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He would not buy “most of the s&p 500”. He would pick stocks to (try to) do better than the s&p 500. Indexing was not common 30 years ago. http://s18674.pcdn.c

by kgwgk 8y ago

He would not buy “most of the s&p 500”. He would pick stocks to (try to) do better than the s&p 500. Indexing was not common 30 years ago. http://s18674.pcdn.co/wp-content/uploads/2015/05/Index-market-share.jpg http://s18674.pcdn.co/wp-content/uploads/2015/05/Index-marke...

jorblumesea 8y ago
Indexing was very common, it just wasn't called indexing. It was called "active investing" but the reality is it wasn't as active or as smart as people think it was. It was very similar to today's indexing where you would funnel your money into the Facebook, Google, Amazon's of the day and collect a fat fee. This is how index funds work today, when you invest in a S&P 500 index fund it's really weighted towards the huge hitters. The dirty secret of active investing is every active investor had some kind of index-like fund going that constituted a large percentage of their portfolio. That graph is precisely my point, it's all about how we're measuring what it means to be an "index". You could engage in index-like behavior but be an "active investor". Indexing is just a label.
- kgwgk 8y ago
  Of course the market as a whole has been always indexing by mathematical necessity. Indexing is just a label, true, but it happens to be the label applied to investing exactly in proportion to the weight of each stock in the index. As opossed to "active investing".
  - fjsolwmv 8y ago
    But the subtler point is that your index fund is mostly invested in a few big companies,plus noise. AAPL ($1T) itself is 3% of the entire US stock market ($30T).
perl4ever 8y ago
The first index fund was in 1975, and people did scoff at it and call it "un-American". But that was over 40 years ago. By the time you're thinking of, index funds were common, even if not as large a portion of the market as today. I'm not sure exactly how much Vanguard had taken in by 1988, but I read[1] that their growth rate was about 53% in the early years, so their first fund that started with about $11 million would have been one of the larger ones by then, around $1 billion or more. By that time they had a dozen competitors. [1]https://www.vanguard.com/bogle_site/lib/sp19970401.html https://www.vanguard.com/bogle_site/lib/sp19970401.html
- kgwgk 8y ago
  Their AUM was $56bn in 1990. https://about.vanguard.com/img_files/who-we-are/remarkable-history/WWA_VAUM.png https://about.vanguard.com/img_files/who-we-are/remarkable-h... I guess one can debate how "common" is "common". Maybe indexing was common in the late eighties, but now it's two orders of magnitude more common.
  - perl4ever 8y ago
    Something can be common without being a large percentage, or a majority, of the market. When Vanguard's fund had $11 million and was the first and only of its kind, I think it's fair to say indexing was not common or popular. When they had competitors and there were billions of dollars being indexed (keeping in mind a billion dollars used to be worth more than now), I think it's reasonable to say investing in index funds was growing common. By analogy, a small percentage of the national or global population used the internet circa 1996, but it was becoming a common activity in the sense that millions were discovering it.

by kgwgk 8y ago

jorblumesea 8y ago

Indexing was very common, it just wasn't called indexing. It was called "active investing" but the reality is it wasn't as active or as smart as people think it was. It was very similar to today's indexing where you would funnel your money into the Facebook, Google, Amazon's of the day and collect a fat fee. This is how index funds work today, when you invest in a S&P 500 index fund it's really weighted towards the huge hitters. The dirty secret of active investing is every active investor had some kind of index-like fund going that constituted a large percentage of their portfolio. That graph is precisely my point, it's all about how we're measuring what it means to be an "index". You could engage in index-like behavior but be an "active investor". Indexing is just a label.

kgwgk 8y ago
Of course the market as a whole has been always indexing by mathematical necessity. Indexing is just a label, true, but it happens to be the label applied to investing exactly in proportion to the weight of each stock in the index. As opossed to "active investing".
- fjsolwmv 8y ago
  But the subtler point is that your index fund is mostly invested in a few big companies,plus noise. AAPL ($1T) itself is 3% of the entire US stock market ($30T).

perl4ever 8y ago

The first index fund was in 1975, and people did scoff at it and call it "un-American". But that was over 40 years ago. By the time you're thinking of, index funds were common, even if not as large a portion of the market as today. I'm not sure exactly how much Vanguard had taken in by 1988, but I read[1] that their growth rate was about 53% in the early years, so their first fund that started with about $11 million would have been one of the larger ones by then, around $1 billion or more. By that time they had a dozen competitors. [1]https://www.vanguard.com/bogle_site/lib/sp19970401.html https://www.vanguard.com/bogle_site/lib/sp19970401.html

kgwgk 8y ago
Their AUM was $56bn in 1990. https://about.vanguard.com/img_files/who-we-are/remarkable-history/WWA_VAUM.png https://about.vanguard.com/img_files/who-we-are/remarkable-h... I guess one can debate how "common" is "common". Maybe indexing was common in the late eighties, but now it's two orders of magnitude more common.
- perl4ever 8y ago
  Something can be common without being a large percentage, or a majority, of the market. When Vanguard's fund had $11 million and was the first and only of its kind, I think it's fair to say indexing was not common or popular. When they had competitors and there were billions of dollars being indexed (keeping in mind a billion dollars used to be worth more than now), I think it's reasonable to say investing in index funds was growing common. By analogy, a small percentage of the national or global population used the internet circa 1996, but it was becoming a common activity in the sense that millions were discovering it.