Passive Investing Best For A 'rigged Market'? [insider trading]

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yakers
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Passive Investing Best For A 'rigged Market'? [insider trading]

Post by yakers » Mon Feb 12, 2018 3:23 pm

A recent article in The Economist magazine had an article reporting on recent papers studying insider trading which concluded that 'the well connected really do fare better'. They do not advocate abandoning the market, concluding the "The real losers, the papers conclude, are retail customers and smaller asset managers."
My take away from thsi paper is that passive investing is a less bad than being a retail customer. It looks like the highest return remains having information not publicly available (or having it sooner) which persists despite despite enforcement efforts.

bloom2708
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Re: Passive Investing Best For A "rigged Market'?

Post by bloom2708 » Mon Feb 12, 2018 3:25 pm

Buy the full haystack at your desired asset allocation (mix of stocks and bonds). Hold on for the ride.

Always good to review the 10 principles of being a Boglehead:

https://www.bogleheads.org/wiki/Boglehe ... philosophy
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

lws6772
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Re: Passive Investing Best For A "rigged Market'?

Post by lws6772 » Mon Feb 12, 2018 3:53 pm

bloom2708 wrote:
Mon Feb 12, 2018 3:25 pm
Buy the full haystack at your desired asset allocation (mix of stocks and bonds). Hold on for the ride.

Always good to review the 10 principles of being a Boglehead:

https://www.bogleheads.org/wiki/Boglehe ... philosophy
Do you think Wellington would qualify as "the full haystack" if a guy just wanted one fund?

bloom2708
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Re: Passive Investing Best For A "rigged Market'?

Post by bloom2708 » Mon Feb 12, 2018 3:58 pm

lws6772 wrote:
Mon Feb 12, 2018 3:53 pm
bloom2708 wrote:
Mon Feb 12, 2018 3:25 pm
Buy the full haystack at your desired asset allocation (mix of stocks and bonds). Hold on for the ride.

Always good to review the 10 principles of being a Boglehead:

https://www.bogleheads.org/wiki/Boglehe ... philosophy
Do you think Wellington would qualify as "the full haystack" if a guy just wanted one fund?
Personally, I do not think so. Wellington has 81 stocks and 255 bonds.

Total US stock market has ~3,600 and Total US Bond market has ~8,350 bonds.

Less than the haystack in my opinion. But always remember. Nobody knows nothing. :wink:
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

rkhusky
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Re: Passive Investing Best For A "rigged Market'?

Post by rkhusky » Mon Feb 12, 2018 4:02 pm

Wellington is fine in a tax-advantaged account. If you insist on one fund, one of the Target Retirement or LifeStrategy funds would be the most diverse.

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triceratop
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Re: Passive Investing Best For A "rigged Market'?

Post by triceratop » Mon Feb 12, 2018 4:03 pm

The Economist article is about insider trading and is viewable here: https://www.economist.com/news/finance- ... is-another

I edited the thread title to make this more clear.
lws6772 wrote:
Mon Feb 12, 2018 3:53 pm
bloom2708 wrote:
Mon Feb 12, 2018 3:25 pm
Buy the full haystack at your desired asset allocation (mix of stocks and bonds). Hold on for the ride.

Always good to review the 10 principles of being a Boglehead:

https://www.bogleheads.org/wiki/Boglehe ... philosophy
Do you think Wellington would qualify as "the full haystack" if a guy just wanted one fund?
No. The full haystack would be Vanguard Total World Stock Index Fund (VT / VTWSX) plus a bond fund.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

livesoft
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Re: Passive Investing Best For A 'rigged Market'? [insider trading]

Post by livesoft » Mon Feb 12, 2018 4:08 pm

yakers wrote:
Mon Feb 12, 2018 3:23 pm
My take away from thsi paper is that passive investing is a less bad than being a retail customer. It looks like the highest return remains having information not publicly available (or having it sooner) which persists despite despite enforcement efforts.
This is so well-known that the research has already been incorporated into books such as Meir Statman's "Finance for Normal People." US Congress members were doing so well with narrowly or exclusively available information, they had to pass a law to try to stop it.

I had this post at the end of last year on the same subject:
viewtopic.php?p=3691180#p3691180
Last edited by livesoft on Mon Feb 12, 2018 4:10 pm, edited 2 times in total.
Wiki This signature message sponsored by sscritic: Learn to fish.

Tamalak
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Re: Passive Investing Best For A 'rigged Market'? [insider trading]

Post by Tamalak » Mon Feb 12, 2018 4:09 pm

Insider trading just means that stocks are MORE fairly priced because insider information is being priced in.

This is bad news if you're trying to price discover without insider info (active trading) and neutral news if you're a passive investor.

bloom2708
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Re: Passive Investing Best For A 'rigged Market'? [insider trading]

Post by bloom2708 » Mon Feb 12, 2018 4:10 pm

Total World (Vanguard) has 7,985 stocks

Total US (3,638) + Total International (6,283) = 9,921.

So, Total World isn't owning quite as much as the haystack as Total US + Total International. Also, Total World has a much higher expense ratio (.21%) and no Admiral shares option.

Whether that translates to return (better or worse) is another topic. They will track similar courses. Not the same course.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

Wakefield1
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Re: Passive Investing Best For A 'rigged Market'? [insider trading]

Post by Wakefield1 » Mon Feb 12, 2018 6:26 pm

Tamalak wrote:
Mon Feb 12, 2018 4:09 pm
Insider trading just means that stocks are MORE fairly priced because insider information is being priced in.

This is bad news if you're trying to price discover without insider info (active trading) and neutral news if you're a passive investor.
:happy :happy :happy :happy :happy :happy :happy (I hope so)

lws6772
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Re: Passive Investing Best For A "rigged Market'?

Post by lws6772 » Mon Feb 12, 2018 6:41 pm

triceratop wrote:
Mon Feb 12, 2018 4:03 pm
The Economist article is about insider trading and is viewable here: https://www.economist.com/news/finance- ... is-another

I edited the thread title to make this more clear.
lws6772 wrote:
Mon Feb 12, 2018 3:53 pm
bloom2708 wrote:
Mon Feb 12, 2018 3:25 pm
Buy the full haystack at your desired asset allocation (mix of stocks and bonds). Hold on for the ride.

Always good to review the 10 principles of being a Boglehead:

https://www.bogleheads.org/wiki/Boglehe ... philosophy
Do you think Wellington would qualify as "the full haystack" if a guy just wanted one fund?
No. The full haystack would be Vanguard Total World Stock Index Fund (VT / VTWSX) plus a bond fund.
My current employer offers only offers 3 Vanguard funds - Wellington, S & P 500 index or growth index (in addition to a pension they provide)

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triceratop
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Re: Passive Investing Best For A "rigged Market'?

Post by triceratop » Mon Feb 12, 2018 6:49 pm

lws6772 wrote:
Mon Feb 12, 2018 6:41 pm
triceratop wrote:
Mon Feb 12, 2018 4:03 pm
The Economist article is about insider trading and is viewable here: https://www.economist.com/news/finance- ... is-another

I edited the thread title to make this more clear.
lws6772 wrote:
Mon Feb 12, 2018 3:53 pm
bloom2708 wrote:
Mon Feb 12, 2018 3:25 pm
Buy the full haystack at your desired asset allocation (mix of stocks and bonds). Hold on for the ride.

Always good to review the 10 principles of being a Boglehead:

https://www.bogleheads.org/wiki/Boglehe ... philosophy
Do you think Wellington would qualify as "the full haystack" if a guy just wanted one fund?
No. The full haystack would be Vanguard Total World Stock Index Fund (VT / VTWSX) plus a bond fund.
My current employer offers only offers 3 Vanguard funds - Wellington, S & P 500 index or growth index (in addition to a pension they provide)
The largest haystack you can make hay with, then, is the S&P500 index. Or you can make a full haystack by buying the Extended Market index fund in a personal IRA / taxable account.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

lws6772
Posts: 461
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Location: Texas

Re: Passive Investing Best For A "rigged Market'?

Post by lws6772 » Mon Feb 12, 2018 6:53 pm

triceratop wrote:
Mon Feb 12, 2018 6:49 pm
lws6772 wrote:
Mon Feb 12, 2018 6:41 pm
triceratop wrote:
Mon Feb 12, 2018 4:03 pm
The Economist article is about insider trading and is viewable here: https://www.economist.com/news/finance- ... is-another

I edited the thread title to make this more clear.
lws6772 wrote:
Mon Feb 12, 2018 3:53 pm
bloom2708 wrote:
Mon Feb 12, 2018 3:25 pm
Buy the full haystack at your desired asset allocation (mix of stocks and bonds). Hold on for the ride.

Always good to review the 10 principles of being a Boglehead:

https://www.bogleheads.org/wiki/Boglehe ... philosophy
Do you think Wellington would qualify as "the full haystack" if a guy just wanted one fund?
No. The full haystack would be Vanguard Total World Stock Index Fund (VT / VTWSX) plus a bond fund.
My current employer offers only offers 3 Vanguard funds - Wellington, S & P 500 index or growth index (in addition to a pension they provide)
The largest haystack you can make hay with, then, is the S&P500 index. Or you can make a full haystack by buying the Extended Market index fund in a personal IRA / taxable account.
Much obliged :sharebeer

WallStreetPhysician
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Re: Passive Investing Best For A 'rigged Market'? [insider trading]

Post by WallStreetPhysician » Tue Feb 13, 2018 4:33 am

Tamalak wrote:
Mon Feb 12, 2018 4:09 pm
Insider trading just means that stocks are MORE fairly priced because insider information is being priced in.

This is bad news if you're trying to price discover without insider info (active trading) and neutral news if you're a passive investor.
+1. It's not significantly meaningful for passive investors, but the gains of insider traders are the losses for non-insider active traders.

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