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> "450 billion Vanguard Total Stock Market Index Fund matches the performance of its 3,600-stock benchmark. That means owning stocks whether they’re plunging, s

> "450 billion Vanguard Total Stock Market Index Fund matches the performance of its 3,600-stock benchmark. That means owning stocks whether they’re plunging, surging, or unchanged." They mention some reasons that human decision-makers are needed, but I'm actually not convinced. Why not just two algo indexes? One tries to get the best price, the other simply doesn't trade the difficult illiquid stocks? I'm surprised an enterprising company hasn't come along that allows you to pick all your own stocks, and allow them to be rolled up in an index. That kind of service shouldn't be too hard to create from a technical point of view, so I'm assuming the issue is with regulation.

erdevs 10y ago
It's not that simple. First of all, the goal is to track the index as closely as possible, not to get the best price and certainly not to avoid illiquid stocks. Moreover, how would you balance these two algorithms' holdings? Regardless, there are a great many nuances, complications, and technicalities involved in trying to keep an index fund on-target. Not just the pricing and liquidity issues mentioned in this article. This is especially true for very large funds with hundreds of billions under management. Index funds are as close as one can get to full automation today, but taking the last step to full automation won't happen without fundamental changes in underlying systems like the exchanges. It's not clear if it would even be advantageous to automate human decisions away completely here. Proposed automations often run in parallel simulations to a manager's work and are plugged in when they seem empirically to do better than a human manager can. Obviously that hasn't been the case across the board just yet.
ramchip 10y ago
> I'm surprised an enterprising company hasn't come along that allows you to pick all of our stocks, and allow them to be rolled up in an index. Do you mean basket trading? https://www.interactivebrokers.co.jp/jp/?f=/en/trading/orders/basket.php https://www.interactivebrokers.co.jp/jp/?f=/en/trading/order...
- ryandrake 10y ago
  It's not entirely clear from that site, but it looks like they just let you batch up a bunch of separate orders in a single spreadsheet, and execute each one of them. The grandparent post seems to be calling for a service that lets me say, "I'd like to start my own custom-ETF, consisting of A% Facebook, B% AT&T, C% Walmart, D% McDonalds, etc." and then let me invest money that "fund" every so often. I agree this would be a neat service. Currently, if you want a portfolio of specific diversified stocks, you have to either 1. Find a fund that is similar enough to the basket of stocks that you would like or 2. Purchase each stock individually (getting eaten up in commission fees). Both are less than ideal.
  - fibbery 10y ago
    Motif investing does that exactly.
james1071 10y ago
I am not sure that you appreciate what is involved. Running an index fund is largely mechanical, but the main issue is dealing costs. What Vanguard have to do is seemingly impossible, which is to deal at the mid-price every day, when they invest net inflows (or dis-invest the net outflow). They also have to deal at the mid-point whenever the index changes (usually every quarter).
astrange 10y ago
> I'm surprised an enterprising company hasn't come along that allows you to pick all your own stocks, and allow them to be rolled up in an index. That kind of service shouldn't be too hard to create from a technical point of view, so I'm assuming the issue is with regulation. This is what Motif does, but it's super expensive, and picking stocks is a terrible idea. Vanguard/Betterment are cheap because everyone owns the same thing and you can trade between customers for free. https://www.motifinvesting.com https://www.motifinvesting.com
vdalal 10y ago
https://www.motifinvesting.com/ https://www.motifinvesting.com/ does exactly that.

erdevs 10y ago

It's not that simple. First of all, the goal is to track the index as closely as possible, not to get the best price and certainly not to avoid illiquid stocks. Moreover, how would you balance these two algorithms' holdings? Regardless, there are a great many nuances, complications, and technicalities involved in trying to keep an index fund on-target. Not just the pricing and liquidity issues mentioned in this article. This is especially true for very large funds with hundreds of billions under management. Index funds are as close as one can get to full automation today, but taking the last step to full automation won't happen without fundamental changes in underlying systems like the exchanges. It's not clear if it would even be advantageous to automate human decisions away completely here. Proposed automations often run in parallel simulations to a manager's work and are plugged in when they seem empirically to do better than a human manager can. Obviously that hasn't been the case across the board just yet.

ramchip 10y ago

> I'm surprised an enterprising company hasn't come along that allows you to pick all of our stocks, and allow them to be rolled up in an index. Do you mean basket trading? https://www.interactivebrokers.co.jp/jp/?f=/en/trading/orders/basket.php https://www.interactivebrokers.co.jp/jp/?f=/en/trading/order...

ryandrake 10y ago
It's not entirely clear from that site, but it looks like they just let you batch up a bunch of separate orders in a single spreadsheet, and execute each one of them. The grandparent post seems to be calling for a service that lets me say, "I'd like to start my own custom-ETF, consisting of A% Facebook, B% AT&T, C% Walmart, D% McDonalds, etc." and then let me invest money that "fund" every so often. I agree this would be a neat service. Currently, if you want a portfolio of specific diversified stocks, you have to either 1. Find a fund that is similar enough to the basket of stocks that you would like or 2. Purchase each stock individually (getting eaten up in commission fees). Both are less than ideal.
- fibbery 10y ago
  Motif investing does that exactly.

james1071 10y ago

I am not sure that you appreciate what is involved. Running an index fund is largely mechanical, but the main issue is dealing costs. What Vanguard have to do is seemingly impossible, which is to deal at the mid-price every day, when they invest net inflows (or dis-invest the net outflow). They also have to deal at the mid-point whenever the index changes (usually every quarter).

astrange 10y ago

> I'm surprised an enterprising company hasn't come along that allows you to pick all your own stocks, and allow them to be rolled up in an index. That kind of service shouldn't be too hard to create from a technical point of view, so I'm assuming the issue is with regulation. This is what Motif does, but it's super expensive, and picking stocks is a terrible idea. Vanguard/Betterment are cheap because everyone owns the same thing and you can trade between customers for free. https://www.motifinvesting.com https://www.motifinvesting.com

vdalal 10y ago

https://www.motifinvesting.com/ https://www.motifinvesting.com/ does exactly that.