How has a LTB&H investment in the S&P 500 compared to your investment strategy over the past 50 years?
https://www.morningstar.com/funds/index-fund-turns-50-how-jack-bogle-changed-investing-forever
intercst
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My young daughter asked the question “what if everyone just buys the index fund” and I did not have a good answer to that question.
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The index fund would likely underperform the rest of the market. Prices are set by demand and if everyone wanted to buy the same 500 stocks, the price would go up. Conversely, the price of all stock outside of the index would go down - making them a great buy. Now of course, none of this is realistic because if there really was zero demand for stock outside of an index, then those companies would be virtually worthless (no demand at any price) and there would be a price at which people would stop buying the S&P500 if the P/E was 100, or 200, or 1000.
I had the great good fortune to have been activated to investment opportunity by the cover and the accomanying article/editorial (The Economist, March 6 1999) that proclaimed DROWNING IN OIL.
I knew oil investing fairly well, saw opportunity, and bought as many gas and oil working interest shares (actual ownership in wells) as I could at opportunistic prices. I did very very well on those in the years since. BUT, eyeballing and guessing, I doubt I exceded the return on blindly permanently investing in a solid S&P index fund….
Proclamations of Drowning in anything still catches my attention quickly.
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Probably don’t have to worry about that. It doesn’t take a lot of trading to set prices, and there are still plenty of active traders out there. There are also a huge number of speciality ETFs that are actively managed to various degrees. So, I think we’re safe for now.
The Acquired podcast just had a really good episode on Vanguard:
Vanguard is the most effective vehicle ever created for participating in the fruits of American capitalism. Today it’s the single largest equity owner of the majority of corporations in the S&P 500, on behalf of 50 million clients (including, likely, many of you). And yet Vanguard itself is essentially a communist organization — it has no shareholders, makes no profits, and operates more like REI than Fidelity. If you own a Vanguard fund, you own a piece of the firm itself. Any excess margin instead gets returned to clients in the form of lower fees, which since 1975 have added up to roughly five hundred billion dollars transferred out of Wall Street managers’ pockets and into retail investors’ savings accounts. And oh yeah, it all started as a cockamamie revenge plot by a guy who’d just been fired by his partners. Today we tell the story of communist capitalism at its finest — Vanguard.
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index investing works because active investors make prices informative. If everyone indexed, the thing that makes indexing work would disappear.
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