Passive Investing "Worse Than Marxism"

[jdmorton]

How about this for an article published today on Bloomberg.com: Bernstein: Passive Investing Is Worse for Society Than Marxism - Bloomberg. The article is about a note written by the research and brokerage firm Sanford C. Bernstein & Co., LLC.

Here's a quote from the article - "In a note titled "The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism," a team led by Head of Global Quantitative and European Equity Strategy Inigo Fraser-Jenkins, says that politicians and regulators need to be cognizant of the social case for active management in the investment industry."

The author of the Bloomberg.com article does have fun with this entire thought process. For example he ends his article by writing - "While the question of whether the rise of passive investing is an existential threat to capitalism remains an open one, Bernstein's team acknowledges one uncomfortable truth: it certainly looms as a major downside risk for the livelihoods of people who produce sell side equity research."

 

[Tortoise]

From John C. Bogle
Founder and Former Chairman, The Vanguard Group
to the
Washington State University
Pullman, Washington
April 13, 2004
https://personal.vanguard.com/bogle_site/sp20040413.html

Our introduction of First Index Investment Trust was greeted by the investment community with derision. It was dubbed "Bogle's folly," and described as un-American, inspiring a widely-circulated poster showing Uncle Sam calling on the world to "Help Stamp Out Index Funds."

 

[Markola]

Sounds like a Bankster missed his fee-laden bonus.


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[Totoro]

Darn those commies, undercutting us, depriving us from our well-earned commissions and passive fees.

 

[6miths]

File this under 'Your Morning Smile'.

 

[btdt22]

OMG! As a long time indexer I had no idea I was destroying our country..........NOT!

 

[laurence]

This....this is troll bait, it's got to be. This doesn't pass the smell test, even with a cursory glance and a moment's thought. I expect the freaking CEO and board of the fortune 500 companies in my index fund to "direct capital to its most productive end". My uneducated butt is going to invest more wisely than the C suite at Google/Alphabet?? Ugh, the invisible hand reference has it completely backwards! By indexing you are literally allowing companies to stand on their own merits, not chasing the latest fad and inflating a stock past it's fundamentals - at least more than anyone else's. Ugh!What's that thing about patriotism being the last refuge of a scoundrel?

 

[marko]

I'm not sure if I got the whole point here, but if I read it correctly, I'm wondering if the same argument might have been made at the advent of mutual funds?

 

[MichaelB]

This....this is troll bait, it's got to be. This doesn't pass the smell test, even with a cursory glance and a moment's thought. I expect the freaking CEO and board of the fortune 500 companies in my index fund to "direct capital to its most productive end". My uneducated butt is going to invest more wisely than the C suite at Google/Alphabet?? Ugh, the invisible hand reference has it completely backwards! By indexing you are literally allowing companies to stand on their own merits, not chasing the latest fad and inflating a stock past it's fundamentals - at least more than anyone else's. Ugh!What's that thing about patriotism being the last refuge of a scoundrel?

+1

 

[Gumby]

I would like to welcome all of my new comrades.

 

[growing_older]

I would call it more FUD (fear uncertainty and doubt) than troll. It is circulated by investment people who are desperate for ways to convince investors not to index, because indexing cuts revenue at full service firms and active funds.

 

[NW-Bound]

I think the active managers should strive to get on the S&P board that decides what a company gets on the various indices, and what gets kicked out. That's where the power is.

 

[samclem]

From the article:

"A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active market led capital management," they write.

That's accurate, in a strict sense. But we've never seen a market that is "only passive." Indexing, as we know it, absolutely relies on active investors to seek out value and, yes, allocate their investments where they are likely to produce the greatest return. Without these active investors, indexing cannot work.
But the article is ridiculous because it's not a binary choice. Active and passive exist together. Yes, at some point if the vast majority of investing was passive, the markets would grow inefficient. And then, active investors would be well compensated for their research and would have the last laugh at the expense on indexers. This has been studied a lot, and we're not anywhere close to the point where indexing poses a risk of distorting the markets.

 

[Huston55]

From the article:

But the article is ridiculous because it's not a binary choice. Active and passive exist together.

Yep, otherwise there wouldn't be any [-]suckers[/-] active investors for index investors to take advantage of.

 

[Totoro]

I would like to welcome all of my new comrades.

Can we institute a standing committee and 5-year plan now?

We could use one, for more glorious community of FIRE.

 

[REWahoo]

This thread Bogle's my mind.

 

[jdmorton]

Geez - What Is It With Bloomberg.com and Index Funds Being Marxism/Communism?

Yesterday another Bloomberg.com columnist wrote about this same subject, only this time the title of the column is "Are Index Funds Communist?"

Link: https://www.bloomberg.com/view/articles/2016-08-24/are-index-funds-communist

It seems to me if one has to use extreme outcomes to make a point then either the logic is flawed or the point being made is not valid.

Of course I realize the headlines are merely 'click-bait' for the author and the web site, but still, one would hope that reputable individuals and web sites do not need to stoop to such tactics to gain readership.

 

[braumeister]

one would hope

But one would be bitterly and continually disappointed.

 

[Huston55]

Well, I just want to point out that it IS a little RED book.

Plus, he clearly points out in the subtitle that we should be 'guaranteed our fair share'.

I don't know about you all but, I think this guy's clearly a Commie!

 

[Totoro]

Well, I just want to point out that it IS a little RED book.

You might be on to something, these guys also say passive investors should be almost everyone, and are best off in an index fund.
https://www.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661

It's also red !!

 

[mh]

Passive Investing "Worse Than Marxism"

This thread Bogle's my mind.

This certainly has to be pun of the month on ER dot org. Well played sir! I guess they have been getting to many Dear John letters from the growing legion of index fund converts


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[FUEGO]

Passive investing worse than Marxism.

Then the largest money manager in the world copies the #2 largest money manager in the world by founding and promoting passive index funds.

By harnessing the power of the free markets to attract more investors than anyone else, they've somehow one-upped Marxism? Right. If you believe that I've got an actively managed mutual fund to sell you.

 

[Ready]

Come on guys. Doesn't anyone feel bad for the poor fund managers whose jobs are being threatened by the growing awareness of the benefits of index funds?

Where else can you get a job that pays you big bucks to fly around in private jets and have lots of expensive dinners with company CEOs who want to convince you to place their stock in your portfolio?

 

[HFWR]

This thread Bogle's my mind.

Good one, Comrade Wahoo...

 

[devans0]

How does the monkey with the darts fair? Oh! I remember now.