Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
sksbog
Posts: 336
Joined: Wed Jun 20, 2012 9:14 pm

Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by sksbog »

Is this sheer exchange of ignorance, or there is some truth behind this?
Link to today's marketwatch article
https://www.marketwatch.com/story/if-ev ... 2019-01-23

Welcome your comments.

Thanks
michaeljmroger
Posts: 524
Joined: Fri Sep 21, 2018 10:54 am

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by michaeljmroger »

It has been discussed quite a few times. It’s probably true, but we’re so far away from being in this situation that I wouldn’t worry about that.
User avatar
Dialectical Investor
Posts: 527
Joined: Mon Dec 03, 2018 11:41 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by Dialectical Investor »

If the entire human population of Earth abstained from sex, our species would become extinct. I'd approximate the risk of that happening with the risk of everyone indexing.
MiddleOfTheRoad
Posts: 305
Joined: Fri Jul 21, 2017 11:19 am

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by MiddleOfTheRoad »

Even on Boglehead, not everyone is a Boglehead...
dumbmoney
Posts: 2330
Joined: Sun Mar 16, 2008 8:58 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by dumbmoney »

No, I don't agree with any part of that article. Passive investors don't "free ride". Amateurs shouldn't speculate. Financial innovation isn't a charity case.
I am pleased to report that the invisible forces of destruction have been unmasked, marking a turning point chapter when the fraudulent and speculative winds are cast into the inferno of extinction.
Tamalak
Posts: 662
Joined: Fri May 06, 2016 2:29 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by Tamalak »

There are financial rewards for investing. This is justified by the fact that investors shoulder risk for the company they're investing in.

There are financial rewards for successful price discovery. This is justified by the fact that price discovery allocates capital in wise ways.

Active investors do both of the above. Passive investors do only the first. Neither is getting a free ride.
anil686
Posts: 1089
Joined: Thu May 08, 2014 12:33 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by anil686 »

Mr. Bogle agrees - here is his interview with Barry Ritholz from 2016. About half way in he talks about if everybody indexed. He says there would be chaos because there would be no price discovery. He is probably right. But he then goes on to say that we are so far away from that point it does not matter. Furthermore, most experts who have studied this have given percentages of equity markets that could be indexed and still work effectively is upwards of 80%. I think it is about 28% indexed right now FWIW...

https://www.bloomberg.com/news/audio/20 ... ss-podcast
student
Posts: 5155
Joined: Fri Apr 03, 2015 6:58 am

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by student »

Dialectical Investor wrote: Wed Jan 23, 2019 10:23 am If the entire human population of Earth abstained from sex, our species would become extinct. I'd approximate the risk of that happening with the risk of everyone indexing.
lol.
User avatar
Ben Mathew
Posts: 1203
Joined: Tue Mar 13, 2018 11:41 am
Location: Seattle
Contact:

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by Ben Mathew »

Indexers who hold tilted portfolios (towards value, small, growth etc.) are also participating in setting prices. By that metric, many people here on Bogleheads (including me, because of my tilt towards small and value) are engaged in active price discovery.
User avatar
stemikger
Posts: 4950
Joined: Thu Apr 08, 2010 5:02 am

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by stemikger »

I don't think any of us alive today have to worry about this scenario.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
JW-Retired
Posts: 7184
Joined: Sun Dec 16, 2007 12:25 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by JW-Retired »

Shiller wrote: Advising people simply to hold the market is advising them to free-ride on the wisdom of others who do not follow such a strategy. If everyone followed Bogle’s advice, market prices would turn into nonsense and would provide no direction to economic activity.
Obviously, everyone won't follow Bogle's advice.

Moreover, I don't understand why Shiller doesn't cheer all of us clueless indexers staying away from guessing the market? Wouldn't you think that our abstaining and giving more price setting power to the small cadre of highly informed market expert traders would be Shiller's preference?

What am I missing?
JW
Retired at Last
lyrictulip
Posts: 68
Joined: Tue May 24, 2016 8:45 am

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by lyrictulip »

It's probably self correcting. If indexing gets to a point where there it creates market inefficiencies that can be exploited by active investors then active investors will be incentivized to participate.
User avatar
nisiprius
Advisory Board
Posts: 41957
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by nisiprius »

Standard nonsense, and the writer hasn't bothered to be thoughtful, original, or accurate.

1) John C. Bogle personally did not put all of his wealth into index funds. He had a substantial amount of his wealth invested in the Wellington Fund, which is actively managed.

2) If everybody flushed their toilets at the same time it would cause chaos. According to "if-everyone" reasoning, for the good of humankind, you should not ever flush your toilet, or you should at least feel guilty about it.

3) In 1861, John Wanamaker introduced price tickets in his Philadelphia store. No haggling, everyone paid the same price for everything. In 1870, it spread to R. H. Macy's in New York. Then price labels in supermarkets took off beginning around 1916. If there were no haggling at all, trade would collapse, but the economy gets on quite well with most of us being passive "price takers" of most of the things we buy.

The vast majority of passive investors would do neither themselves nor the market any good by becoming active.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
DB2
Posts: 928
Joined: Thu Jan 17, 2019 10:07 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by DB2 »

Honestly, I've seen contempt from some circles and individuals in the industry about index investing and I think it's because they just cannot stand the fact they are not making more money off someone doing it. It really irritates them.
senex
Posts: 604
Joined: Wed Dec 13, 2017 4:38 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by senex »

lyrictulip wrote: Wed Jan 23, 2019 12:14 pm It's probably self correcting. If indexing gets to a point where there it creates market inefficiencies that can be exploited by active investors then active investors will be incentivized to participate.
+1

This is *the* most important point in the whole discussion -- that it is a naturally self-correcting phenomenon.
User avatar
bertilak
Posts: 7838
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by bertilak »

lyrictulip wrote: Wed Jan 23, 2019 12:14 pm It's probably self correcting. If indexing gets to a point where there it creates market inefficiencies that can be exploited by active investors then active investors will be incentivized to participate.
100% agree, except I'd leave out the "probably." All this talk of being "too far away from that to worry" misses the point completely. If we approach over-indexing it will open up opportunities that will, as you say, soon be exploited by active investing.

Bogle's remark that if everyone indexed, the markets would fail, is like saying "if everyone stopped breathing we'd all die." That does NOT mean we should start to worry if "too many" people hold their breath. I think Bogle meant it as a way of pointing out the absurdity of the worry. (a crazy answer to a crazy question)

EVEN IF TRUE ("markets fail") I do not see it as the individual's responsibility to correct the situation. I invest for MY benefit, not as a charity to keep Wall Street happy. I'm selfish that way. I depend on others (Mr. Market and maybe even myself) to selfishly jump on opportunities.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
User avatar
JamalJones
Posts: 190
Joined: Sat May 28, 2016 12:53 pm
Location: Virgo Super Cluster

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by JamalJones »

Haha! These were both great! :beer
nisiprius wrote: Wed Jan 23, 2019 12:25 pm 2) If everybody flushed their toilets at the same time it would cause chaos. According to "if-everyone" reasoning, for the good of humankind, you should not ever flush your toilet, or you should at least feel guilty about it.
Dialectical Investor wrote: Wed Jan 23, 2019 10:23 am If the entire human population of Earth abstained from sex, our species would become extinct. I'd approximate the risk of that happening with the risk of everyone indexing.
TSP + Vanguard Roth IRA + Vanguard Taxable: 80% equities / 20% bonds | "I don't shine shoes, I don’t tape ankles, I don't cut checks - straight cash homie!!" --R. Moss
User avatar
tadamsmar
Posts: 9078
Joined: Mon May 07, 2007 12:33 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by tadamsmar »

sksbog wrote: Wed Jan 23, 2019 10:12 am Is this sheer exchange of ignorance, or there is some truth behind this?
"Some truth behind this" is an understatement, it's a sure thing that markets could not work if everyone just bought index funds. That's not strictly the way Bogle invested personally, but he did advocate for that approach. It's a good approach for you as long as someone else is doing enough price setting work, and Bogle knew that.
BlueCable
Posts: 334
Joined: Fri Jun 17, 2016 9:20 am

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by BlueCable »

I've always thought that Bogle's core tenant was Low Fees rather than Indexing. Vanguard has a collection of actively managed funds that would theoretically outperform an index-dominated market.

Maybe I'm misremembering Bogle's books and their theses.
2015
Posts: 2906
Joined: Mon Feb 10, 2014 2:32 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by 2015 »

The truth is Marketwatch is in the business of stealing eyeballs, time, and consequently life. No one on their death bed wishes they'd spent more time reading this kind of schlock.
H-Town
Posts: 2868
Joined: Sun Feb 26, 2017 2:08 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by H-Town »

sksbog wrote: Wed Jan 23, 2019 10:12 am Is this sheer exchange of ignorance, or there is some truth behind this?
Link to today's marketwatch article
https://www.marketwatch.com/story/if-ev ... 2019-01-23

Welcome your comments.

Thanks
There is always people looking for market inefficiencies for a better return. If all investors are indexing, I swear to you that I would be one of those people who will look for opportunities to take advantage of. It's human nature. That makes it impossible in practical sense to have everyone indexing.
Rus In Urbe
Posts: 639
Joined: Sat Dec 09, 2017 2:12 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by Rus In Urbe »

DB2 » Wed Jan 23, 2019 1:37 pm

Honestly, I've seen contempt from some circles and individuals in the industry about index investing and I think it's because they just cannot stand the fact they are not making more money off someone doing it. It really irritates them.
+1

Wall Street financial advisors have lost billions because of the fees they used to get from investors now using low-cost index funds. I had an uncle, rest his soul, who lived in Greenwich, CT, and had his own little company managing other people's money. It was a nice living. I learned a lot from him. One lesson was that I never wanted to help buy a house in Greenwich for someone else.
I'd like to live as a poor man with lots of money. ~Pablo Picasso
gwrvmd
Posts: 820
Joined: Wed Dec 02, 2009 8:34 pm
Location: Calabash NC

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by gwrvmd »

This article has been published under different titles in the past few days, all slightly critical on Bogle. There are all click bait
Shiller is not that critical of Bogle

If 99% of people indexed there are still 1% of people who think they can beat the system
Did you ever see a lottery go out of business due to lack of participants?............Gordon
Disciple of John Neff
User avatar
tadamsmar
Posts: 9078
Joined: Mon May 07, 2007 12:33 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by tadamsmar »

BlueCable wrote: Wed Jan 23, 2019 1:20 pm I've always thought that Bogle's core tenant was Low Fees rather than Indexing. Vanguard has a collection of actively managed funds that would theoretically outperform an index-dominated market.

Maybe I'm misremembering Bogle's books and their theses.
Here's a quote from Bogle “Owning the stock market over the long term is a winner's game, but attempting to beat the market is a loser's game.”

But someone has to do the work of setting the price.
User avatar
Tycoon
Posts: 1500
Joined: Wed Mar 28, 2012 7:06 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by Tycoon »

2015 wrote: Wed Jan 23, 2019 1:23 pm The truth is Marketwatch is in the business of stealing eyeballs, time, and consequently life. No one on their death bed wishes they'd spent more time reading this kind of schlock.
This is an accurate assessment.
Emotionless, prognostication free investing. Ignoring the noise and economists since 1979. Getting rich off of "smart people's" behavioral mistakes.
User avatar
Rick Ferri
Posts: 9209
Joined: Mon Feb 26, 2007 11:40 am
Location: Georgetown, TX. Twitter: @Rick_Ferri
Contact:

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by Rick Ferri »

Marketwatch - If everyone invested like John Bogle, markets couldn’t work right
But they don't, so no worries.

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.
User avatar
tadamsmar
Posts: 9078
Joined: Mon May 07, 2007 12:33 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by tadamsmar »

The author is playing a little trick on us, he is showing that Kant's categorical imperative ("Act only according to that maxim whereby you can, at the same time, will that it should become a universal law.") does not apply to Bogle's rules. Kant's rule has an intuitive appeal.

I think even some Bogleheads fall for this, they seem to treat investing strategies as if they were moral laws that apply to all.

An investing rule that could be a categorical imperative would be "Buy bargains if you can find them" but the other law is "You can't find them".

The key is that long-term diversified investing is assumed to be a positive sum game in terms of expected return, so you don't need to find bargains to have a good expected return.
samsdad
Posts: 758
Joined: Sat Jan 02, 2016 6:20 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by samsdad »

you should not ever flush your toilet, or you should at least feel guilty about it
I’ve been down both roads and neither is productive according to my wife.
Last edited by samsdad on Wed Jan 23, 2019 3:28 pm, edited 1 time in total.
User avatar
Spinola
Posts: 260
Joined: Fri Nov 16, 2018 1:32 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by Spinola »

2015 wrote: Wed Jan 23, 2019 1:23 pm The truth is Marketwatch is in the business of stealing eyeballs, time, and consequently life. No one on their death bed wishes they'd spent more time reading this kind of schlock.
Completely agree. All this is pointless noise. Stay the course. Invest early and often, in low-cost funds, diversify, yada yada.. :sharebeer
User avatar
tadamsmar
Posts: 9078
Joined: Mon May 07, 2007 12:33 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by tadamsmar »

nisiprius wrote: Wed Jan 23, 2019 12:25 pm
2) If everybody flushed their toilets at the same time it would cause chaos. According to "if-everyone" reasoning, for the good of humankind, you should not ever flush your toilet, or you should at least feel guilty about it.
This happens during the Superbowl and plays havoc with water pressure.
Elena
Posts: 374
Joined: Mon Nov 21, 2016 5:42 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by Elena »

I always draw the analogy with the used car market. If no one would buy new or replaced their car every few years, I would not have a broad used car market. Same with consumption in general: I do not consume much, and not cyclically; should everyone else do the same, there would not be a market for a large number of things.
l1am
Posts: 368
Joined: Wed Mar 02, 2016 2:27 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by l1am »

lyrictulip wrote: Wed Jan 23, 2019 12:14 pm It's probably self correcting. If indexing gets to a point where there it creates market inefficiencies that can be exploited by active investors then active investors will be incentivized to participate.
Great point.
Thesaints
Posts: 3464
Joined: Tue Jun 20, 2017 12:25 am

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by Thesaints »

Would there be chaos if a single person owned the entire stock market ?
User avatar
peetsperk
Posts: 268
Joined: Wed Feb 04, 2015 4:02 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by peetsperk »

Is this not true of everything or almost everything? What on this earth would work right if everybody did it?
Hanksmoney
Posts: 82
Joined: Fri Feb 24, 2017 10:04 am

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by Hanksmoney »

lyrictulip wrote: Wed Jan 23, 2019 12:14 pm It's probably self correcting. If indexing gets to a point where there it creates market inefficiencies that can be exploited by active investors then active investors will be incentivized to participate.
+1. I agree with that. I also think Active portfolio managers and Financial advisors will continue to justify their existence by fiddling with market timing.
User avatar
arcticpineapplecorp.
Posts: 6185
Joined: Tue Mar 06, 2012 9:22 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by arcticpineapplecorp. »

I found the following part interesting. Shiller is talking about a conversation he had with Paul Samuelson a couple months before he died. Shiller writes about Samuelson:
He said that these markets could, if pitched to the general population, turn into “casino markets,” with people using them to gamble, rather than to protect themselves.

He then brought up the example of Bogle, who “gave up a billion dollars for a concept,” Samuelson said. “He could easily have cashed this in,” but he didn’t. “The miracle that was Vanguard came from Bogle’s principles.”

source: https://www.marketwatch.com/story/if-ev ... 2019-01-23
Funny how Shiller doesn't mention that it was actually Samuelson's paper "A Challenge to Judgement" that was the inspiration of Bogle's invention (for retail investors) in which Samuelson asks in his paper if someone will please start an index fund for retail investors. Fortunately, Jack took him up on his challenge to judgement and the rest is history, for which we all have benefited immensely (including Shiller himself).

source: https://www.google.com/search?client=fi ... +judgement
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
User avatar
tadamsmar
Posts: 9078
Joined: Mon May 07, 2007 12:33 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by tadamsmar »

dccboone wrote: Wed Jan 23, 2019 5:16 pm Is this not true of everything or almost everything? What on this earth would work right if everybody did it?
There is a discussion of this issue here:

https://en.wikipedia.org/wiki/Categorical_imperative

Even if one does not believe that there are universal moral laws, one has to grant that the notion has a certain appeal.

The Marketwatch article is correctly pointing out that some Boglehead principles are not universal moral laws. If you are not thinking clearly then that can seem like a negative. Calling it "freeloading" adds to the impression that it is somehow immoral.

The stock market is a game in the sense that game theory is important in analyzing investment strategies. Having everyone invest in the index does not create a market equilibrium. Some other principle of investing that would create a market equlibrium could be viewed as a universal principle that would work if everyone did it. The strategy of merely buying the index is hypothetical imperative that assumes that some others don't do what we do.

But, Bogle's 12 Pillars of Wisdom just says "Do Not Overestimate Your Ability to Pick Superior Equity Mutual Funds..." and that could be a universal principle since it's less extreme and does not require investing 100% in index funds.
betterinvestor2012
Posts: 56
Joined: Sat Sep 24, 2011 9:55 am

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by betterinvestor2012 »

Rick Ferri wrote: Wed Jan 23, 2019 2:12 pm
Marketwatch - If everyone invested like John Bogle, markets couldn’t work right
But they don't, so no worries.

Rick Ferri
As long as there is human ego, there will be active investors. :D
Teague
Posts: 2073
Joined: Wed Nov 04, 2015 6:15 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by Teague »

If everyone produced articles like Marketwatch, journalism wouldn't work right. (But of course that's not how things are.)
Semper Augustus
UpperNwGuy
Posts: 4096
Joined: Sun Oct 08, 2017 7:16 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by UpperNwGuy »

sksbog wrote: Wed Jan 23, 2019 10:12 am Is this sheer exchange of ignorance, or there is some truth behind this?
Link to today's marketwatch article
https://www.marketwatch.com/story/if-ev ... 2019-01-23

Welcome your comments.

Thanks
Seriously? You're asking us to consider this same old question AGAIN? It gets asked here at least once every 3-4 weeks.
User avatar
SmileyFace
Posts: 5695
Joined: Wed Feb 19, 2014 10:11 am

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by SmileyFace »

Deju-Vu. Seems like the same type of article gets written weekly.
ryman554
Posts: 1322
Joined: Sun Jan 12, 2014 9:44 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by ryman554 »

JW-Retired wrote: Wed Jan 23, 2019 11:42 am Moreover, I don't understand why Shiller doesn't cheer all of us clueless indexers staying away from guessing the market? Wouldn't you think that our abstaining and giving more price setting power to the small cadre of highly informed market expert traders would be Shiller's preference?

What am I missing?
JW
I'll tell you what's missing.... ask yourself what incentive financial professionals would have to warn about the doom and gloom of passive investing. I can think of at least two at the top of my head.

1. Passive investing hits their pocketbook. No more yachts for the agents as more and more folks see them as unnecessary for the average folk.
2. More passive investing = less idiots in the market. You can only gain an advantage if somebody else is making a screwing up. More idiots out there thinking they are smarter than the average bear is how the "investing experts" (I'll call them lucky idiots) really make their money.

I will say there is a kernel of truth -- you do need somebody out there Jonesing for an advantage, otherwise all of our investments would be in for a random walk somewhere. There are advantages to be found, but with the sheer volume of data and computational finance, it's pretty slim that us mere mortals will find it regularly.
Alan S.
Posts: 9905
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by Alan S. »

My assessment of Marketwatch:

25% useful
75% tabloid
Everything you read should be taken with a huge grain of salt. Their agenda is to promote volatility and discredit buy and hold investing. They have also discovered that promoting political instability plays very well into this narrative.
User avatar
tadamsmar
Posts: 9078
Joined: Mon May 07, 2007 12:33 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by tadamsmar »

Can anyone point out a single false statement in that article?

If anyone wants to try, here's the link again for your convenience:

https://www.marketwatch.com/story/if-ev ... 2019-01-23
User avatar
bertilak
Posts: 7838
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by bertilak »

tadamsmar wrote: Thu Jan 24, 2019 12:00 pm Can anyone point out a single false statement in that article?

If anyone wants to try, here's the link again for your convenience:

https://www.marketwatch.com/story/if-ev ... 2019-01-23
I'm with Wolfgang Pauli:
  • It isn’t right. It’s not even wrong.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
User avatar
tadamsmar
Posts: 9078
Joined: Mon May 07, 2007 12:33 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by tadamsmar »

Mommy, where do prices come from?

Nevermind dear, just buy a lifecycle fund when the time comes.
User avatar
Ged
Posts: 3922
Joined: Mon May 13, 2013 1:48 pm
Location: Roke

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by Ged »

stemikger wrote: Wed Jan 23, 2019 11:14 am I don't think any of us alive today have to worry about this scenario.
It is a scenario that will not occur because if price discovery becomes more lucrative than passive investing someone will discover the fact.

If we ever get to the situation where price discovery becomes an issue somebody will take advantage of it.

The scenario will self-correct.
JBTX
Posts: 6958
Joined: Wed Jul 26, 2017 12:46 pm

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by JBTX »

I'm always amused how people get so offended by such articles. Imagine, people on here speculating whether Robert Schiller is ignorant because he said something that they perceive as being at odds with their value system.

I think we can safely say that if everybody indexed the market would not function. It is also accurate to say, although not particularly flattering use of descriptors, to say that indexers are free loading on active traders. One could look at it as a free rider problem.

Having said all that, I dont think it is "immoral" to index. Institutions and traders have certain advantages over small investors, and index investing tends to equalize things. Plus given the sleezy way most financial advisors are compensated, index funds help investors mostly steer clear of that.

I also agree with the assertion made in the thread that before the market got to the point of not functioning efficiently active traders would step in. If everybody is following what you do, there are ways to exploit that.

What I'm not clear on is how much impact this has today, and to what level of penetration does it start to have material impacts. To the extent it does, I look at it as neither bad nor good, just market change due to innovation, just like electronic trading, rapid computer trading, etc. These all have an impact and are largely inevitable.

For instance, with no indexes, investors or coke and Pepsi may be different investors, leading to coke and Pepsi competing in the market. If most indexed, then shareholders are the same, so it would be in investors interests for Coke and Pepsi to work together, to the extent they legally can via anti trust regs. Or it may make more sense for coke and Pepsi to merge. It is interesting that at the same time we are seeing more indexing, we are seeing more business combinations, more oligopoly and higher profits. I suspect that is mostly coincidence but it is nonetheless thought provoking.
Last edited by JBTX on Thu Jan 24, 2019 1:55 pm, edited 1 time in total.
User avatar
telemark
Posts: 2729
Joined: Sat Aug 11, 2012 6:35 am

Re: Marketwatch - If everyone invested like John Bogle, markets couldn’t work right

Post by telemark »

JW-Retired wrote: Wed Jan 23, 2019 11:42 am
Shiller wrote: Advising people simply to hold the market is advising them to free-ride on the wisdom of others who do not follow such a strategy. If everyone followed Bogles advice, market prices would turn into nonsense and would provide no direction to economic activity.
Obviously, everyone won't follow Bogle's advice.

Moreover, I don't understand why Shiller doesn't cheer all of us clueless indexers staying away from guessing the market? Wouldn't you think that our abstaining and giving more price setting power to the small cadre of highly informed market expert traders would be Shiller's preference?

What am I missing?
JW
You're supposed to put your money into a fund managed by one of the small cadre, with suitably high fees. How else can they be rewarded for this important work?

On the other hand, I would argue that, to the extent that indexing makes the market less efficient, I am selflessly creating opportunities for active managers to outperform.
Post Reply