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Old 06-02-2017, 08:59 AM   #21
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Is there any academic research on the performance of indexing as it becomes a larger percentage of the market.....it would be interesting to see if there is a dystopian point of inflection where everything collapses.
Not directly to your point, but the seminal paper on this was written by William Sharpe in 1991: https://web.stanford.edu/~wfsharpe/a...ive/active.htm

I don't think it is possible to overemphasize the importance of his simple argument. It takes a little while to "get" the implications or at least it did for me. But once understood, it makes ignoring most of the investment chaff very easy. https://en.wikipedia.org/wiki/Chaff_(countermeasure) (Sorry, I can't make the link work but it will take you someplace close. Alternatively, "Copy link location" into your browser address line and add the mysteriously missing right parenthesis.)
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Old 06-02-2017, 09:02 AM   #22
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There is plenty of trading in index funds and ETFs. I just moved some SP500 to VFWAX (Large cap international) at the end of May. The market didn't blink.

The structural dynamics of these markets is fascinating but I sure don't understand them.
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Old 06-02-2017, 09:35 AM   #23
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If somebody really wants to get individual investors back into the stock market in large amounts, then we need a level playing field for all investors, lower costs in many managed funds, and and end to the 'hucksterism' of many stock brokerages.
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Old 06-02-2017, 01:59 PM   #24
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This disingenuous article is like those movies who clip selected words from the reviews. "HUGE waste of time, money, and TALENT. Keep away from this COLOSSAL flop."

The only way you can get to that headline from what Bogle actually said is by crossing your eyes, putting your finger in your ears, and humming real loud.
, ty i feel better
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Old 06-02-2017, 02:10 PM   #25
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Interesting article about Bogle and index funds. The essence of the article is that for index funds to be a good investment, we need at least some part of the market to be involved in actively managed funds. If the entire market switches to indexing, it causes the advantage of indexing to erode. And with more and more investors switching to indexing, we may be getting there.

John Bogle has a warning for index fund investors - MarketWatch
Eroding advantage doesn't mean active management has an advantage, just less of a disadvantage.
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Old 06-02-2017, 02:11 PM   #26
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Well, I only have about 13% in index funds so it really isn't much of an issue for me.
Only if the other 87% beats the market.
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Old 06-02-2017, 02:15 PM   #27
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The last sentence is the kicker advocating timing: "When the stock market turns down again, index fund owners will have to become their own active manager and make sure they’re well diversified, with limited exposure to risk, chaos, and catastrophe."
I thought the whole point of good investing is to be well diversified all the time so that you can whether a downturn well. And well diversified to me means limiting risk. Oh well, what do I know.
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Old 06-02-2017, 03:16 PM   #28
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I thought the whole point of good investing is to be well diversified all the time so that you can whether a downturn well. And well diversified to me means limiting risk. Oh well, what do I know.

Perhaps I'm missing something, but exactly how can you be more diversified than owning a tiny piece of the entire bloody market?
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Old 06-02-2017, 03:21 PM   #29
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Old 06-02-2017, 07:26 PM   #30
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I'm not too worried yet as we are nowhere near 75% :
Yes, in fact as of July 2016, about 1/3 of VANGUARD's assets are actively managed (ref: Bloomberg article: https://www.bloomberg.com/news/articles/2016-07-11/vanguard-the-unlikely-savior-of-active-management )

From the article: "While such funds remain the firm's bread-and-butter, assets under active management at Vanguard now total around $1 trillion."
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Old 06-02-2017, 08:14 PM   #31
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If somebody really wants to get individual investors back into the stock market in large amounts, then we need a level playing field for all investors, lower costs in many managed funds, and and end to the 'hucksterism' of many stock brokerages.
I'd like to encourage enlightened, smart, diligent individual (and institutional) investors into the market even though most of my money is in index funds. Those folks out there really looking for value are helping me and everyone else who indexes.
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Old 06-02-2017, 08:51 PM   #32
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Pssst Wellesley (not an index fund)....
I'm with you Bwe! You are one of those folks on this forum that convinced
me a few years back to go with VWIAX. At 6% return I'm happier than a pig in poop. I have some other dollars to invest but wonder if I should find another fund. Just thinking.
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Old 06-02-2017, 10:23 PM   #33
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So, I'm not worried. Human nature protects me. YMMV, of course.
I'm not worry either, the FED and the plunge protection unit will save me.
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Old 06-03-2017, 04:00 AM   #34
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As long there are at least a handful of reasonably intelligent actors (could even be robots) buying individual shares of any company, and they are acting independently, we will have a market functioning reasonably well.

So even at 99% indexing I'm pretty sure it is still a viable approach.
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Old 06-03-2017, 04:29 AM   #35
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Perhaps I'm missing something, but exactly how can you be more diversified than owning a tiny piece of the entire bloody market?
most popular index funds are weighted and not diversified at all .

just 9 stocks account for 30% of the moves of all 500 in the s&p 500. 18 stocks represent 51% of the move of the s&p 500 .

since the s&p 500 dominates the wilshire 5000 all 4982 stocks can be moved by just 18 stocks . . that is far from really being diversified .

2000 saw the s&p dominated by technology and it got hammered for it .

they can also be very over lapping if you don't watch the index's you buy .

someone on another forum took a look in to this and a popular vanguard combo was not very pretty . voo-vo-vb is a very popular s&p500-midcap-small cap combo .

"VOO vs. VO = 229 overlapping constituents (45% of VOO's holdings, 67% of VO's holdings) <-- this is pretty bad
VO vs. VB = 20 overlapping constituents (6% of VO's holdings, 1% of VB's holdings) <-- not bad
VOO vs. VB = 28 overlapping constituents (6% of VOO's holdings, 2% of VB's holdings) <-- not bad, but kind of weird, right?

IVV vs. IJH = 0 overlapping constituents
IJH vs. IJR = 0 overlapping constituents
IVV vs. IJR = 0 overlapping constituents "


so it can be very important to buy the right index's when you combine things .


by the way a total market fund is structured terribly from an investment standpoint .

there is barely any difference in return , usually less than 1% because the index used is not the best for investing .

while 10% goes to mid-caps and 10% small caps , 7% goes in to small and mid-cap growth . only 3% goes to value .

over time growth has done worse than the s&p 500 while value has beaten it over and over .

value investing gets 3% so the 7% in growth undoes the good the value side brings to the party .
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Old 06-03-2017, 11:45 AM   #36
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As for me, I'm sticking with indexing. My hope is that many of you folks will bail out of index funds at the "right time" so that the magic figure stays below the critical point.


That's my plan. I'm sticking to it.
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Old 06-03-2017, 11:53 AM   #37
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Originally Posted by mathjak107 View Post
most popular index funds are weighted and not diversified at all .

just 9 stocks account for 30% of the moves of all 500 in the s&p 500. 18 stocks represent 51% of the move of the s&p 500 .

since the s&p 500 dominates the wilshire 5000 all 4982 stocks can be moved by just 18 stocks . . that is far from really being diversified .

2000 saw the s&p dominated by technology and it got hammered for it .

they can also be very over lapping if you don't watch the index's you buy .

someone on another forum took a look in to this and a popular vanguard combo was not very pretty . voo-vo-vb is a very popular s&p500-midcap-small cap combo .

"VOO vs. VO = 229 overlapping constituents (45% of VOO's holdings, 67% of VO's holdings) <-- this is pretty bad
VO vs. VB = 20 overlapping constituents (6% of VO's holdings, 1% of VB's holdings) <-- not bad
VOO vs. VB = 28 overlapping constituents (6% of VOO's holdings, 2% of VB's holdings) <-- not bad, but kind of weird, right?

IVV vs. IJH = 0 overlapping constituents
IJH vs. IJR = 0 overlapping constituents
IVV vs. IJR = 0 overlapping constituents "


so it can be very important to buy the right index's when you combine things .


by the way a total market fund is structured terribly from an investment standpoint .

there is barely any difference in return , usually less than 1% because the index used is not the best for investing .

while 10% goes to mid-caps and 10% small caps , 7% goes in to small and mid-cap growth . only 3% goes to value .

over time growth has done worse than the s&p 500 while value has beaten it over and over .

value investing gets 3% so the 7% in growth undoes the good the value side brings to the party .
I guess you have not taken a course in portfolio analysis...

The math is that once you get to about 30 stocks adding another will have very little impact on diversification... adding a hundred also has little impact...

Here are a couple of quotes from Wiki about it....
There is no magic number of stocks that is diversified versus not. Sometimes quoted is 30, although it can be as low as 10, provided they are carefully chosen. This is based on a result from John Evans and Stephen Archer.[5] Similarly, a 1985 book reported that most value from diversification comes from the first 15 or 20 different stocks in a portfolio.[6] More stocks give lower price volatility.
An empirical example relating diversification to risk reduction

In 1977 Edwin Elton and Martin Gruber[14] worked out an empirical example of the gains from diversification. Their approach was to consider a population of 3,290 securities available for possible inclusion in a portfolio, and to consider the average risk over all possible randomly chosen n-asset portfolios with equal amounts held in each included asset, for various values of n. Their results are summarized in the following table. The result for n=30 is close to n=1,000, and even four stocks provide most of the reduction in risk compared with one stock.
https://en.wikipedia.org/wiki/Diversification_(finance)
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Old 06-03-2017, 01:32 PM   #38
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Originally Posted by mathjak107 View Post
most popular index funds are weighted and not diversified at all .

just 9 stocks account for 30% of the moves of all 500 in the s&p 500. 18 stocks represent 51% of the move of the s&p 500 .

since the s&p 500 dominates the wilshire 5000 all 4982 stocks can be moved by just 18 stocks . . that is far from really being diversified .

2000 saw the s&p dominated by technology and it got hammered for it .

they can also be very over lapping if you don't watch the index's you buy .

someone on another forum took a look in to this and a popular vanguard combo was not very pretty . voo-vo-vb is a very popular s&p500-midcap-small cap combo .

"VOO vs. VO = 229 overlapping constituents (45% of VOO's holdings, 67% of VO's holdings) <-- this is pretty bad
VO vs. VB = 20 overlapping constituents (6% of VO's holdings, 1% of VB's holdings) <-- not bad
VOO vs. VB = 28 overlapping constituents (6% of VOO's holdings, 2% of VB's holdings) <-- not bad, but kind of weird, right?

IVV vs. IJH = 0 overlapping constituents
IJH vs. IJR = 0 overlapping constituents
IVV vs. IJR = 0 overlapping constituents "


so it can be very important to buy the right index's when you combine things .


by the way a total market fund is structured terribly from an investment standpoint .

there is barely any difference in return , usually less than 1% because the index used is not the best for investing .

while 10% goes to mid-caps and 10% small caps , 7% goes in to small and mid-cap growth . only 3% goes to value .

over time growth has done worse than the s&p 500 while value has beaten it over and over .

value investing gets 3% so the 7% in growth undoes the good the value side brings to the party .
Wow.

I don't doubt any of it, but the S&P SPIVA data tells me that passively investing in a statistically large number of stocks will allow me to beat something like 90% of active managers over the long term. IOW, the statement that "a total market fund is structured terribly from an investment standpoint" may be true in some theoretical world but the fact is that it works. That, and the fact that it is impossible to identify winning managers in advance (S&P Persistence) is really all I need to know.

Re small cap and value stocks, Fama and French have modeled the history quite nicely but I think they would be the first to point out that the effect has historically shown up reliably only over long periods, like decades. Further, their analysis can say nothing about the future. IMO it is entirely possible that the small and value premiums will decline or disappear in the future as more and more investors tilt their portfolios on the assumption that past performance predicts future results.

So, @mathjack, you may simply be "Skating where the puck was." A decade or so in the future, you might start to know.

If you like this game, though, you should look carefully at the DFA "Component" equity funds. They are pretty much designed to be tools for the tilt-game player. I have a hard copy of their "A Look at Dimensional's Investment Portfolios" that describes the funds and I also found that brochure here: http://www.ufpartners.com/wp-content...Portfolios.pdf
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Old 06-03-2017, 01:57 PM   #39
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most popular index funds are weighted and not diversified at all .

just 9 stocks account for 30% of the moves of all 500 in the s&p 500. 18 stocks represent 51% of the move of the s&p 500 . ...
Not sure what your point is. Which 9 stocks? Which 18 stocks? I don't think we know ahead of time, do we?

That's why I like an index that holds lots of stocks.

-ERD50
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Old 06-03-2017, 02:43 PM   #40
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Perhaps I'm missing something, but exactly how can you be more diversified than owning a tiny piece of the entire bloody market?
Think about it this way: If everyone's only investment is SP500 index, then you really just own a large single stock.

You would have to own disproportionate shares of those stocks, or stocks outside of the index, to be truly diversified.
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