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From the article: "Funds run by Vanguard hold roughly 6% of total U.S. stock-market value."

So index funds are not eating the world.

Most Wall Street traders underperform the market. Even the hedge fund crowd mostly underperforms the market. "A Random Walk Down Wall Street" is real.

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Owning a few percent of a Fortune 500 company will probably get you a board seat, and a 10% stake probably makes you the single largest holder (especially ignoring companies still held by the founders/family like Wal-Mart or Google). Vanguard's current holdings makes them the single largest owner of Apple, Microsoft, and Exxon (the 3 largest companies in the S&P 500, I didn't check further). And that's just one of the firms offering index tracking ETFs.

Vanguard owning 6% of the entire US stock market value is huge. You could reasonably re-title this "Is Vanguard Eating the World" and be right if it wasn't for Blackrock and other ETF firms being close behind them.

Sources: https://finance.yahoo.com/quote/AAPL/holders?p=AAPL and similar pages.

But "Vanguard" is simply the sum total of all fund investors, since it has an inverted corporate structure.

True, I got a little carried away with "Vanguard eating the world". I was just trying to get across the scale of 6% of the entire US stock market.

In terms of using equity to exercise voting rights, you complete give up those rights when you buy into an index fund. So to a large extent, the voting policies of Vanguard and other index fund managers can matter a lot, especially if they are easily persuaded by activist investors.

That inverted structure is BS you can only vote for people proposed by the management company for funds and in turn those people will vote for management company appointments. Whoever started this whole thing is still controlling it you just have an illusion of control. "Own nothing, but control everything."

> "A Random Walk Down Wall Street" is real. reply

It's a real book, but it doesn't prove the market is random, nothing does as the efficient market hypothesis is just that, an unproven hypothesis lacking even enough evidence to become a working theory.

That certain funds consistently beat the market year in and year out for decades is enough to disprove the notion that markets are random; they're not.

That doesn't prove a damn thing.

When so many people are playing, there's bound to be some that consistently win, just by chance alone. The book discusses this.

http://dilbert.com/strip/2001-10-25

And there are statistics tests one can use to determine if one's performance meets those statistical parameters to be random. Many funds and managers beat it over the long term, such as Warren Buffet, but the vast majority indeed do not.

Warren Buffet usually invests to the extent that he has the power to change how the company is run. He usually uses that power.

Does that change my thesis at all?

I was just drawing the distinction between beating the market through passive investing (simple stock picking) vs. what Warren Buffet does.

In addition to that, there might be an effect due to the media hype around investments of Warren Buffet. People see in the news that Buffet invested in companyXYZ so they think that must be a smart idea and also invest in the same company and therefore driving the price higher...

Over any one year, sure, even over a few years, sure, but when you see consistent winners over decades in numbers that exceed what random chance would expect, it's foolish to still insist the market is random other that it being a good way to sell books. I know what the book discusses, and the book is an unproven hypothesis, it doesn't need to be disproven as it has never been proven in the first place.

That markets are random is a hypothesis only; one lacking sufficient evidence to declare it a theory.

No one has proven markets are random and that's where the burden of proof lies.

Show me an example of someone repeatedly beating the market, year after year, for decades.

Besides, even that is "only" a one in a million chance. How many people trade on the stock market?

From what I remember from the book, the claim is not that nobody can beat the market; it's that you can't distinguish them from lucky winners.

By the way, which funds have beaten the market for decades?

> it's that you can't distinguish them from lucky winners.

Jim Simmons doesn't agree, see Renaissance Technologies as an example. And time would week out lucky winners; luck isn't consistent over long time periods and this is just one example.

The RenTech Medallion fund is owned entirely by fund employees. It's not accessible to people who are not able to contribute to its success.

True, but not relevant to whether the market is or isn't random, which is the topic.

Renaissance Tech? Clearly at some level of expenditure you can beat risk/return of the market, but it doesn't necessarily scale either up or down. You need enough money to hire your army of PhDs, but not so much money that it starts to affect the market.

edit: heh, snap.

The claim of the book is that you, as a regular investor, do not have access to better-than-market returns, not that they are not possible. Anyone who can provide better returns will claim the difference for themselves (in fees) rather than pass it on to you. Why would they give you free money?

Let's say that funds X, Y, and Z can regularly beat the market. Fund X then passes on better returns to its customers, and therefore gets more customers. Then Y and Z have to do the same thing, otherwise they lose customers. Simple competition.

Are you saying the above won't happen?

I think the argument is a little more complicated than that. It might not be enough to observe that active traders aren't outperforming the indexes, because, as the argument goes, passive indexing creates its own market forces that tend to favor incumbents and work against aspirants.

But maybe. Vanguard has 6%, Blackrock and Fidelity at 5% each, some of the other investment firms also offer index. I'll peg that all up, 45-50% of the investments are in some kind of index fund.

Lots of money and market push there as indexes.

Bogle said that there could be issues at the 90% level, so we are still pretty far away.

My issue is funds that are Index 500 or DJI average are set by someone else. Hence the huge number of funds that own Apple and can push on them. When they rebalances those indexes, it can be a traumatic event.

On the other hand, index funds are a way of playing par golf with your money every day.

People own a lot appreciated stock they don't really want to sell and take the tax hit on. EX: CEO/Founders etc.

So, the real question is what percentage of funds are index funds.

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