Bogle thinks ETFs are great marketing tools but that the 770 (his number) funds that target narrow parts of the market is "problem one." He goes on to say that "these ETFs are basically encouraging you to take market sector risk. I should say it’s not working very well."
Not working well is not defined by Bogle and seems to be impossible to define numerically let alone as vaguely as Bogle seems to do. Many sector funds have a lot of assets and trading volume (more on his thoughts about trading later) so they are successful products. The ones that lack assets and volume are not successful (yet?) and so might close depending on other factors.
As far as end user success this seems particularly impossible to quantify. It is easy to envision some people having success and other folks not. Almost any investment product can be used in the most conservative of investment policies or for the wildest of speculative trading. Obviously a major focus of this site has been blending together narrow exposures to create a particular portfolio effect. There have obviously been countless studies showing that blending together different, but volatile, betas makes for a lower overall volatility.In talking about who has control of the market Bogle said "There's a place for both (investors and speculators), but in the long run, investors should be driving the market, not speculators."
Should isn't very constructive in building an investment portfolio. Speculators, maybe just for now or not, are liquidity. They are what makes the market function more so than someone like me who has had quite a few positions for more than five years with the hope of holding them literally forever.
If you want a one or two penny spread in the fund or stock that you are looking buy or sell, it is a good bet that you are relying on what Bogle would call speculators to make that market. If you are not a speculator I would suggest focusing more on how to function in a world of speculators more than anything else.
Bogle also feels there should be a "transaction tax." He notes that the regulated commission structure from the 1970s, and earlier, served the same role as what he has in mind by making trading prohibitively expensive. I think quite obviously something like this, although it will obviously never happen, would cause a meaningful disruption in the markets what would adversely affect everyone and then I have to believe the industry would figure a work around and move forward.
Whatever direction the investment world goes in, there will be some that thrive and some that flounder. This is universally correct and so the most important thing becomes figuring your place in the investment world.
8 comments:
I like the idea of a tax on transactions to make the market less volatile. I believe the flash crash is an example of what would have been avoided. It would also make trading less and "holding" more attractive.
I have only made a handful of trades this year, but I think a transaction tax is crazy.
Our current problems have to do with excess loans, insolvent banks, billion dollar bail outs for banks and bond holders.
Hussman is much more eloquent than I, but we need to stop bailing out banks and bond holders on banks. Our monetary system is unstable and banks are insolvent. So of course markets are volatile. That is no reason to penalize traders penalize the bankers who created this problem.
If you do not agree with me then please explain the need for trillions of dollars of printing in QE, QE2, and QE* to come?
SEG
The govenment wants to tax anything they can that will not be obvious to the average Joe....and then having public hearings to find out why the costs of transactions have gone up so much...anyway the answer to any problem is not more taxes...define the problem and then find the root cause and address it. But that is just my 2 cents.
Folks new to stock and bond investing have no idea what it used to cost to trade; e.g., up until 1975, broker commissions and exchange fees averaged 1% (you read that right) of every stock transaction, more than that if it was a low-priced stock or odd lot transaction, a bit less for a blue chip.
It was actually easier to make money then IMO: Fewer ways to get gamed and, with the cost out front, less incentive to be gamed.
Agree with the sentiment that bondholders should not be bailed out: Investing carries risk and it is necessary to wipe out equity holders while swapping all remaining equity for bonds.
I cannot speak about a tansaction tax since I do not live in the USA. But, in my openion it makes sence. Well, I gt a speeding ticket in switzland. The ticket is 370CHF, state tax 100CHF, Compilation and comm. 60CHF, police expenses 80CHF. Total 610CHF.
RW, talk about 1% expenses on transaction? This transaction cost close to 90% in taxes and expenses. And if I do not pay, well there is jail and problably banned from entering the swiss border. This is the first ticket I got in my life. It was dark rainy night and there was no one in the tunnel. Well if the swiss were in charge then ...
Jeff from Milan, Italy
“It is the American people who should be outraged that its government has transformed a nation with a reputation for freedom, justice, tolerance and respect for human rights into a backwater that revels in its criminality, cover-ups, injustices and hypocrisies.”
As noted by Mike Masnick at Techdirt, “It's pretty sad when Pravda is lecturing the US on free speech, tolerance and respect for human rights.”
Vanguards fund line up is caught in dinosaur Bogle thinking. 30+ Flavors of U.S indexes and 1 emerging markets fund. They were many years behind on bond funds. Vanguard is good for investors for their pricing but for the "father of indexing". - Vanguard has been a laggard on ETFs
Just how may times and to what limit does Bogle think our sweat and blood should be taxed? I suspect the answer is "Until the maximum number of investors have been convinced that their best best is to buy and hold forever one of John Bogle's mutual funds."
Why is it seemingly inevitable that rich people come to view the rest of us as children to be nannied and herded into their favorite schemes. Bogle and the rest who want to tax transactions in order to contyrol, corral, and manipulate can all go to hell - please do not stop at "GO" on your way.
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