12 ms·

Because they have $3 trillion in assets under management - which is $600m a year even at 2 basis points in fees, which not everyone pays. Economies of scale ram

by cmdkeen 12y ago

Because they have $3 trillion in assets under management - which is $600m a year even at 2 basis points in fees, which not everyone pays. Economies of scale ramp up quickly.

pbhjpbhj 12y ago
With that sort of weight of assets surely they can push the market around enough to gain no matter where prices move?
- asr 12y ago
  The opposite, actually. With those sorts of assets you have to start getting worried about algorithms front-running your trades and things like that. Also, "the market" is big.
- Lazare 12y ago
  I see you're getting downvoted, but no one is bothering to explain. First, the market in general works in the exact opposite way. You can invest a million dollars a lot of places; with enough luck and skill you'll earn a great return. Keep doing that and soon you'll have, say, 500 million. But 500 million is harder to invest; you might say "stock X is really undervalued; I'm going to go long!", but if stock X has a market cap of 10 billion, you'll struggle to find 500 million in shares to purchase on a whim, and in so doing, you'll push the price up, and now it's no longer undervalued. Many investments that work for the guy with 1m don't work for the guy with 500m. But if you keep going and keep being lucky (or skilled) you might end up with billions or hundreds of billions. Now you're basically fucked. Most possible investments don't have the liquidity or capacity to absorb the money you're trying to place. At this scale you aren't picking companies; you're picking industrial sectors or countries. You'll never make a great return like that. Plus you're being watched constantly; the merest rumour that you're about to invest will end prices soaring or crashing before you can move. You can "push the market around", but only in ways that benefit smaller, nimble players, not you. At that scale, your ability to be clever is basically nil. Which brings us to the second point: Vanguard is an index fund. They simply buy an even mix of the shares that make up an index. Their entire strategy/promise is that they won't "push the market around" (which is the reason they have $3t under management; people explicitly looking for people who won't try and be clever). So your question is "couldn't Vanguard do the one thing they don't do, because it can't work"? And the answer is no, it can't work, which is why Vanguard exists and has those assets.
  - cmdkeen 12y ago
    However there are strategies available to active investors with billions - being an "activist investor". If you buy significant stakes in companies - which might be only a percentage point or two, but still putting you in the top individual shareholders, then you have the ability to change the strategy of the company. The step up from that is into Berkshire Hathaway / private equity territory where you just buy companies, or very significant stakes and run them as you want to.
  - pbhjpbhj 12y ago
    Thanks for your comment. I didn't ask if an index fund could move the market, I asked if an investor with so much couldn't move the market. One guy bought 15% of the world's cocoa and now chocolate prices are high and manufacturers are trying to rip off consumers by filling thick plastic packages with more air and less chocolate bar. If you had control of that sort of money it just seems you could be invisible. The cost of the entire coffee production of the world is only billions, buy any significant percentage and there's going to be companies who'll either pay or collapse?
    - Lazare 12y ago
      > I asked if an investor with so much couldn't move the market. Well yeah. Start to buy Apple shares, and the price rises, and you pay more than a smaller investor would. Try to sell them again, and the price crashes, and you receive less than a smaller investor would. As I already explained, you've got it backwards. > One guy bought 15% of the world's cocoa Yes, years ago. And it was 7%, not 15%. And like pretty much every cornering scheme, it didn't work. Armajaro ended up in trouble when cocoa prices dropped while they were still holding a large inventory, and they had to sell their commodities trading division off just to cover their losses, because of the same dynamics: The only way they could buy 7% of the worlds yearly cocoa production was by paying a premium—and the only way they could get rid of it was by offering it as a discount. > If you had control of that sort of money it just seems you could be invisible. The exact opposite of invisible, actually. > The cost of the entire coffee production of the world is only billions, buy any significant percentage and there's going to be companies who'll either pay or collapse? Not a good plan. :)

by cmdkeen 12y ago

Because they have $3 trillion in assets under management - which is $600m a year even at 2 basis points in fees, which not everyone pays. Economies of scale ramp up quickly.

pbhjpbhj 12y ago

With that sort of weight of assets surely they can push the market around enough to gain no matter where prices move?

asr 12y ago
The opposite, actually. With those sorts of assets you have to start getting worried about algorithms front-running your trades and things like that. Also, "the market" is big.
Lazare 12y ago
I see you're getting downvoted, but no one is bothering to explain. First, the market in general works in the exact opposite way. You can invest a million dollars a lot of places; with enough luck and skill you'll earn a great return. Keep doing that and soon you'll have, say, 500 million. But 500 million is harder to invest; you might say "stock X is really undervalued; I'm going to go long!", but if stock X has a market cap of 10 billion, you'll struggle to find 500 million in shares to purchase on a whim, and in so doing, you'll push the price up, and now it's no longer undervalued. Many investments that work for the guy with 1m don't work for the guy with 500m. But if you keep going and keep being lucky (or skilled) you might end up with billions or hundreds of billions. Now you're basically fucked. Most possible investments don't have the liquidity or capacity to absorb the money you're trying to place. At this scale you aren't picking companies; you're picking industrial sectors or countries. You'll never make a great return like that. Plus you're being watched constantly; the merest rumour that you're about to invest will end prices soaring or crashing before you can move. You can "push the market around", but only in ways that benefit smaller, nimble players, not you. At that scale, your ability to be clever is basically nil. Which brings us to the second point: Vanguard is an index fund. They simply buy an even mix of the shares that make up an index. Their entire strategy/promise is that they won't "push the market around" (which is the reason they have $3t under management; people explicitly looking for people who won't try and be clever). So your question is "couldn't Vanguard do the one thing they don't do, because it can't work"? And the answer is no, it can't work, which is why Vanguard exists and has those assets.
- cmdkeen 12y ago
  However there are strategies available to active investors with billions - being an "activist investor". If you buy significant stakes in companies - which might be only a percentage point or two, but still putting you in the top individual shareholders, then you have the ability to change the strategy of the company. The step up from that is into Berkshire Hathaway / private equity territory where you just buy companies, or very significant stakes and run them as you want to.
- pbhjpbhj 12y ago
  Thanks for your comment. I didn't ask if an index fund could move the market, I asked if an investor with so much couldn't move the market. One guy bought 15% of the world's cocoa and now chocolate prices are high and manufacturers are trying to rip off consumers by filling thick plastic packages with more air and less chocolate bar. If you had control of that sort of money it just seems you could be invisible. The cost of the entire coffee production of the world is only billions, buy any significant percentage and there's going to be companies who'll either pay or collapse?
  - Lazare 12y ago
    > I asked if an investor with so much couldn't move the market. Well yeah. Start to buy Apple shares, and the price rises, and you pay more than a smaller investor would. Try to sell them again, and the price crashes, and you receive less than a smaller investor would. As I already explained, you've got it backwards. > One guy bought 15% of the world's cocoa Yes, years ago. And it was 7%, not 15%. And like pretty much every cornering scheme, it didn't work. Armajaro ended up in trouble when cocoa prices dropped while they were still holding a large inventory, and they had to sell their commodities trading division off just to cover their losses, because of the same dynamics: The only way they could buy 7% of the worlds yearly cocoa production was by paying a premium—and the only way they could get rid of it was by offering it as a discount. > If you had control of that sort of money it just seems you could be invisible. The exact opposite of invisible, actually. > The cost of the entire coffee production of the world is only billions, buy any significant percentage and there's going to be companies who'll either pay or collapse? Not a good plan. :)