Confused by Bogle's apparent dislike of ETFs

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mrtwstr
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Confused by Bogle's apparent dislike of ETFs

Post by mrtwstr »

So someone had posted this link the other day:

https://www.advisorperspectives.com/art ... jack-bogle

I was reading through the article enjoying it until I got to the final part where he basically called ETFs a loser's game. I own the ETF versions of the 3 fund portfolio at Vanguard, so I was somewhat confused by his dislike of them. Is there something I'm missing?

Thanks!
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Re: Confused by Bogle's apparent dislike of ETFs

Post by bloom2708 »

My take is "Exchange Traded Funds" are meant to be "traded".

Buy/hold means you don't need/want/have to trade much.

If you buy/hold with broad market ETFs, you will be just fine.

There are tiny issues like bid/ask spreads and you always have the "remainder" because you have to buy whole shares.

If you avoid the frequent trading (aka tinkering) of "Exchange Funds" and the thin slice sector funds, you can safely use your EFs.

Just my take.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by simplesimon »

Most index mutual funds (or the major indices they track) have an ETF equivalent. The same cannot be said going the other way.

Bogle saw that people were using ETFs as tools for speculation under the guise of "indexing" rather than for long term investment.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by vineviz »

mrtwstr wrote: Tue Oct 13, 2020 2:52 pm So someone had posted this link the other day:

https://www.advisorperspectives.com/art ... jack-bogle

I was reading through the article enjoying it until I got to the final part where he basically called ETFs a loser's game. I own the ETF versions of the 3 fund portfolio at Vanguard, so I was somewhat confused by his dislike of them. Is there something I'm missing?

Thanks!
You’re not missing anything. Bogle didn’t really understand ETFs or how most investors use them, so his criticisms of them will be baffling to anyone looking to understand his position.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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goingup
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Re: Confused by Bogle's apparent dislike of ETFs

Post by goingup »

He felt investors would trade ETFs rather than buy/hold. My favorite quote of his (I paraphrase) was that ETFs were like the famous Purdy shotgun: Great for big-game hunting and terrific for suicide. In other words...dangerous!

My impression is that his dislike softened when he saw that many investors used them prudently. They are, after all, just low-cost index funds.
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mrtwstr
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Re: Confused by Bogle's apparent dislike of ETFs

Post by mrtwstr »

Thanks all, I just wanted to make sure I hadn't made a mistake somewhere :)
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Re: Confused by Bogle's apparent dislike of ETFs

Post by bikechuck »

vineviz wrote: Tue Oct 13, 2020 3:09 pm
mrtwstr wrote: Tue Oct 13, 2020 2:52 pm So someone had posted this link the other day:

https://www.advisorperspectives.com/art ... jack-bogle

I was reading through the article enjoying it until I got to the final part where he basically called ETFs a loser's game. I own the ETF versions of the 3 fund portfolio at Vanguard, so I was somewhat confused by his dislike of them. Is there something I'm missing?

Thanks!
You’re not missing anything. Bogle didn’t really understand ETFs or how most investors use them, so his criticisms of them will be baffling to anyone looking to understand his position.
WOW, that is presumptuous. Do you really believe that Mr. Bogle "didn't really understand ETFs? He was a brilliant man and I think that he completely understood them. He was just concerned that they would entice people to become traders rather than investors.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by assyadh »

bikechuck wrote: Tue Oct 13, 2020 3:51 pm
vineviz wrote: Tue Oct 13, 2020 3:09 pm
mrtwstr wrote: Tue Oct 13, 2020 2:52 pm So someone had posted this link the other day:

https://www.advisorperspectives.com/art ... jack-bogle

I was reading through the article enjoying it until I got to the final part where he basically called ETFs a loser's game. I own the ETF versions of the 3 fund portfolio at Vanguard, so I was somewhat confused by his dislike of them. Is there something I'm missing?

Thanks!
You’re not missing anything. Bogle didn’t really understand ETFs or how most investors use them, so his criticisms of them will be baffling to anyone looking to understand his position.
WOW, that is presumptuous. Do you really believe that Mr. Bogle "didn't really understand ETFs? He was a brilliant man and I think that he completely understood them. He was just concerned that they would entice people to become traders rather than investors.
Bogle had a US centric position. In the US, traditional mutual funds are a big market. Outside of the US, ETFs are the way to go for buy and holders.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by Ferdinand2014 »

vineviz wrote: Tue Oct 13, 2020 3:09 pm
mrtwstr wrote: Tue Oct 13, 2020 2:52 pm So someone had posted this link the other day:

https://www.advisorperspectives.com/art ... jack-bogle

I was reading through the article enjoying it until I got to the final part where he basically called ETFs a loser's game. I own the ETF versions of the 3 fund portfolio at Vanguard, so I was somewhat confused by his dislike of them. Is there something I'm missing?

Thanks!
You’re not missing anything. Bogle didn’t really understand ETFs or how most investors use them, so his criticisms of them will be baffling to anyone looking to understand his position.
He had no issue with ETF's as long as they weren't traded frequently and you picked traditional broad market cap index based ETF's. Rather presumptuous to say he didn't understand them. He also perfectly understood human behavior.

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Re: Confused by Bogle's apparent dislike of ETFs

Post by nisiprius »

Bogle laid out his reasons, clearly, and more than once, for example in As The Index Fund Moves from Heresy to Dogma . . . What More Do We Need To Know?

First of all, by "indexing" he meant "total market indexing."
My second concern is that the original idea of the index fund—own the entire U.S. stock market, own it at low cost, hang on to it forever—has been, to put it bluntly, bastardized.
So there are two problems with ETFs. The first is that if you are planning to "own the entire U.S. stock market, own it at low cost, hang onto it forever," then there is no utility to intraday trading.
The sponsor of the Spiders regularly advertises this product with these words: “Now, you can trade the S&P 500 Index all day long, in real time.” (To which I would ask, “What kind of a nut would do that?”)
The second is that if you are planning to own the entire US stock market, then there is no utility to indexing tiny splinters of it.
The simple broad market index fund of yore, which I believe is the greatest medium for long-term investing ever designed by the mind of man, has now been engineered for use in short-term speculation. What is more, it has also been joined by far less diversified index funds clearly designed for rapid speculation. Please don’t mistake me: the ETF is an efficient way to speculate, trading opportunistically in the entire market or its segments, and using them for such a purpose is surely more sensible (and less risky) than short-term speculation in individual stocks. But what’s the point of speculating—costly, tax-inefficient, and counterproductive as it is—an almost certain loser’s game. Mark me down as one whose absolute conviction is that long-term investing is the consummate winning strategy.
In short, John C. Bogle believed that broad market index funds fulfill a useful function, and that ETFs do not.

He argued, and presented supporting data to show, that (regardless of how they can be used), ETFs are being used primarily for speculation.

(2015) The Mutual Fund Industry Today: Conflicts, Conflicts Everywhere

Image

They are being used for speculation even more than individual stocks!

Image

So, whether you agree with them or not, he articulated his reasons for disliking ETFs, supported those with hard data, and wasn't just a Luddite or an old fuddy-duddy who didn't understand them.
Last edited by nisiprius on Tue Oct 13, 2020 4:19 pm, edited 1 time in total.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by Tingting1013 »

bikechuck wrote: Tue Oct 13, 2020 3:51 pm
vineviz wrote: Tue Oct 13, 2020 3:09 pm
mrtwstr wrote: Tue Oct 13, 2020 2:52 pm So someone had posted this link the other day:

https://www.advisorperspectives.com/art ... jack-bogle

I was reading through the article enjoying it until I got to the final part where he basically called ETFs a loser's game. I own the ETF versions of the 3 fund portfolio at Vanguard, so I was somewhat confused by his dislike of them. Is there something I'm missing?

Thanks!
You’re not missing anything. Bogle didn’t really understand ETFs or how most investors use them, so his criticisms of them will be baffling to anyone looking to understand his position.
WOW, that is presumptuous. Do you really believe that Mr. Bogle "didn't really understand ETFs? He was a brilliant man and I think that he completely understood them. He was just concerned that they would entice people to become traders rather than investors.
I think the presumptuous thing is to believe that giving people a tool will necessarily mean they’ll use it poorly.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by Tingting1013 »

No one has yet explained to me how mutual funds are any better behaviorally than ETFs.

You can still market time and trade with mutual funds, you are just limited to doing so once per day.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by Nummerkins »

Tingting1013 wrote: Tue Oct 13, 2020 4:21 pm No one has yet explained to me how mutual funds are any better behaviorally than ETFs.
They aren't. If the barrier between trading and not trading for investors is simply the format it's packaged in then maybe they shouldn't be investing at all. If you can't tell, I disagree with Bogle very much on this :)

I have only Vanguard ETFs in my Rollover IRA. Have I gone wild with trading and panic selling? No. It makes zero difference behaviorally and I think disregarding ETFs because of this is like burying your head in the sand.

Anyways, ETFs are where the cost savings/innovation are and thus where Vanguard and others will continue to focus their efforts.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by ChrisBenn »

Tingting1013 wrote: Tue Oct 13, 2020 4:21 pm No one has yet explained to me how mutual funds are any better behaviorally than ETFs.

You can still market time and trade with mutual funds, you are just limited to doing so once per day.
You can't do it intraday. So better when trading is viewed as a vice as it provides less opportunities for negative behaviors.

ETF's are, amusingly, a huge boon for Vanguard MF holders as they enable vanguards patented tax reduction strategy for those MF's.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by David Jay »

Tingting1013 wrote: Tue Oct 13, 2020 4:21 pm No one has yet explained to me how mutual funds are any better behaviorally than ETFs.

You can still market time and trade with mutual funds, you are just limited to doing so once per day.
By definition, there can be no day trading of Mutual Funds (using the definition of day trading that includes “active traders who execute intra-day strategies”).
Last edited by David Jay on Tue Oct 13, 2020 4:40 pm, edited 1 time in total.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by retiringwhen »

Tingting1013 wrote: Tue Oct 13, 2020 4:21 pm No one has yet explained to me how mutual funds are any better behaviorally than ETFs.

You can still market time and trade with mutual funds, you are just limited to doing so once per day.
Which completely removes day traders from the universe. Besides, many MF companies have 30 day trading rules that limit round-trips in and out of a fund to once a month, especially index funds. Those limits don't get to the access and information limits (pricing is more opaque on a moment by moment basis) imposed by the MF construct.

Basically, it is harder (not impossible) to market time in a MF than an ETF, so traders have moved that behavior to ETFS.

As an aside, Bogle was on record more than once saying that if you buy a total market index ETF and hold it forever, you are doing just fine.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by Tingting1013 »

Is anybody day-trading funds of any type? The day trading you hear about happens with individual stocks.

What hurts most investors the most in the long run is panic selling during a downturn, and then staying out of the market during the inevitable recovery. This investing sin is committed just as easily with mutual funds as with ETFs.

As far as slicing the market, the last I checked there are more mutual funds than there are ETFs, and the average expense ratio and trading commission on a mutual fund is much higher than an ETF.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by Broken Man 1999 »

In his last book Mr Bogle seemed to find it necessary to add clarity to his thoughts concerning ETFs, as so many people said he more or less hated ETFs. A not small number of posters here at BHs were guilty of that.

Someone would mention ETFs, and immediately someone would trot out that Mr Bogle said this, or that.

Fact is, Mr Bogle was far less doctorinare than sometimes portrayed on this board.

The only way to get unfiltered insight into Mr Bogle's beliefs is to read his books, speeches, listen to interviews; there is an incredible amount of media out there that can define the man far more accurately than this website. Original media isn't filtered, it is what it is.

So, OP, read/listen to Mr Bogle's words unfiltered. You will come away with a better idea of what this man was all about.

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Re: Confused by Bogle's apparent dislike of ETFs

Post by vineviz »

bikechuck wrote: Tue Oct 13, 2020 3:51 pm
WOW, that is presumptuous. Do you really believe that Mr. Bogle "didn't really understand ETFs?
Yes, I believe that.

I don’t think he understood the way in which ETFs would open the door to the phenomenal growth of passive investing which has literally exploded along with the growth of ETFs. Without the ETF structure, index investing would have remained the niche backwater that it was when Bogle was still running Vanguard.

He also assumed, incorrectly, that retail ETF investors would be trading their funds all day every day. Retail investors don’t trade index ETFs any more than they do open end index mutual funds and the data was there for him to see.

Bogle was, indeed, a brilliant man. He was human, though, and like any human had his blind spots. ETFs were one of those.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by Ferdinand2014 »

Tingting1013 wrote: Tue Oct 13, 2020 4:21 pm No one has yet explained to me how mutual funds are any better behaviorally than ETFs.

You can still market time and trade with mutual funds, you are just limited to doing so once per day.
Fidelity and I believe most other fund providers place limits on roundtrips. For Fidelity it is 30 days with repeated offenses resulting in trade suspensions.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by BogleFan510 »

ETFs enabled brokers to compete more effectively with Vanguard for the Boglehead type investor. Since competitors like Schwab, eTrade and Fidelity had superior brokerage offerings and trading platforms, it is not shocking he suggested investors needed to stay with Mutual funds, especially when it was easier to restrict brokers or force compensation from brokers if held in a non Vanguard account.

I suspect some of his public statements reflected a need for Vanguard to catch up with their online trading and brokerage platform offerings. Vanguard was more or less forced to offer competitive ETFs in the market to compete. This was great for their assets under management, but bad for their retail competitive positioning, as mutual funds are 'stickier.' Since they had to allow them to be tradable at competitors, the ETFs opened the door to a Schwab customer getting the best of both worlds, good broker tools, customer service and ultra efficient VG funds. Hence JB probably didnt like it. He was smart enough to know not promote a tool/trend that was helping the competition take retail market share from his firm, even as it grew the wholesale fund business.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by TropikThunder »

I'm pretty sure it's some sort of logical fallacy whose name I don't know, but deciding on the merit or value of a thing based on the fact that some people may misuse it is IMO immature thinking.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by alex_686 »

nisiprius wrote: Tue Oct 13, 2020 4:17 pm First of all, by "indexing" he meant "total market indexing."
My second concern is that the original idea of the index fund—own the entire U.S. stock market, own it at low cost, hang on to it forever—has been, to put it bluntly, bastardized.
So there are two problems with ETFs. The first is that if you are planning to "own the entire U.S. stock market, own it at low cost, hang onto it forever," then there is no utility to intraday trading.
Expect that ETFs have a lower cost structure than mutual funds. Both in explicate trading costs like the expense ratio and implicit costs such as trading costs. So if you are gong to hold something long term and cost or tracking error is your primary measuring stick, ETFs win over mutual funds.
nisiprius wrote: Tue Oct 13, 2020 4:17 pmHe argued, and presented supporting data to show, that (regardless of how they can be used), ETFs are being used primarily for speculation.
I don't think the data is showing that. It shows that there is high turnover someplace in the market. I can think of a dozen arbitrage strategies that require a high turnover in ETFs. Arbitrage being the the exact opposite of speculation. Even if true - so what? You are not presenting evidence that retail investors are speculating. The speculative trading of large firms does not impact the cost structure of ETFs and tends to lower the bid/ask spread for those retail investors entering and exiting the market.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by Scooter57 »

The issue with frequent trading is real. Not you guys hete, but there are plenty of people day trading sector ETFs. You can find them on other sites. And there are serious liquidity issues when bond ETFs enter the picture.

There is also a huge options market for SPY, and derivatives for other ETFs, something you don't have with mutual funds. And then there are ETFs those 3X inverse ETFs, all of which promote instability and fight against reasonable price discovery and corporations being responsible to their shareholders.

I don't think we have seen the long-term effects of ETFs play out yet. I just read that the SEC recently made it !much easier to open ETFs by loosening regulations, as well as allowing non-indexed ETFs that can keep their holdings secret.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by vineviz »

Scooter57 wrote: Tue Oct 13, 2020 6:51 pm The issue with frequent trading is real. Not you guys hete, but there are plenty of people day trading sector ETFs. You can find them on other sites. And there are serious liquidity issues when bond ETFs enter the picture.

There is also a huge options market for SPY, and derivatives for other ETFs, something you don't have with mutual funds. And then there are ETFs those 3X inverse ETFs, all of which promote instability and fight against reasonable price discovery and corporations being responsible to their shareholders.

I don't think we have seen the long-term effects of ETFs play out yet. I just read that the SEC recently made it !much easier to open ETFs by loosening regulations, as well as allowing non-indexed ETFs that can keep their holdings secret.
The people day trading sector ETFs were not lured away from being buy-and-hold VFINX investors merely because of the introduction of ETFs. Those folks were buying sector funds or trading individual stocks long before, and if ETFs went away that’s what they’d do instead.

Same for all the S&P 500 derivatives: institutional investor have always needed to manage their risk portfolios. ETFs didn’t create that need, they just made it more efficient.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by vineviz »

Ben Johnson of Morningstar pointed out that while Vanguard ETFs have been gaining assets like mad this year, Vanguard's mutual funds have had seven straight months of outflows.

Image
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Re: Confused by Bogle's apparent dislike of ETFs

Post by daacrusher2001 »

mrtwstr wrote: Tue Oct 13, 2020 2:52 pm So someone had posted this link the other day:

https://www.advisorperspectives.com/art ... jack-bogle

I was reading through the article enjoying it until I got to the final part where he basically called ETFs a loser's game. I own the ETF versions of the 3 fund portfolio at Vanguard, so I was somewhat confused by his dislike of them. Is there something I'm missing?

Thanks!
I keep wondering the same thing...am I missing something. Is there a fundamental difference between an ETF and it's mirrored Mutual Fund? Some risk that isn't present with the fund maybe? I've read and read about this but still feel like there is something I just don't know
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Re: Confused by Bogle's apparent dislike of ETFs

Post by firebirdparts »

It seems to me like there is a lot of work required to make mutual funds tradeable, and nothing is being accomplished. If I was him, I would be opposed to it as well, philosophically. In the actual fact, it does seem like it has worked out okay. But I contend that the whole thing is a waste of time.

I trust that you all do understand the fundamental difference between an ETF and the MF: The ETF price is free floating all day, and you could buy a share from a person like me. There is a market-maker who is authorized to create and destroy shares of the fund all day to make sure the price stays correct. The mutual funds don't need to do this. They just wait until night comes, and they create or destroy as many shares as they need to during the night. You can't buy a share from me. You buy from them.

You will find that there are people who are buying funds for 30 minutes, and some of these people do actually make some money, but of course they rely on the absence of fees.

You'll also observe that when long distance phone calls become free, you will receive hundreds of phone calls from salesmen and thieves.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by Broken Man 1999 »

TropikThunder wrote: Tue Oct 13, 2020 6:22 pm I'm pretty sure it's some sort of logical fallacy whose name I don't know, but deciding on the merit or value of a thing based on the fact that some people may misuse it is IMO immature thinking.
I would call it paternalistic, myself, in this case.

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Re: Confused by Bogle's apparent dislike of ETFs

Post by alex_686 »

daacrusher2001 wrote: Wed Oct 14, 2020 9:01 am I keep wondering the same thing...am I missing something. Is there a fundamental difference between an ETF and it's mirrored Mutual Fund? Some risk that isn't present with the fund maybe? I've read and read about this but still feel like there is something I just don't know
Not really. They are much more similar then different. They are covered mostly by the same rules and regulation oversight.

The main thrust of Bogle and Bogleheads concern is over behavioral issues. The feeling is that once a retail investor gets a taste of trading ETFs they will become day traders and gambling addict's.

There is also some concerns that not all ETFs are plain vanilla low cost broadly diversified index funds. This is adjacent to the above behavioral issue above. The solution is the same as above. Just because you have been given a choice does not mean you have to take it. There are plenty of are plain vanilla low cost broadly diversified index ETFs out there to pick.

There is also some concern over pricing. ETFs are priced via supply and demand of the market. There is a fair amount of Fear, Uncertainty and Doubt (FUD) over pricing. The bid/ask spread. Flash crash. Nefarious people on the other side of the trade. Mutual Funds trade at the Net Asset Value (NAV), a accountants estimate of the value. Bogleheads will argue that this is a fairer price. As a former mutual fund account I do not understand this. :twisted:

Seriously, both methods generate high quality price data. The are pros, cons, and nuances to both. I give ETF pricing a slight edge due to how bond funds acted in the 2008 and 2020 crash. Both are fine. I personally think that the future is ETFs, and that they will slowly nudge mutual funds out of the way.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by alex_686 »

firebirdparts wrote: Wed Oct 14, 2020 9:09 am It seems to me like there is a lot of work required to make mutual funds tradeable, and nothing is being accomplished. If I was him, I would be opposed to it as well, philosophically. In the actual fact, it does seem like it has worked out okay. But I contend that the whole thing is a waste of time.


ETFs explicate structural costs are about 20% to 30% lower than mutual funds. Cost savings from implicit trading costs is even higher. I would not call that nothing.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by retiringwhen »

Broken Man 1999 wrote: Wed Oct 14, 2020 9:14 am
TropikThunder wrote: Tue Oct 13, 2020 6:22 pm I'm pretty sure it's some sort of logical fallacy whose name I don't know, but deciding on the merit or value of a thing based on the fact that some people may misuse it is IMO immature thinking.
I would call it paternalistic, myself, in this case.

Broken Man 1999
If Jack was anything, he was paternalistic. He really did see his exalted position in the Finance industry as a platform to be a moralist and "to look out for the little guy". His moral calculus on ETFs was simple, they added danger to the little guy, since in his opinion, they encouraged speculation.

He was not wrong on that. For nearly 20 years Bloomberg and CBS radio in NYC have run ads from State Street espousing the virtues of the speculative (e.g., day-trading) elements of the SPDRS (mostly the Sector ETFS).

Jack's thinking reminds me of the old Woody Hayes legend. When asked why his team didn't throw forward passes, his answer was "When you throw the ball, three things can happen and two of them are bad!"

All that said, responsible people can use ETFs responsibly with no harm, just like Bill Walsh's responsible use of the forward pass :beer
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Re: Confused by Bogle's apparent dislike of ETFs

Post by The Electrician »

vineviz wrote: Wed Oct 14, 2020 6:55 am Ben Johnson of Morningstar pointed out that while Vanguard ETFs have been gaining assets like mad this year, Vanguard's mutual funds have had seven straight months of outflows.

Image
Interesting observation but perhaps Argumentum ad Populum?
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vineviz
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Re: Confused by Bogle's apparent dislike of ETFs

Post by vineviz »

retiringwhen wrote: Wed Oct 14, 2020 9:30 am If Jack was anything, he was paternalistic. He really did see his exalted position in the Finance industry as a platform to be a moralist and "to look out for the little guy". His moral calculus on ETFs was simple, they added danger to the little guy, since in his opinion, they encouraged speculation.

He was not wrong on that. For nearly 20 years Bloomberg and CBS radio in NYC have run ads from State Street espousing the virtues of the speculative (e.g., day-trading) elements of the SPDRS (mostly the Sector ETFS).
Alas, Bogle WAS "wrong on that". ETFs didn't add any danger nor is there any evidence that they have encouraged speculation. A subset of people have always speculated in financial markets and probably always will. Bogle's error was in assuming some sort of causation when, in fact, what he observed was merely correlation.

Speculators used stocks, bonds, mutual funds, futures, and options to do it before there were ETFs. There were hundreds of sector mutual funds before the launch of the Sector SPDRs in 1998 (including several from Vanguard itself, by the way).

Investors, on the other hand, have greatly benefited from the growth in ETFs: choice is greater, fees are lower, liquidity is better, and portability is higher.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
UpperNwGuy
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Re: Confused by Bogle's apparent dislike of ETFs

Post by UpperNwGuy »

The infamous Vanguard patent on having ETFs as a share class of mutual funds has made it easier for some investors to transition from mutual funds to ETFs, namely those who owned Vanguard mutual funds that could be converted to ETFs.

Overall, however, I think Vanguard's patent has slowed the growth of ETFs because the patent has kept Fidelity, Schwab, and other mutual fund companies from copying that technique to allow investors to convert without tax consequences.

What really surprises me, however, is Vanguard's delay in creating ETF share classes for its many actively managed mutual funds. You would think that they would want to get that job done before their patent expires.
retiringwhen
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Re: Confused by Bogle's apparent dislike of ETFs

Post by retiringwhen »

vineviz wrote: Wed Oct 14, 2020 10:03 am Investors, on the other hand, have greatly benefited from the growth in ETFs: choice is greater, fees are lower, liquidity is better, and portability is higher.
We are in agreement on the result, ETFs are a net benefit to the average investor and represent the future until the financial engineers build a better mouse trap...
Elysium
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Re: Confused by Bogle's apparent dislike of ETFs

Post by Elysium »

mrtwstr wrote: Tue Oct 13, 2020 2:52 pm So someone had posted this link the other day:

https://www.advisorperspectives.com/art ... jack-bogle

I was reading through the article enjoying it until I got to the final part where he basically called ETFs a loser's game. I own the ETF versions of the 3 fund portfolio at Vanguard, so I was somewhat confused by his dislike of them. Is there something I'm missing?

Thanks!
Bogle is exactly right about the behavioral pitfalls of ETF investing, as you can see from the average investor returns he shows for ETFs vs TIFs (traditional mutual funds). He isn't saying there is anything wrong with ETFs structurally, instead he is as always laser focused on end results. Many people simply have hard time staying the course, and ETFs with their ability to trade in/out quickly makes it even more harder.

One can argue all day whether this is a problem with ETFs itself. I would say to an extend because fund companies such as Vanguard makes it harder to trade in/out of traditional mutual funds by restricting trading, by placing 30 day between trades, and by virtue of not knowing pricing intra-day, all of that helps with investors staying the course. Average returns figures show that investors keep their fair share better with traditional funds.

Now, for the extremely disciplined investor who has no problem whatsoever staying the course, it doesn't matter, but we have to remember Bogle is always speaking to the common denominator, not the 1%.
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Re: Confused by Bogle's apparent dislike of ETFs

Post by Broken Man 1999 »

Elysium wrote: Wed Oct 14, 2020 11:29 am
mrtwstr wrote: Tue Oct 13, 2020 2:52 pm So someone had posted this link the other day:

https://www.advisorperspectives.com/art ... jack-bogle

I was reading through the article enjoying it until I got to the final part where he basically called ETFs a loser's game. I own the ETF versions of the 3 fund portfolio at Vanguard, so I was somewhat confused by his dislike of them. Is there something I'm missing?

Thanks!
Bogle is exactly right about the behavioral pitfalls of ETF investing, as you can see from the average investor returns he shows for ETFs vs TIFs (traditional mutual funds). He isn't saying there is anything wrong with ETFs structurally, instead he is as always laser focused on end results. Many people simply have hard time staying the course, and ETFs with their ability to trade in/out quickly makes it even more harder.

One can argue all day whether this is a problem with ETFs itself. I would say to an extend because fund companies such as Vanguard makes it harder to trade in/out of traditional mutual funds by restricting trading, by placing 30 day between trades, and by virtue of not knowing pricing intra-day, all of that helps with investors staying the course. Average returns figures show that investors keep their fair share better with traditional funds.

Now, for the extremely disciplined investor who has no problem whatsoever staying the course, it doesn't matter, but we have to remember Bogle is always speaking to the common denominator, not the 1%.
I'm gonna go out on a limb here and say there are way more than 1% of us who gladly use ETFs. And, likewise, way more than 1% of us are staying the course.

BTW, Vanguard money market funds and short-term bond funds have no 30 day trading restriction. That is but one reason I haven't converted our ST Treasury Index mutual fund to an ETF, I already have virtually the same ability as an ETF. The other reason is I can exchange from ST Treasury to a host of mutual funds having ETFs as a share class, and not worry about seeing some hinky pricing if I am away and can't monitor the buy/sell. Then, I can exchange to the ETF at my leisure.

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vineviz
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Re: Confused by Bogle's apparent dislike of ETFs

Post by vineviz »

Elysium wrote: Wed Oct 14, 2020 11:29 am Bogle is exactly right about the behavioral pitfalls of ETF investing, as you can see from the average investor returns he shows for ETFs vs TIFs (traditional mutual funds).
Sorry, but this is not at all right and is simply a different framing of the same correlation/causation mixup I mentioned before.

ETF users and open-end mutual fund users are not otherwise similar: they have different backgrounds, needs, and goals. Research that controls for demographic and psychographic factors has repeatedly showed the folly of Bogle's "ETFs cause bad behavior" theory.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Elysium
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Re: Confused by Bogle's apparent dislike of ETFs

Post by Elysium »

vineviz wrote: Wed Oct 14, 2020 12:12 pm Sorry, but this is not at all right and is simply a different framing of the same correlation/causation mixup I mentioned before.

ETF users and open-end mutual fund users are not otherwise similar: they have different backgrounds, needs, and goals. Research that controls for demographic and psychographic factors has repeatedly showed the folly of Bogle's "ETFs cause bad behavior" theory.
Perhaps not a coincidence you use the same term Wall Street called it many years back when Jack Bogle did for investors no one else had done before, give them a fair shake.

Bogle's Folly, Our Fortune

Folly or not, average ETF investor earned less than average traditional fund owners, when you follow Jack Bogle's advice, more often than not you end up on the winning side. That's good enough for me.
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Steve Reading
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Re: Confused by Bogle's apparent dislike of ETFs

Post by Steve Reading »

Elysium wrote: Wed Oct 14, 2020 1:50 pm average ETF investor earned less than average traditional fund owners
Where did you get this from? Thanks.
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retiringwhen
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Re: Confused by Bogle's apparent dislike of ETFs

Post by retiringwhen »

Steve Reading wrote: Wed Oct 14, 2020 1:59 pm
Elysium wrote: Wed Oct 14, 2020 1:50 pm average ETF investor earned less than average traditional fund owners
Where did you get this from? Thanks.
I am also interested in some empirical data supporting the positions here. I have a hunch that vineviz is right, when controlled for pre-existing behaviors attributes, there is no difference.

If the studies of ETF returns don't strip out the arbitragers and institutional risk trades, the analysis is useless.
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1789
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Re: Confused by Bogle's apparent dislike of ETFs

Post by 1789 »

ETFs are better :P
You can trade them any minute you want :wink:
Who does not like that?
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Re: Confused by Bogle's apparent dislike of ETFs

Post by spdoublebass »

Elysium wrote: Wed Oct 14, 2020 1:50 pm
vineviz wrote: Wed Oct 14, 2020 12:12 pm Sorry, but this is not at all right and is simply a different framing of the same correlation/causation mixup I mentioned before.

ETF users and open-end mutual fund users are not otherwise similar: they have different backgrounds, needs, and goals. Research that controls for demographic and psychographic factors has repeatedly showed the folly of Bogle's "ETFs cause bad behavior" theory.
Perhaps not a coincidence you use the same term Wall Street called it many years back when Jack Bogle did for investors no one else had done before, give them a fair shake.

Bogle's Folly, Our Fortune

Folly or not, average ETF investor earned less than average traditional fund owners, when you follow Jack Bogle's advice, more often than not you end up on the winning side. That's good enough for me.
What if they bought the mutual fund and then converted to the ETF? I do this myself since the conversion happens at the closing NAV price. I don't do it often, but I do it to get the lower ER. I prefer to but mutual funds because I like being able to buy any amount.

Would people like me? Did I earn less? I got it from this forum, so many others do it as well.
I'm trying to think, but nothing happens
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vineviz
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Re: Confused by Bogle's apparent dislike of ETFs

Post by vineviz »

retiringwhen wrote: Wed Oct 14, 2020 2:26 pm
Steve Reading wrote: Wed Oct 14, 2020 1:59 pm
Elysium wrote: Wed Oct 14, 2020 1:50 pm average ETF investor earned less than average traditional fund owners
Where did you get this from? Thanks.
I am also interested in some empirical data supporting the positions here. I have a hunch that vineviz is right, when controlled for pre-existing behaviors attributes, there is no difference.

If the studies of ETF returns don't strip out the arbitragers and institutional risk trades, the analysis is useless.
This Vanguard white paper attempts to control for some of these variables.

http://www.centerforfinancialstability. ... 201207.pdf

TLDR: Bogle was wrong.

There are additional sources in at least one of the previous 1,200 threads on this topic. I’ll see if I can find some of them.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Confused by Bogle's apparent dislike of ETFs

Post by TropikThunder »

1789 wrote: Wed Oct 14, 2020 3:00 pm ETFs are better :P
You can trade them any minute you want :wink:
Who does not like that?
My entire HSA is invested in the Spider total stock ETF SPTM. I have never, even once in my life (still in accumulation phase) sold as much as a single share of any ETF that I own. Am I a unicorn?
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Taylor Larimore
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Mr. Bogle on ETFs

Post by Taylor Larimore »

mrtwstr wrote: Tue Oct 13, 2020 2:52 pm So someone had posted this link the other day:

https://www.advisorperspectives.com/art ... jack-bogle

I was reading through the article enjoying it until I got to the final part where he basically called ETFs a loser's game. I own the ETF versions of the 3 fund portfolio at Vanguard, so I was somewhat confused by his dislike of them. Is there something I'm missing?
mrtwstr:

Mr. Bogle is often misunderstood and taken out of context about ETFs. This is what he wrote in his 2019 book, "Stay the Course":

"Yes, broad-based stock and bond ETFs, used properly as long-term investments are good for investors. But as I have often said, "ETFs are fine, just so long as you don't trade them."

If you "own the ETF versions of the 3 fund portfolio at Vanguard," and stay the course, you are on your way to investment success.

Congratulations and best wishes.
Taylor
Jack Bogle's Words of Wisdom: "How could I possibly be against the idea of shares in a low-cost S&P 500 ETF being bought by an investor and held for an investment lifetime?"
"Simplicity is the master key to financial success." -- Jack Bogle
Elysium
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Re: Confused by Bogle's apparent dislike of ETFs

Post by Elysium »

Steve Reading wrote: Wed Oct 14, 2020 1:59 pm
Elysium wrote: Wed Oct 14, 2020 1:50 pm average ETF investor earned less than average traditional fund owners
Where did you get this from? Thanks.
Here from this article. Go to the question on - Why are ETFs a loser’s game?

He explains it as follows:
With all the cash flows into ETFs, $840 billion in the last 10 years, compared to $400 billion into TIFs, I wondered how TIFs could have kept up in terms of their asset growth. The answer is that ETFs have had $504 billion in market appreciation, and TIFs have had $800 billion. Two-thirds of the growth in TIF assets has been in the form of investment returns, and only one-third of the growth in exchange-traded funds has been investment returns. That’s where the performance differential that I cited earlier comes from. The investor return for TIFs average 7.4%, for ETFs it was 4.6%, even less than the 6.2% investor return in active funds.

Those numbers are not ready for a Financial Analysts Journal article, but if you average them they do cross check closely against the known returns we have for all the ETFs and all the TIFs (Strategic Insight data). It’s a pretty good indication of where things are going.


You would notice that he acknowledges these numbers are not ready for Journal of finances article, but they pass less rigorous cross verification. Having said that, do I think there is cause and effect? I don't know and I don't care very much, because ETFs or Traditional funds don't make any difference to me as far as my own situation is concerned, and I think it doesn't for almost anyone on this forum.
Last edited by Elysium on Wed Oct 14, 2020 6:55 pm, edited 2 times in total.
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vineviz
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Re: Mr. Bogle on ETFs

Post by vineviz »

Taylor Larimore wrote: Wed Oct 14, 2020 6:48 pm Mr. Bogle is often misunderstood and taken out of context about ETFs. This is what he wrote in his 2019 book, "Stay the Course":

"Yes, broad-based stock and bond ETFs, used properly as long-term investments are good for investors. But as I have often said, "ETFs are fine, just so long as you don't trade them."
It is likely that people are confused by the fact that he said contradictory things at different times.

I agree that he softened his stance towards the end of his life, though as we can see his waffling did some damage.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Elysium
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Re: Mr. Bogle on ETFs

Post by Elysium »

vineviz wrote: Wed Oct 14, 2020 6:54 pm
Taylor Larimore wrote: Wed Oct 14, 2020 6:48 pm Mr. Bogle is often misunderstood and taken out of context about ETFs. This is what he wrote in his 2019 book, "Stay the Course":

"Yes, broad-based stock and bond ETFs, used properly as long-term investments are good for investors. But as I have often said, "ETFs are fine, just so long as you don't trade them."
It is likely that people are confused by the fact that he said contradictory things at different times.

I agree that he softened his stance towards the end of his life, though as we can see his waffling did some damage.
Vineviz:

“The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.”
- F. Scott Fitzgerald
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