7 ms·

As always when articles like this come up, I want to issue the usual reminder to HN to beware of what pg called "submarine stories" (http://paulgraham.com/subma

As always when articles like this come up, I want to issue the usual reminder to HN to beware of what pg called "submarine stories" (http://paulgraham.com/submarine.html http://paulgraham.com/submarine.html). There are a lot of people who stand to lose a lot of money in fees if "just park it in index funds" becomes more popular advice than it is already. Not to say the analysis above is wrong, but just keep in mind (especially at the WSJ) that it may not be coming from sources with your best interest in mind.

wldcordeiro 10y ago
Great point, I never had a word for it (thanks for the link) but I've felt this whenever reading the high-level economic stories about things like interest rates and the market slowing, etc. The cynic in me just assumes that whatever the author is saying will fail or whatever they're likely shorting.
mc32 10y ago
Yes, but then what's that law of headlines ending with a question mark? The implied answer is typically "no".
- whacker 10y ago
  https://en.m.wikipedia.org/wiki/Betteridge%27s_law_of_headlines https://en.m.wikipedia.org/wiki/Betteridge%27s_law_of_headli...
  - goodmachine 10y ago
    Related: the hashtag #qtwain (Questions To Which the Answer Is No) can make for an amusing/ time-saving Twitter search https://twitter.com/search?q=%23qtwain https://twitter.com/search?q=%23qtwain
- sparky_z 10y ago
  The implied answer is typically "yes". It's the _correct_ answer that's typically "no".
  - mc32 10y ago
    According to the wiki article on the subject and as outlined by Marr, the answer to most headlines questions are in the negative. Most people will interpret them in the negative. It may be that the set-up is for people to _consider_ the positive, while answering in the negative.
blazespin 10y ago
Not really. If Index funds become more popular than regular trading becomes more profitable. The opposite of what you say is actually true.
- smallnamespace 10y ago
  It may make regular trading more profitable, but most asset managers are paid for getting more assets under management, not their fund's profits. So siphoning money away to index funds does put a direct crimp on active managed fund managers' compensation.
  - mysterypie 10y ago
    > asset managers are paid for getting more assets under management, not their fund's profits. I've always wondered why they aren't paid a percentage of profits? That would align their interests with the customers'.
    - janpieterz 10y ago
      Or even a percentage that increases by the percentage of profit.
    - OscarCunningham 10y ago
      They're generally paid both. They often charge "two and twenty" meaning 2% yearly of the assets under management and 20% of the profit. (Of course they don't absorb 20% of the losses in a bad year)
      - smallnamespace 10y ago
        That's only hedge funds, which are a small fraction of total fund capitalization.
        OscarCunningham 10y ago
        What are the percentages of the market occupied by different fund types? Where would I go to look that up?
henrikschroder 10y ago
"A report this past week from investment firm Sanford C. Bernstein, titled “The Silent Road to Serfdom: Why Passive Investing Is Worse than Marxism,” warned that..." It would be funny if it wasn't so incredibly blatant.
- mathattack 10y ago
  A friend worked there as an investment advisor and wound up quitting because so many of their funds were losing to the market.
  - partiallypro 10y ago
    Funny enough, index funds outperform hedge funds, etc, however you can outperform the indices by buying stock at 3:00-3:30pm and selling at 4:00pm every day, because that's when many funds vest, and when most of the daily volume occurs. It's a horrible irony. The "3:30 Ramp" is so well known that there's a Twitter parody account followed by huge swaths of "Finance Twitter."
    - analog31 10y ago
      Is it enough to cover the typical discount broker commission?
      - hkmurakami 10y ago
        That would depend on your trading volume.
    - btown 10y ago
      https://twitter.com/RampCapitalLLC https://twitter.com/RampCapitalLLC http://www.zerohedge.com/news/2013-04-08/invest-330-pm-ramp-capital-lp-266-annualized-outperformance http://www.zerohedge.com/news/2013-04-08/invest-330-pm-ramp-... I barely know anything about trading, and nonetheless this is absolutely glorious. It's grown into a subculture that rivals any subreddit, with its own set of memes, photoshops, even animations. And to listen to the ever-bullish narrator, there's no end in sight to the ramp...
gozur88 10y ago
But there is a story here: >Because corporations know that, says Prof. Heemskerk, coziness and complacency may arise. “If you have only long-term investors, how do you keep management on their toes?” he asks. “Where are the checks and balances when you have such large block holdings?” The whole system depends on the fact that investors have an interest in voting for a competent board and are willing to sell their shares if the company doesn't seem to be managed well. If the actual owners of the company aren't paying attention the opportunities for self-dealing and just plain incompetence on the part of company officers multiply.

wldcordeiro 10y ago

Great point, I never had a word for it (thanks for the link) but I've felt this whenever reading the high-level economic stories about things like interest rates and the market slowing, etc. The cynic in me just assumes that whatever the author is saying will fail or whatever they're likely shorting.

mc32 10y ago

Yes, but then what's that law of headlines ending with a question mark? The implied answer is typically "no".

whacker 10y ago
https://en.m.wikipedia.org/wiki/Betteridge%27s_law_of_headlines https://en.m.wikipedia.org/wiki/Betteridge%27s_law_of_headli...
- goodmachine 10y ago
  Related: the hashtag #qtwain (Questions To Which the Answer Is No) can make for an amusing/ time-saving Twitter search https://twitter.com/search?q=%23qtwain https://twitter.com/search?q=%23qtwain
sparky_z 10y ago
The implied answer is typically "yes". It's the _correct_ answer that's typically "no".
- mc32 10y ago
  According to the wiki article on the subject and as outlined by Marr, the answer to most headlines questions are in the negative. Most people will interpret them in the negative. It may be that the set-up is for people to _consider_ the positive, while answering in the negative.

blazespin 10y ago

Not really. If Index funds become more popular than regular trading becomes more profitable. The opposite of what you say is actually true.

smallnamespace 10y ago
It may make regular trading more profitable, but most asset managers are paid for getting more assets under management, not their fund's profits. So siphoning money away to index funds does put a direct crimp on active managed fund managers' compensation.
- mysterypie 10y ago
  > asset managers are paid for getting more assets under management, not their fund's profits. I've always wondered why they aren't paid a percentage of profits? That would align their interests with the customers'.
  - janpieterz 10y ago
    Or even a percentage that increases by the percentage of profit.
  - OscarCunningham 10y ago
    They're generally paid both. They often charge "two and twenty" meaning 2% yearly of the assets under management and 20% of the profit. (Of course they don't absorb 20% of the losses in a bad year)
    - smallnamespace 10y ago
      That's only hedge funds, which are a small fraction of total fund capitalization.
      - OscarCunningham 10y ago
        What are the percentages of the market occupied by different fund types? Where would I go to look that up?

henrikschroder 10y ago

"A report this past week from investment firm Sanford C. Bernstein, titled “The Silent Road to Serfdom: Why Passive Investing Is Worse than Marxism,” warned that..." It would be funny if it wasn't so incredibly blatant.

mathattack 10y ago
A friend worked there as an investment advisor and wound up quitting because so many of their funds were losing to the market.
- partiallypro 10y ago
  Funny enough, index funds outperform hedge funds, etc, however you can outperform the indices by buying stock at 3:00-3:30pm and selling at 4:00pm every day, because that's when many funds vest, and when most of the daily volume occurs. It's a horrible irony. The "3:30 Ramp" is so well known that there's a Twitter parody account followed by huge swaths of "Finance Twitter."
  - analog31 10y ago
    Is it enough to cover the typical discount broker commission?
    - hkmurakami 10y ago
      That would depend on your trading volume.
  - btown 10y ago
    https://twitter.com/RampCapitalLLC https://twitter.com/RampCapitalLLC http://www.zerohedge.com/news/2013-04-08/invest-330-pm-ramp-capital-lp-266-annualized-outperformance http://www.zerohedge.com/news/2013-04-08/invest-330-pm-ramp-... I barely know anything about trading, and nonetheless this is absolutely glorious. It's grown into a subculture that rivals any subreddit, with its own set of memes, photoshops, even animations. And to listen to the ever-bullish narrator, there's no end in sight to the ramp...

gozur88 10y ago

But there is a story here: >Because corporations know that, says Prof. Heemskerk, coziness and complacency may arise. “If you have only long-term investors, how do you keep management on their toes?” he asks. “Where are the checks and balances when you have such large block holdings?” The whole system depends on the fact that investors have an interest in voting for a competent board and are willing to sell their shares if the company doesn't seem to be managed well. If the actual owners of the company aren't paying attention the opportunities for self-dealing and just plain incompetence on the part of company officers multiply.