

I just learned about AlphaDex. What I was thinking of creating might be considered an enhanced index.

https://www.ftportfolios.com/retail/etf/What-Is-Alphadex.aspx

"Enhanced indexing takes traditional indexing one step further by attempting to identify those stocks within a broad-based index that exhibit the fundamental characteristics that provide the greatest potential for capital appreciation. Rather than replicating traditional index models, enhanced indexing builds on the basic principles of index construction with an emphasis on generating alpha."

 

[bingybear]

Have you looked that the Russell Fundamental Indexes? Schwab has several in existing products. Have you looked at the multi-beta funds that use multiple techniques with different percentages of the fund. These are suppose to have better performance through the whole market cycle.
These things are in products which means they were thought of quite a while ago. Be careful of coming up with something that another owns the right for. You could get into a patent or copyright infringement suit.

 

[FinancialDave]

I believe you can build an ETF portfolio at "Motif Investing" and get paid whenever someone purchases your ETF. Don't know any of the details but you might want to check it out.

 

[ERD50]

I believe you can build an ETF portfolio at "Motif Investing" and get paid whenever someone purchases your ETF. Don't know any of the details but you might want to check it out.

Sounds good, now just find a way to make money from it.

I just learned about AlphaDex. What I was thinking of creating might be considered an enhanced index.

https://www.ftportfolios.com/retail/etf/What-Is-Alphadex.aspx

"Enhanced indexing takes traditional indexing one step further by attempting to identify those stocks within a broad-based index that exhibit the fundamental characteristics that provide the greatest potential for capital appreciation. Rather than replicating traditional index models, enhanced indexing builds on the basic principles of index construction with an emphasis on generating alpha."

A wise man once said* - "To make money, you buy a stock, and when it goes up, you sell it. If it don't go up, don't buy it".

It's that easy.

* Will Rodgers circa 1930


-ERD50

 

[FinancialDave]

Sounds good, now just find a way to make money from it.



A wise man once said* - "To make money, you buy a stock, and when it goes up, you sell it. If it don't go up, don't buy it".

It's that easy.

* Will Rodgers circa 1930


-ERD50

Don't get me wrong, I wasn't saying it was a good idea. In fact I don't advertise individual stocks are a way to make money. A wiser man, Jack Bogle invented a better way in 1976. If you haven't heard of him you are probably in the group looking for a better way and in the camp of Will Rodgers!