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The Permanent Portfolio by Craig Rowland, J. M. Lawson

Andrei Shleifer, asset allocation, automated trading system, backtesting, bank run, banking crisis, Bernie Madoff, buy and hold, capital controls, correlation does not imply causation, Credit Default Swap, diversification, diversified portfolio, en.wikipedia.org, fixed income, Flash crash, high net worth, High speed trading, index fund, inflation targeting, margin call, market bubble, money market fund, new economy, passive investing, Ponzi scheme, prediction markets, risk tolerance, stocks for the long run, survivorship bias, technology bubble, transaction costs, Vanguard fund

Treasury bonds: long-term short-term Vanguard: sample portfolios with Vanguard Admiral Treasury Money Market Fund Vanguard Australian Shares Index Vanguard Cash Plus Index Vanguard Diversified Bond Index Vanguard European Bond Index Vanguard FTSE ex-U.S. Index ETF Vanguard FTSE ex-U.S. Index Mutual Fund Vanguard High-Yield Corporate Bond Fund Vanguard Long-Term Corporate Bond Fund Vanguard Long-Term Investment Grade fund Vanguard Long-Term Tax Exempt Bond Fund Vanguard Long-Term Treasury Bond Fund Vanguard MSCI Canada Index ETF Vanguard MSCI Europe Index Vanguard Prime Money Market Fund Vanguard Short Term Treasury Fund Vanguard S&P 500 Index Mutual Fund Vanguard Tax-Free Municipal Money Market Fund Vanguard Total Bond Market fund Vanguard Total International Index Mutual Fund Vanguard Total Stock Market ETF Vanguard Total Stock Market Index Fund Vanguard Total Stock Market Mutual Fund Vanguard Total World Index ETF Vanguard Total World Index Mutual Fund Vanguard Treasury Inflation Protected Securities fund Vanguard Treasury Long Term Mutual Fund Vanguard Treasury Money Market website of Variable investments: definition of funding of reasons for rules related to speculation with Variable Portfolio funds success rate with VIA MAT Volatility.

Treasury Money Market implementation of investments using Vanguard Admiral Treasury Money Market Fund Vanguard Prime Money Market Fund Vanguard Tax-Free Municipal Money Market Fund Vanguard Treasury Money Market Morningstar Mortgage bonds Municipal bonds Mutual funds: Fidelity Spartan 500 Index Mutual Fund Fidelity Spartan International Index Mutual Fund Fidelity Spartan Treasury Long-Term Bond Fund implementation of investments using iShares Short Treasury Bond Fund Schwab S&P 500 Index Mutual Fund trading costs associated with Vanguard FTSE ex-U.S. Index Mutual Fund Vanguard S&P 500 Index Mutual Fund Vanguard Total International Index Mutual Fund Vanguard Total Stock Market Mutual Fund Vanguard Total World Index Mutual Fund Vanguard Treasury Long Term Mutual Fund Nabielsky, Jose Natural disasters Natural resources New Zealand Mint Nixon administration Norstad, John O'Kane, Mike Oppenheimer Core Bond fund Passive investing: bond funds as Permanent Portfolio based on stock index funds as tax considerations with Pensions.

Index Mutual Fund Vanguard High-Yield Corporate Bond Fund Vanguard Long-Term Corporate Bond Fund Vanguard Long-Term Investment Grade fund Vanguard Long-Term Tax Exempt Bond Fund Vanguard Long-Term Treasury Bond Fund Vanguard MSCI Canada Index ETF Vanguard MSCI Europe Index Vanguard Prime Money Market Fund Vanguard Short Term Treasury Fund Vanguard S&P 500 Index Mutual Fund Vanguard Tax-Free Municipal Money Market Fund Vanguard Total Bond Market fund Vanguard Total International Index Mutual Fund Vanguard Total Stock Market ETF Vanguard Total Stock Market Index Fund Vanguard Total Stock Market Mutual Fund Vanguard Total World Index ETF Vanguard Total World Index Mutual Fund Vanguard Treasury Inflation Protected Securities fund Vanguard Treasury Long Term Mutual Fund Vanguard Treasury Money Market website of Variable investments: definition of funding of reasons for rules related to speculation with Variable Portfolio funds success rate with VIA MAT Volatility. See Market volatility Volcker, Paul Wage-price spiral War and civil disorder Wash sales Wealth. See also Income; Returns Whip Inflation Now (WIN) Campaign Why the Best Laid Investment Plans Usually Go Wrong (Browne) Wilshire 5000 Withdrawals, asset Woodin, William Workplace. See Profession WorldCom Zero interest rate policy


pages: 345 words: 87,745

The Power of Passive Investing: More Wealth With Less Work by Richard A. Ferri

asset allocation, backtesting, Bernie Madoff, buy and hold, capital asset pricing model, cognitive dissonance, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, endowment effect, estate planning, Eugene Fama: efficient market hypothesis, fixed income, implied volatility, index fund, intangible asset, Long Term Capital Management, money market fund, passive investing, Paul Samuelson, Ponzi scheme, prediction markets, random walk, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Sharpe ratio, survivorship bias, too big to fail, transaction costs, Vanguard fund, yield curve, zero-sum game

Securities and Exchange Commission (SEC) U.S. small cap funds U.S. stocks U.S. Treasury bonds Value investing Value stocks van Dijk, Mathijs A. Vanguard 500 Index Fund: 15-year tax cost ratio for 25-year study on active funds and domestic equity funds of launch of proven record of sales load, lack of Vanguard Bond Market Fund Vanguard First Index Investment Trust Vanguard Group: first index fund, launch of as global investment managers indexing, growth of international indexing analysis web site for Vanguard REIT Index Fund Vanguard S&P 500 index fund Vanguard Small Cap Index Fund Vanguard Total Bond Market Index ETF Vanguard Total Bond Market Index Fund Vanguard Total International Stock Fund Vanguard Total Stock Market Index Fund Vanguard U.S. Total Stock Market ETF Wahal, Sunil Wall Street: battle against indexing selling sizzle as sell side of business Wall Street Journal Walmart 401(k) plan lawsuit Wealth-maximizing mutual fund investors Web sites, passive investing Wellington Board of Directors Wellington Fund, launch of Wellington Group of Funds Wells Fargo Bank Wharton School Williams, John Burr Wilshire 4500 index Wilshire 5000 index Wilshire Associates Winner’s curse, the Winning the Loser’s Game (Ellis) World War II X-Ray portfolio management tool Your Money & Your Brain (Zweig) Zechhauser, Richard Zero-sum game: alpha as market timing strategies as non-market risk and tactical asset allocation as Zweig, Jason

My test compared this index fund portfolio to thousands of randomly selected active funds from the Morningstar list, in the correct weightings. Table 6.7 Model Index Fund Portfolio Used in the Live Study Index Fund Name Percent Allocation Vanguard Total Stock Market Index Fund 45% Vanguard Total International Stock Index Fund* 15% Vanguard Total Bond Market Index Fund 40% * The Vanguard Total International Fund had its first full year under management in 1998. The FTSE All-World ex-US Index Fund (less 0.4 percent fee) is substituted for the years 1995 through 1997. The allocation of the FTSE ex-US could have been replicated using three other Vanguard international index funds that were in existence over the entire time period. The difference between the simulated fund and the actual funds was negligible. Using the Morningstar Principia database ending in December 2009, I screened each asset class for actively managed funds that were in the same fund category and had the same investment objective as each index fund.

Who’s been winning the battle? Let’s start by looking at the performance of Vanguard’s first index fund over the past 25 years. There were about 260 actively managed domestic equity funds available to investors at the time the Vanguard 500 Index Fund launched in late 1976, according to Lipper, a financial markets research and wholly owned subsidiary of Reuters Group PLC. About half of those funds have closed or merged over the years, leaving 136 surviving funds as of December 2009. Figure 3.1 illustrates how these remaining funds have performed relative to the Vanguard 500 Index Fund over a 25-year period ending in 2009 according to Lipper data. Figure 3.1 Active Funds Performance Relative to Vanguard 500 Index Fund (1985-2009) Figure 3.1 doesn’t include the closed or merged funds. It only includes data on funds that have survived since 1976.


pages: 339 words: 109,331

The Clash of the Cultures by John C. Bogle

asset allocation, buy and hold, collateralized debt obligation, commoditize, corporate governance, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, estate planning, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, fixed income, Flash crash, Hyman Minsky, income inequality, index fund, interest rate swap, invention of the wheel, market bubble, market clearing, money market fund, mortgage debt, new economy, Occupy movement, passive investing, Paul Samuelson, Ponzi scheme, post-work, principal–agent problem, profit motive, random walk, rent-seeking, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, shareholder value, short selling, South Sea Bubble, statistical arbitrage, survivorship bias, The Wealth of Nations by Adam Smith, transaction costs, Vanguard fund, William of Occam, zero-sum game

See also Index funds assets exchange traded funds versus future of growth in number of as portfolio core profile of trading volumes “Trafficking” in management contracts Transactions: cost of taxes on Trends Turner, Adair Turner, Lynn Turnover: actively managed equity funds exchange traded funds index funds mutual funds Stewardship Quotient and stock market Twardowski, Jan M. 12b-1 fees Value, corporate Vanguard: Admiral shares balanced index fund bond funds, defined-maturity cash flow emerging markets stock fund exchange traded funds “Extended Market” portfolio growth and value index funds history index fund family milestones international funds LifeStrategy Portfolios proxy votes REIT index fund small capitalization stock fund Stewardship Quotient structure and strategy tax-managed index funds Vanguard 500 Index Fund Vanguard Institutional Index Fund Vanguard PRIMECAP Fund Vanguard Total Bond Market Index Fund Vanguard Total Stock Market Index funds Vanguard U.S. Growth Fund Vanguard Wellington Fund. See Wellington Fund Vanguard Windsor Fund Volatility Volcker Rule “Wall Street Casino, The” (Bogle) Wall Street Journal, The Wealth of Nations, The (Smith) Wellington Fund: about advisory fees Annual Report (1967) Annual Report (1978) Annual Report (2000) Annual Report (2010) assets under management Beta dividend income projections dividend policy dividends equity ratio expenses Fall (1967–1978) founding income strategy, implications of investment committee lessons from memo on restructuring memo on speculation naming of other balanced funds versus other pioneer funds compared to performance portfolio approach to higher income Renaissance (1978-2012) restructuring memo returns Rise (1929-1966) shareholder objectives survey speculation memo Wellington Management Company.

Compounded, the appreciation of a $10,000 investment made at the close of 1986 was remarkable: average actively managed bond fund $29,900; Vanguard Total Bond Market Index Fund, $42,600, or a difference in profit of more than 40 percent. This stunning advantage once again reaffirms the timeless truism: Never forget either the magic of long-term compounding of returns, nor the tyranny of long-term compounding of costs. Learning from Experience Certainly the marketplace of bond investors has learned from that truism. In 1989, the assets of Vanguard’s bond index fund didn’t reach even $100 million, and represented 0.1 percent of the total assets of all taxable bond funds. But by 1996, assets of our bond index funds had soared to $4 billion, some 1 percent of the assets of all taxable bond funds, and by 2006, $45 billion or 4 percent. As 2012 began, assets of Vanguard’s bond index funds totaled $190 billion, a record-high share of nearly 9 percent of all taxable bond fund assets.

Post-Neff annual returns: Fund 6.5 percent; S&P 500 6.5 percent. . . . Inferior returns turn to superior; then back to inferior; then average. Yet again, RTM strikes. Vanguard U.S. Growth Fund (1960–2012) Cumulative Return vs. S&P 500 Vanguard U.S. Growth Fund began in 1958 as Ivest Fund. . . . Wellington Management acquires its manager in 1966. . . . Cumulative return during 1961–1967 best in the entire mutual fund industry; 327 percent versus 108 percent for the S&P 500. . . . Pummeled in the 1973–1974 crash: −55 percent versus −35 percent for the S&P 500. Pedestrian recovery. . . . Cumulative return 1960–1976: Fund 238 percent; S&P 218 percent. RTM strikes again. . . . Name changed to Vanguard Growth Fund in 1980, then became a separate U.S. Growth portfolio. . . . New manager in 1987. . . . Fund and S&P 500 both rise 18 percent per year in 1987–1999. . . .


pages: 490 words: 117,629

Unconventional Success: A Fundamental Approach to Personal Investment by David F. Swensen

asset allocation, asset-backed security, buy and hold, capital controls, cognitive dissonance, corporate governance, diversification, diversified portfolio, fixed income, index fund, law of one price, Long Term Capital Management, market bubble, market clearing, market fundamentalism, money market fund, passive investing, Paul Samuelson, pez dispenser, price mechanism, profit maximization, profit motive, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, shareholder value, Silicon Valley, Steve Ballmer, stocks for the long run, survivorship bias, technology bubble, the market place, transaction costs, Vanguard fund, yield curve, zero-sum game

Regardless of the measurement period, the mutual-fund industry ill serves its taxable investors. Table 7.4 Most Mutual-Fund Assets Reside in Taxable Accounts Source: Investment Company Institute. Table 7.5 After-TaxMutual-Fund Returns Disappoint Performance Relative to the Vanguard 500 Index Fund Source: Arnott et al., Journal of Portfolio Management 26, no. 4 (2000). Notes: These returns do not reflect survivorship bias. Data reflect periods ending December 31, 1998. To add insult to injury, the Vanguard 500 Index Fund results emanate from a portfolio that lays no claim to tax-sensitive investing. While the generally low turnover of the Vanguard 500 Index Fund portfolio leads to reasonably attractive tax characteristics, paying attention to tax issues could further improve the after-tax results. For example, taxable investors gain an edge by simply realizing losses when they reach a critical size and using the proceeds to purchase a close substitute for the loss-making security.

Robert Arnott’s 2000 examination of U.S. equity mutual-fund returns shows a twenty-year pre-tax deficit of 2.1 percent per year relative to the result achieved by investors in Vanguard’s 500 Index Fund. Nearly 80 percent of actively managed funds failed to reach Vanguard’s market-mimicking return. Well-informed tax-deferred investors reach an obvious conclusion: look no further than low-cost, passively managed index funds. Since mutual-fund managers pay little or no attention to the tax consequences of their actions, after-tax results prove even more dismal for investors. Arnott shows a twenty-year after-tax shortfall of 2.8 percent per year relative to the Vanguard 500 Index Fund, which itself takes no account of tax considerations. More than 85 percent of mutual funds fail to meet the Vanguard 500 Index Fund after-tax return. The after-tax return deficit proves stunning both because of its size and because it describes the experience of the majority of mutual-fund investors.

The overwhelmingly likely explanation for this dichotomy suggests that benefits of scale accrue largely to fund-management-company profits with nothing left over for improving shareholder returns. Vanguard and GMO represent the exception; Principal and Bernstein, the rule. Table 8.8 Vanguard U.S. Value Fund Investors Receive a Fair Deal (Percent) Source: The Vanguard Group, Vanguard U.S. Value Fund Prospectus, 29 January 2004: 2, 7. Notes: Figures represent charges for the year ending September 30, 2003. As of September 30, 2003, the Vanguard U.S. Value Fund had approximately $474 million in net assets. Charges for asset levels in excess of $1 billion represent estimates. Management fees represent base fees, ignoring incentive fees that increase or decrease GMO’s compensation by as much as 0.125 percent. Beyond the unmet expectation that increasing scale should lead to decreasing fees, other evidence points to mutual-fund company fee gouging.


pages: 335 words: 94,657

The Bogleheads' Guide to Investing by Taylor Larimore, Michael Leboeuf, Mel Lindauer

asset allocation, buy and hold, buy low sell high, corporate governance, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, endowment effect, estate planning, financial independence, financial innovation, high net worth, index fund, late fees, Long Term Capital Management, loss aversion, Louis Bachelier, margin call, market bubble, mental accounting, money market fund, passive investing, Paul Samuelson, random walk, risk tolerance, risk/return, Sharpe ratio, statistical model, stocks for the long run, survivorship bias, the rule of 72, transaction costs, Vanguard fund, yield curve, zero-sum game

While all three of us believe that indexing is an excellent investment strategy, all three of us own actively managed Vanguard funds, too. Although Vanguard is known as the pioneer of index funds, it also offers a wide variety of actively managed funds, with some having delivered great returns. For example, for the first 20 years of its existence (1984 to 2004), Vanguard's Health Care Fund had the highest annual average return of any mutual fund in the world. And in the past 25 years, a portfolio of Vanguard's actively managed funds outperformed the Wilshire 5000 (the total U.S. stock market index) by an average of 0.9 percent per year. This portfolio's excellent performance has been largely due to a combination of good management coupled with low costs. Vanguard's actively managed funds, like all Vanguard funds, carry no sales charge and have an average annual expense ratio of just 0.47 percent.

The various LifeStrategy funds offered by Vanguard are good examples of these types of funds. Let's take a look at the composition of a couple of these funds. The Vanguard LifeStrategy Growth Fund has a fairly aggressive target asset allocation of 80 percent stocks and 20 percent bonds. This fund of funds invests in four Vanguard funds: 1. Total Stock Market Index Fund 2. Total International Stock Index Fund 3. Asset Allocation Fund 4. Total Bond Market Fund The Vanguard LifeStrategy Conservative Growth Fund has a more conservative target asset allocation of 40 percent stocks and 60 percent bonds. This fund of funds invests in five Vanguard funds: 1. Total Stock Market Index Fund 2. Total International Stock Index Fund 3. Asset Allocation Fund 4. Total Bond Market Fund 5. Short-Term Investment-Grade Bond Fund There are two other funds in the Vanguard LifeStrategy series that offer differing asset allocations.

Experienced investors understand this volatility and accept the inevitable declines. We know that by simply changing our allocation between stocks and bonds, we can lessen the amount of volatility in our portfolio until we reach our comfortable sleep level. Table 8.2 shows the maximum decline that would have occurred during the 2000 to 2002 three-year bear market using various combinations of two Vanguard funds-Vanguard's Total Stock Market Index Fund and Vanguard's Total Bond Market Index Fund, with annual rebalancing. It illustrates why nearly every portfolio should contain an allocation to bonds. If you were invested in stocks during the 2000 to 2002 three-year bear market, you undoubtedly have a good idea of your risk tolerance. If you sold losing funds, or if you lost sleep, your portfolio should almost certainly have held more bonds.


pages: 194 words: 59,336

The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life by J L Collins

"side hustle", asset allocation, Bernie Madoff, buy and hold, compound rate of return, diversification, financial independence, full employment, German hyperinflation, index fund, money market fund, nuclear winter, passive income, payday loans, risk tolerance, Vanguard fund, yield curve

If you’ve read this far, you know I am a strong proponent of investing in Vanguard index funds. Indeed, unless you have no choice (as discussed in Chapter 17), my strong suggestion is that you deal only with Vanguard. Understandably, such a bold recommendation is going to raise some questions. In this chapter we’ll address the four most common: 1. What makes Vanguard so special? When Jack Bogle founded Vanguard in 1975, he did so with a structure that remains unique in the investment world. Vanguard is client-owned and it is operated at-cost. Sounds good, but what does it actually mean? As an investor in Vanguard funds, your interest and that of Vanguard are precisely the same. The reason is simple. The Vanguard funds—and by extension the investors in those funds—are the owners of Vanguard.

Or maybe you want to leave some money to your kids, grandkids or to a charity. All will have their own long term horizons. The Three Tools Once you’ve sorted through your three considerations, you are ready to build your portfolio and you’ll need only these three tools to do it. See, I promised this would be simple! 1. Stocks: VTSAX (Vanguard Total Stock Market Index Fund). Stocks provide the best returns over time and serve as our inflation hedge. This is our core wealth-building tool. (See Chapter 17 for variants of this same fund.) 2. Bonds: VBTLX (Vanguard Total Bond Market Index Fund). Bonds provide income, tend to smooth out the rough ride of stocks and serve as our deflation hedge. 3. Cash. Cash is good to have around to cover routine expenses and to meet emergencies. Cash is also king during times of deflation. The more prices drop, the more your cash can buy.

As you get older you might want to smooth the ride a bit, even at the cost of lower overall returns. You want to sleep at night. Now that I’m kinda, sorta retired and we are financially independent, me too. My wife and I hold some other stuff in our portfolio. But not much. Here it is: ~75% Stocks: VTSAX (Vanguard Total Stock Market Index Fund). Still our core holding for all the reasons we’ve discussed. ~20% Bonds: VBTLX (Vanguard Total Bond Market Index Fund). Bonds provide some income, tend to smooth out the rough ride of stocks and are a deflation hedge. ~5% Cash: We hold ours in our local bank. You can fine-tune these allocations to your own personal considerations. Want a smoother ride? Willing to accept a potentially lower long-term return and slower wealth accumulation?


pages: 407 words: 114,478

The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William J. Bernstein

asset allocation, Bretton Woods, British Empire, business cycle, butter production in bangladesh, buy and hold, buy low sell high, carried interest, corporate governance, cuban missile crisis, Daniel Kahneman / Amos Tversky, Dava Sobel, diversification, diversified portfolio, Edmond Halley, equity premium, estate planning, Eugene Fama: efficient market hypothesis, financial independence, financial innovation, fixed income, George Santayana, German hyperinflation, high net worth, hindsight bias, Hyman Minsky, index fund, invention of the telegraph, Isaac Newton, John Harrison: Longitude, Long Term Capital Management, loss aversion, market bubble, mental accounting, money market fund, mortgage debt, new economy, pattern recognition, Paul Samuelson, quantitative easing, railway mania, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Robert Shiller, South Sea Bubble, stocks for the long run, stocks for the long term, survivorship bias, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the rule of 72, transaction costs, Vanguard fund, yield curve, zero-sum game

Steel, 147, 160 USA Today, 219, 220 Value averaging, 283–285 Value Line, 90 Value Line Fund, 90 Value stocks (“bad” companies) asset allocation, 120-122, 172, 248–255, 251–253 Graham on, 158 in portfolio building, 109, 120–122, 172 In Search of Excellence (Peters) on, 64 real returns on, 68, 69, 72 rebalancing, 289–290 returns on, 34-38 tax efficiency of, 263–264 Vanguard 500 Index Fund, 97, 98, 102–104, 215, 216 Vanguard GNMA Fund, 215-216 Vanguard Growth Index Fund, 249 Vanguard Limited Term Tax Exempt Fund, 261 Vanguard mutual funds fee structure, 210, 250, foreign indexed funds, 119 founding by Bogle, 213-214 as no-load company, 205 Vanguard Short-Term Corporate Fund, 261 Vanguard Small-Cap Index Fund, 99 Vanguard Tax-Managed Small-Cap Index Fund, 99 Vanguard Total International Fund, 255, 256 Vanguard Total Stock Market Fund, 104, 246 Vanguard Value Index Fund, 249-250 Variable annuity fund, 204 Variety, 145 Venetian prestiti, 10–13 Vertin, James, 96–97 Victoria, Queen of England, 143 Von Böhm-Bawerk, Eugen, 8 Wal-Mart, 34–35, 185 The Wall Street Journal, 85, 96, 98, 167, 211, 219, 222, 225 Wall Street Week (television program), 224 Walz, Daniel T., 231 Wellington Management Company, 213–214 Wells Fargo, first index fund, 96–97, 215, 245 Westinghouse, 133 Wheeler, Dan, 123 Where are the Customers’ Yachts?

There are many ways to approach this problem, but a reasonable compromise would be to add an additional fund for each $5,000 contributed. This will initially result in 0.2% extra expense—not a bad price to pay for the diversification obtained. I’d recommend adding in asset classes/funds in the following order: 1. $0–$5,000 added: Start with Vanguard 500 Index Fund. 2. $5,000–$10,000 total contributions: Add Vanguard Total International Fund. 3. $10,000–$15,000 total contributions: Add Vanguard REIT Index Fund. 4. $15,000–$20,000 total contributions: Add Vanguard Small-Cap Value Fund. Note that we are not adding $5,000 to each fund in sequence. For example, Yvonne’s asset allocation calls for a total of 13.2% foreign equity (the sum of the four international funds) and 6% REITs. So, of the second $5,000 added, only $1,500 will go into the Total International Fund.

Wells Fargo’s index fund was not initially available to the general public, but that was soon to change. A few years later, in September 1976, John Bogle’s young Vanguard Group offered the first publicly available S&P 500 Index fund. Vanguard’s fund was not exactly a roaring success out of the starting gate. After two years, it had collected only $14 million in assets. In fact, it did not cross the billion-dollar mark—the radar threshold of the fund industry—until 1988. But as the advantages of indexing became evident to small investors, it took off. For the past few years, it has been running neck-and-neck for the number one spot in asset size with Lynch’s old fund, Magellan. Truth be told, the Vanguard 500 Index Fund has gotten a little too popular. Of all the major stock indexes, the S&P 500 has done the best in recent years. Much of the new assets that the fund has collected are “hot money,” coming from naïve investors who are simply chasing performance.


All About Asset Allocation, Second Edition by Richard Ferri

activist fund / activist shareholder / activist investor, asset allocation, asset-backed security, barriers to entry, Bernie Madoff, buy and hold, capital controls, commoditize, commodity trading advisor, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, equity premium, estate planning, financial independence, fixed income, full employment, high net worth, Home mortgage interest deduction, implied volatility, index fund, intangible asset, Long Term Capital Management, Mason jar, money market fund, mortgage tax deduction, passive income, pattern recognition, random walk, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, selection bias, Sharpe ratio, stocks for the long run, survivorship bias, too big to fail, transaction costs, Vanguard fund, yield curve

Stock Market ETF (VTI) Vanguard Total International Portfolio (VGTSX) or Vanguard FTSE All World ex-U.S. ETF (VEU) Vanguard REIT Index Fund (VGSIX) or Vanguard REIT ETF (VNQ) Vanguard Total Bond Market Index Fund (VBMFX) or Vanguard Total Bond Market ETF (BND) Building Your Portfolio TA B L E 251 12-2 Early Savers—Moderate Multi-Asset-Class Portfolio (open-end mutual funds or ETF version) Asset Class Percent Sample Low-Cost Funds and Symbols U.S. Equity Core equity 25% Vanguard Total U.S. Stock Market Index (VTSMX) or Vanguard Total U.S. Stock Market ETF (VTI) Small value 10% Vanguard Small-Cap Value Index Fund (VISVX) or iShares S&P 600 Barra Value (IJS) 5% Bridgeway Ultra Small Company Market (BRSIX) or iShares Russell Microcap Index ETF (IWC) 10% Vanguard REIT Index Fund (VGSIX) or Vanguard REIT ETF (VNQ) Microcap Real estate International Equity Pacific Rim—large 5% Vanguard Pacific Stock Index (VPACX) or Vanguard Pacific Stock ETF (VLP) Europe—large 5% Vanguard European Stock Index (VEURX) or Vanguard European Stock ETF (VGK) International smallcap value 5% DFA International Small Cap Value* (DISVX) or WisdomTree International Small Cap Dividend (DLS) Emerging markets 5% DFA Emerging Markets* (DFEMX) or Vanguard Emerging Markets Stock ETF (VWO) Fixed Income Investment-grade bonds 20% Vanguard Total Bond Market Index Fund (VBMFX) or Vanguard Total Bond Market ETF (BND) High-yield bonds 5% Vanguard High Yield Bond Fund (VWEHX) or iShares iBoxx High Yield Corporate Bond (HYG) Inflation-protected bonds 5% Vanguard Inflation-Protected Securities (VIPSX) or iShares Barclays TIPS Bond Fund (TIP) *DFA funds are available only through select investment advisors.

Stock Market ETF (VTI) Vanguard Total International Portfolio (VGTSX) or Vanguard FTSE All World ex-US ETF (VEU) Vanguard REIT Index Fund (VGSIX) or Vanguard REIT ETF (VNQ) Vanguard Total Bond Market Index Fund (VBMFX) or Vanguard Total Bond Market ETF (BND) CHAPTER 12 256 TA B L E 12-4 Midlife Accumulators—Moderate Multi-Asset-Class Portfolio (open-end mutual funds or ETFs) Asset Class Percent U.S. Equity Core U.S. equity 20% Small value 10% Sample Low-Cost Funds and Symbols Vanguard Total U.S. Stock Market Index (VTSMX) or Vanguard Total U.S. Stock Market ETF (VTI) Vanguard Small-Cap Value Index Fund (VISVX) or iShares S&P 600 Barra Value (IJS) Bridgeway Ultra Small Company Market (BRSIX) or iShares Russell Microcap Index ETF (IWC) Microcap 5% Real estate 8% Vanguard REIT Index Fund (VGSIX) or Vanguard REIT ETF (VNQ) International Equity Pacific Rim—large 4% Europe—large 4% International small-cap value 5% Emerging markets 4% Vanguard Pacific Stock Index (VPACX) or Vanguard Pacific Stock ETF (VLP) Vanguard European Stock Index (VEURX) or Vanguard European Stock ETF (VGK) DFA International Small Cap Value* (DISVX) or WisdomTree International Small Cap Dividend (DLS) DFA Emerging Markets Core* (DFEMX) or Vanguard Emerging Markets ETF Fixed Income Investment-grade bonds 20% High-yield bonds 10% Inflation-protected bonds 10% Vanguard Total Bond Market Index Fund (VBMFX) or Vanguard Total Bond Market ETF (BND) Vanguard High Yield Bond Fund (VWEHX) or iShares iBoxx High Yield Corporate Bond (HYG) Vanguard Inflation-Protected Securities (VIPSX) or iShares Barclays TIPS Bond Fund (TIP) *DFA funds are available only through select investment advisors.

Stock Market ETF (VTI) Vanguard Total International Portfolio (VGTSX) or Vanguard FTSE All World ex-US ETF (VEU) Vanguard REIT Index Fund (VGSIX) or Vanguard REIT ETF (VNQ) Vanguard Total Bond Market Index Fund (VBMFX) or Vanguard Total Bond Market ETF (BND) Low-cost money market fund with checking 12-6 Transitional including Active Retirees—Moderate Multi-AssetClass Portfolio (open-end mutual funds or ETFs) Asset Class U.S. Equity Core U.S. equity Percent 18% Small value 8% Microcap 4% Real estate 7% International Equity Pacific Rim—large 3% Europe—large 3% International 4% Emerging markets 3% Fixed Income Investment-grade 24% High-yield bonds 12% Inflation-protected bonds 12% Cash Cash equivalent 2% Sample Low-Cost Funds and Symbols Vanguard Total U.S. Stock Market Index (VTSMX) or Vanguard Total U.S. Stock Market ETF (VTI) Vanguard Small-Cap Value Index Fund (VISVX) or iShares S&P 600 Barra Value (IJS) Bridgeway Ultra Small Company Market (BRSIX) or iShares Russell Microcap Index ETF (IWC) Vanguard REIT Index Fund (VGSIX) or Vanguard REIT ETF (VNQ) Vanguard Pacific Stock Index (VPACX) or Vanguard Pacific Stock ETF (VLP) Vanguard European Stock Index (VEURX) or Vanguard European Stock ETF (VGK) DFA International Small Cap Value* (DISVX) or small-cap value WisdomTree International Small Cap Dividend (DLS) DFA Emerging Markets* (DFEMX) or Vanguard Emerging Markets Stock ETF (VWO) Vanguard Total Bond Market Index Fund (VBMFX) bonds or Vanguard Total Bond Market ETF (BND) Vanguard High Yield Bond Fund (VWEHX) or iShares iBoxx High Yield Corporate Bond (HYG) Vanguard Inflation-Protected Securities (VIPSX) or iShares Barclays TIPS Bond Fund (TIP) Low-cost money market fund with checking *DFA funds are only available through select financial advisors.


The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk by William J. Bernstein

asset allocation, backtesting, buy and hold, capital asset pricing model, commoditize, computer age, correlation coefficient, diversification, diversified portfolio, Eugene Fama: efficient market hypothesis, fixed income, index arbitrage, index fund, intangible asset, Long Term Capital Management, p-value, passive investing, prediction markets, random walk, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, South Sea Bubble, stocks for the long run, survivorship bias, the rule of 72, the scientific method, time value of money, transaction costs, Vanguard fund, Yogi Berra, zero-coupon bond

Of course, Vanguard also incurs these costs, but because of low index fund turnover, these expenses are much less than that of conventional actively managed funds. Here are the Vanguard stock funds I’d recommend: 1. Vanguard 500 Index Fund. The granddaddy of all index funds, which tracks the S&P 500. Sometime in the next year, it will almost certainly become the planet’s largest mutual fund. A fine choice for the long haul, particularly in tax-sheltered accounts, it does have some modest drawbacks for the taxable investor. Standard & Poor’s periodically adds and deletes stocks from the index, incurring distributions as the fund rearranges its portfolio accordingly. Because of this, I’d recommend two alternatives for the taxable investor—the Vanguard Total Stock Market Index Fund and the Vanguard TaxManaged Growth and Income Funds. 2. Vanguard Tax-Managed Growth and Income Fund. This taxmanaged version of the 500 Index Fund seeks to minimize distributions by selling high-basis-cost shares first and selling other positions at a loss to offset gain sales.

Because this strategy results in high turnover, it is not suitable for taxable accounts. I suspect that Vanguard will be coming out with a tax-managed largecap value strategy sooner or later, but they’re not there yet. 5. Vanguard Small-Cap Index Fund. This fund tracks the Russell 2000 Index. It is suitable only for tax-sheltered accounts. 6. Vanguard Tax-Managed Small-Cap Fund. For taxable accounts, this fund uses the tax-managed strategy described above. This fund has a $10,000 minimum and the same 1% or 2% redemption fee as the TaxManaged Growth and Income Fund. It also carries a .5% purchase fee, payable to the fund itself to mitigate the spread and impact costs in this area. 7. Vanguard Small-Cap Value Index Fund. This fund is suitable for tax-sheltered accounts only because it is likely to have high turnover and distributions. It has a .5% purchase fee. Vanguard does not yet have a tax-managed small-cap value fund. 8.

The traditional all-U.S. half-stock and half-bond portfolio is extremely simple and easy to rebalance. Vanguard even offers single funds which will provide various mixes of U.S. stock and bond indexes. For this convenience, you are probably sacrificing 1% to 2% of long-term return for a given degree of risk. Another compromise would be to split your stock component equally into six Vanguard index funds (Value, 500 Index, Small-Cap, European, Pacific, and Emerging Markets) for your stock component and use one of their short-term bond funds for the fixed-income component. Even simpler, Vanguard offers a Total International Index Fund. For those who value the convenience of simple portfolios, these compromises may be worthwhile. (One caveat about the Vanguard Total International Fund: It is a “fund of funds” and thus not eligible for the foreign tax credit.


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Reset: How to Restart Your Life and Get F.U. Money: The Unconventional Early Retirement Plan for Midlife Careerists Who Want to Be Happy by David Sawyer

Airbnb, Albert Einstein, asset allocation, beat the dealer, bitcoin, Cal Newport, cloud computing, cognitive dissonance, crowdsourcing, cryptocurrency, David Attenborough, David Heinemeier Hansson, Desert Island Discs, diversification, diversified portfolio, Edward Thorp, Elon Musk, financial independence, follow your passion, gig economy, hiring and firing, index card, index fund, invention of the wheel, knowledge worker, loadsamoney, low skilled workers, Mahatma Gandhi, Mark Zuckerberg, meta analysis, meta-analysis, mortgage debt, passive income, passive investing, Paul Samuelson, pension reform, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, Silicon Valley, Skype, smart meter, Snapchat, stakhanovite, Steve Jobs, Tim Cook: Apple, Vanguard fund, Y Combinator

Put another way if you’re after a really easy life and don’t mind the 0.14% drag on your stash returns versus the suggested RESET portfolio, invest your money here. When you retire, switch to the 80% equity fund of the same name. How simple is that! B. A Vanguard two-fund option of FTSE Developed World Ex-UK Equity Index Fund – Accumulation (75%) and FTSE UK All Share Index Unit Trust – Accumulation (25%) Two-fund composite charge: 0.1275% (compared to 0.08% for the recommended RESET portfolio using Fidelity funds and 0.12% using Vanguard funds). MO: Vanguard’s Developed World Ex-UK passive fund tracks 2,030 large and mid-sized companies stocks around the world. The UK element is taken care of with Vanguard’s UK All Share fund. A good, cost-effective two-fund solution, but you do sacrifice the exposure to emerging markets (including China and India) that Vanguard’s one-stop LifeStrategy 100 fund gives you.

Bogleheads’ three-fund portfolio The Bogleheads are a vibrant, mainly online – but also physical, with 60 chapters worldwide[401] – community of individuals who love passive investing and Jack Bogle. The three funds recommended for US investors are[402]: Vanguard Total Stock Market Index Fund (VTSMX). Vanguard Total International Stock Index Fund (VGTSX). Vanguard Total Bond Market Fund (VBMFX). Opinions differ on the percentage allocation to each. Followers of this approach like its simplicity, low cost, international diversification and (depending on what percentage of your portfolio is in bonds) reduced risk. RESET View A good and popular approach, somewhere in the middle between a higher-cost LifeStrategy 100 one-fund approach and the six-fund – plus two, if you add in small-cap and value funds – suggested RESET portfolio.

Fidelity Index Pacific Ex-Japan Fund P Accumulation Shares. Vanguard US Equity Index Fund – Accumulation. FTSE UK All Share Index Unit Trust – Accumulation. FTSE Developed Europe Ex-UK Equity Index Fund – Accumulation. Emerging Markets Stock Index Fund – Accumulation. Japan Stock Index Fund – Accumulation. Pacific Ex-Japan Stock Index Fund – Accumulation. Overall charges Here’s how the overall charges stack up under the suggested RESET portfolio. The calculations[383] assume your stash is under £250k, meaning a wrapper charge from Fidelity of 0.35% and Vanguard of 0.15%. The overall charge for investing with Fidelity, choosing all Fidelity funds is 0.43% (0.35% + 0.08%). The overall charge for investing with Vanguard, choosing all Vanguard funds is 0.27% (0.15% + 0.1225%). Remember.


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The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John C. Bogle

asset allocation, backtesting, buy and hold, creative destruction, diversification, diversified portfolio, financial intermediation, fixed income, index fund, invention of the wheel, Isaac Newton, new economy, passive investing, Paul Samuelson, random walk, risk tolerance, risk-adjusted returns, Sharpe ratio, stocks for the long run, survivorship bias, transaction costs, Upton Sinclair, Vanguard fund, William of Occam, yield management, zero-sum game

Because its rock-bottom costs mean that nearly all of the dividends paid on the stocks held by the low-cost index fund flow directly into the hands of the index fund’s shareholders. Don’t Take My Word for It Consider these words from a paper by John B. Shoven, of Stanford University and the National Bureau of Economic Research, and Joel M. Dickson, then of the Federal Reserve System (now a principal at Vanguard): “Mutual funds have failed to manage their realized capital gains in such a way as to permit a substantial deferral of taxes, [raising] investors’ tax bills considerably. . . . If the Vanguard 500 Index Fund could have deferred all of its realized capital gains, it would have ended up in the 91.8th percentile for the high-tax investor” (i.e., outpaced 92 percent of all managed equity funds). * * * Or listen to investment adviser William Bernstein, author of The Four Pillars of Investing: “While it is probably a poor idea to own actively managed mutual funds in general, it is truly a terrible idea to own them in taxable accounts . . .

— directly relate to the net returns delivered to the shareholders of these funds. Two funds. One index. Different costs. The first index fund was created by Vanguard in 1975. It took nine years before the second index fund appeared—Wells Fargo Equity Index Fund, formed in January 1984. Its subsequent return can be compared with that of the original Vanguard 500 Index Fund since then. Both funds selected the S&P 500 Index as their benchmark. The sales commission on the Vanguard Index 500 Fund was eliminated within months of its initial offering, and it now operates with an expense ratio of 0.04 percent (4 basis points) for investors who have $10,000 or more invested in the fund. In contrast, the Wells Fargo fund carried an initial sales charge of 5.5 percent, and its expense ratio averaged 0.80 percent per year (the current expense ratio is 0.45 percent).

In contrast, the Wells Fargo fund carried an initial sales charge of 5.5 percent, and its expense ratio averaged 0.80 percent per year (the current expense ratio is 0.45 percent). Behind the eight-ball at the start, the fund falls further behind with each passing year. Your index fund should not be your manager’s cash cow. It should be your own cash cow. During the 33 years since 1984, these seemingly small differences added up to a 27 percent enhancement in value for the Vanguard fund. An original investment of $10,000 grew to $294,900 in the Vanguard 500 Index Fund as 2017 began, compared with $232,100 for the Wells Fargo Equity Index Fund. All index funds are not created equal. Intelligent investors will select the lowest-cost index funds that are available from reputable fund organizations. Some years ago, a Wells Fargo representative was asked how the firm could justify such high charges. The answer: “You don’t understand.


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Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School by Andrew Hallam

Albert Einstein, asset allocation, Bernie Madoff, buy and hold, diversified portfolio, financial independence, George Gilder, index fund, Long Term Capital Management, new economy, passive investing, Paul Samuelson, Ponzi scheme, pre–internet, price stability, random walk, risk tolerance, Silicon Valley, South China Sea, stocks for the long run, survivorship bias, transaction costs, Vanguard fund, yield curve

So an investor with $200,000 could pay a lot less with a Vanguard Australian Life Strategy Fund than he or she would by building a portfolio with separate Vanguard indexes. Table 6.9 reveals the relative costs. Table 6.9 Vanguard Australia’s Life Strategy Fund Options (Quoted in Australian dollars) Source: Vanguard Investments Australia16 Life Strategy Index Funds Allocation Fees Based on Account Size Vanguard Life Strategy Conservative Fund 70% bond indexes and cash 30% Australian and International stock indexes 0.9% on the first $50,000 0.6% on the next $50,000 0.35% on the balance above $100,000 Vanguard Life Strategy Balanced Fund 50% bond indexes and cash 50% Australian and International stock indexes 0.9% on the first $50,000 0.6% on the next $50,000 0.35% on the balance above $100,000 Vanguard Life Strategy Growth Fund 30% bond indexes and cash 70% Australian and International stock indexes 0.9% on the first $50,000 0.6% on the next $50,000 0.35% on the balance above $100,000 Vanguard Life Strategy High Growth Fund 10% bond indexes and cash 90% Australian and International stock indexes 0.9% on the first $50,000 0.6% on the next $50,000 0.35% on the balance above $100,000 The fund you choose will depend on your tolerance for risk.

Table 6.1 Turnover Rate of Respective Funds Source: Morningstar.com3 Balanced / Target Retirement Funds Taxable Turnover (the Lower, the Better) Vanguard Target Retirement 2015 Fund 19% Fidelity Balanced Fund 122% American Funds Balanced Fund 46% T. Rowe Price Balanced Fund 41% An array of Vanguard’s Target Retirement Funds, with their respective bond allocations and portfolio turnover rates is shown in Table 6.2. Remember not to get too concerned by the target date in the name. If you’re a 50-year-old without a pension, it’s wise to select a portfolio (or a fund, in this case) that has a bond allocation somewhat equivalent to your age. If, however, you’re expecting to enjoy a generous pension upon retirement, you can afford to take greater risks by choosing a target fund with a lower bond component. Table 6.2 Turnover Rate of Vanguard’s Target Retirement Funds Source: Morningstar.com4 Vanguard Target Retirement Funds Bonds/Cash Turnover Target Retirement 2005 Fund 64.5% 21% Target Retirement 2010 Fund 50.6% 19% Target Retirement 2015 Fund 40.3% 19% Target Retirement 2020 Fund 33% 14% Target Retirement 2025 Fund 25.4% 11% Target Retirement 2030 Fund 18.2% 13% Target Retirement 2035 Fund 10.7% 9% Target Retirement 2040 Fund 10.3% 9% The United States is one of the easiest countries from which to build an investment account of indexes.

Table 6.9 Vanguard Australia’s Life Strategy Fund Options (Quoted in Australian dollars) Source: Vanguard Investments Australia16 Life Strategy Index Funds Allocation Fees Based on Account Size Vanguard Life Strategy Conservative Fund 70% bond indexes and cash 30% Australian and International stock indexes 0.9% on the first $50,000 0.6% on the next $50,000 0.35% on the balance above $100,000 Vanguard Life Strategy Balanced Fund 50% bond indexes and cash 50% Australian and International stock indexes 0.9% on the first $50,000 0.6% on the next $50,000 0.35% on the balance above $100,000 Vanguard Life Strategy Growth Fund 30% bond indexes and cash 70% Australian and International stock indexes 0.9% on the first $50,000 0.6% on the next $50,000 0.35% on the balance above $100,000 Vanguard Life Strategy High Growth Fund 10% bond indexes and cash 90% Australian and International stock indexes 0.9% on the first $50,000 0.6% on the next $50,000 0.35% on the balance above $100,000 The fund you choose will depend on your tolerance for risk. If you’re interested in an allocation of bonds that’s close to your age, then you could choose from the following respective funds. 1. Vanguard Life Strategy High Growth Fund: <www.vanguard.com.au/personal_investors/investment/managed-funds-up-to-$500000/diversified/high-growth.cfm> 10 percent bonds, 90 percent stocks. This is well suited for high-risk investors or investors in their late teens or 20s. 2. Vanguard Life Strategy Growth Fund: <www.vanguard.com.au/personal_investors/investment/managed-funds-up-to-$500000/diversified/growth.cfm> 30 percent bonds, 70 percent stocks.


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The Oil Factor: Protect Yourself-and Profit-from the Coming Energy Crisis by Stephen Leeb, Donna Leeb

Buckminster Fuller, buy and hold, diversified portfolio, fixed income, hydrogen economy, income per capita, index fund, mortgage debt, North Sea oil, oil shale / tar sands, oil shock, peak oil, profit motive, reserve currency, rising living standards, Ronald Reagan, shareholder value, Silicon Valley, Vanguard fund, Yom Kippur War, zero-coupon bond

In the discussion a few paragraphs above, where we contrasted a buy-and-hold strategy with an oil indicator strategy and saw our return double, the results were based on buying and selling “the market.” And this was not in any way a mere theoretical exercise: it is entirely possible to buy and sell “the market” by investing in index funds that include all the stocks in particular market indices. In our comparisons, we assumed you were buying and selling the Vanguard 500 Index Fund, which is a no-load fund that can be purchased through the Vanguard Group. But while index funds are a convenient way to showcase our oil indicator’s performance, they won’t be good investments in the years ahead, and when oil flashes a positive signal, we don’t suggest that you buy “the market.” That’s because, as we explain later, we believe that oil prices have embarked upon a long-term uptrend. It is likely to be interrupted from time to time, but the overall direction will be up.

Appendix List of Recommendations Stocks Apartment Investment and Management (AIV) NYSE Apex Silver (SIL) NYSE Barrick Gold (ABX) NYSE Berkshire Hathaway (Class B—BRK) NYSE Boeing (BA) NYSE CACI International (CAI) NYSE ChevronTexaco (CVX) NYSE Devon Energy (DVN) AMEX Duke Realty (DRE) NYSE EnCana (ECA) NYSE Exelon (EXC) NYSE General Dynamics (GD) NYSE General Electric (GE) NYSE Headwaters (HDWR) NASDAQ Impala Platinum (IMPUY) NYSE Intel (INTC) NASD Lockheed Martin (LMT) NYSE Nabors (NE) NYSE Newmont Mining (NEM) NYSE Noble (NE) NYSE Northrop Grumman (NOC) NYSE Petro-Canada (PCZ) NYSE PetroChina (PRT) NYSE Raytheon (RTN) NYSE Schlumberger (SLB) NYSE Tiffany (TIF) NYSE Toyota Motor (TM) NYSE Weight Watchers International (WTW) NYSE Funds American Century Global Gold Fund (BGEIX) American Century Zero-Coupon Bond Funds: Target Maturities Trust: 2005 (BTFIX) Target Maturities Trust: 2010 (BTTNX) Target Maturities Trust: 2015 (BTFTX) Target Maturities Trust: 2020 (BTTTX) Target Maturities Trust: 2025 (BTTRX) Target Maturities Trust: 2030 (ACTAX) 1-800-345-2021; www.americancentury.com Excelsior Energy and Natural Resources Fund (UMESX) 1-800-446-1012; www.excelsiorfunds.com Fidelity Investment Grade Bond Fund (FBNDX) Fidelity Low-Priced Stock Fund (FLPSX) 1-800-343-3548; www.fidelity.com Gabelli Gold Fund (GOLDX) 1-800-422-3554; www.gabelli.com ICON Energy Fund (ICENX) 1-888-389-4266; www.iconfunds.com Royce Total Return Fund (RYTRX) 1-800-221-4268; www.roycefunds.com Third Avenue Small-Cap Value Fund (TASCX) 1-800-880-8442; www.thirdave.com Tocqueville Gold Fund (TGLDX) 1-212-698-0800; www.tocqueville.com Vanguard Energy Fund (VGENX) Vanguard Precious Metals Fund 1-877-662-7447; www.vanguard.com To buy silver and platinum directly, use the Web site www.kitco.com.

As noted above, though, it quickly became clear that Saddam lacked the ability to cripple oil production. And as oil prices collapsed back to the high teens, the recession ended. Stocks once again embarked upon a bull run—and this one was to be a bull run for the ages. Between 1991 and 2000, with oil prices remaining well under control, stocks staged one of the greatest rallies any financial market has ever seen. If you had invested in the S&P 500, say, by buying the Vanguard 500 Index Fund, in January 1991, you would have gained on average 20 percent a year for the next nine years. To put it differently, a $10,000 investment would have turned into more than $50,000. And because those nine years were ones of low inflation, your gains were mostly real gains in terms of their actual purchasing power. Moreover, as everyone knows, while the market as a whole was thriving, the tech sector, especially as the decade drew to a close, was on a real tear.


Work Less, Live More: The Way to Semi-Retirement by Robert Clyatt

asset allocation, backtesting, buy and hold, delayed gratification, diversification, diversified portfolio, employer provided health coverage, estate planning, Eugene Fama: efficient market hypothesis, financial independence, fixed income, future of work, index arbitrage, index fund, lateral thinking, Mahatma Gandhi, McMansion, merger arbitrage, money market fund, mortgage tax deduction, passive income, rising living standards, risk/return, Silicon Valley, Thorstein Veblen, transaction costs, unpaid internship, upwardly mobile, Vanguard fund, working poor, zero-sum game

The third and most complex portfolio, the Rational Investing portfolio, boasts the best performance with the lowest volatility but requires somewhat more effort to implement. The Soda Cracker: Single Mutual Fund The person who is terrified of investing, or who wants the ultimate in simplicity, can potentially get by with just a single mutual fund. Vanguard, along with other major fund firms, offers several packaged blends of index funds, under their Lifestyle, Balanced, and Target Retirement Date series. A good choice might be either Vanguard’s LifeStrategy Moderate or Conservative Growth (VSMGX or VSCGX) or Vanguard STAR (VGSTX). Most fund families have balanced funds, including the American Funds’ world allocation fund Capital Income Builder (RIRFX), which has an average yield approaching 4%. These funds invest in a diverse mix of between 40% and 60% stocks, with the balance in bonds. Vanguard Conservative Growth LifeStrategy (VSCGX), for instance, holding 40% stocks, including some international stocks, has 20-year average returns of 8.84% and a standard deviation below 7%.

You are then left with little choice but to find a low-fee actively managed fund to do the job. Likewise, a tilt or subindex may not have an index or traditional index fund that properly tracks it—for example, international small stocks or international large value stocks. You may occasionally find actively managed funds that, through some credible difference in trading strategy, develop a consistent deviation from their index or benchmark. For instance, the Vanguard High Yield fund consistently varies from the high yield index by holding only the better quality “junk” bonds. During good times, the fund underperforms the index; during bad times, its better-quality bonds hold up better than those in the index. This may be a tradeoff you would feel comfortable making. In other cases, such as the private equity, oil and gas, market neutral hedge fund, and even commercial real estate asset classes, the fullest diversification and best returns may come, paradoxically, by moving outside the universe of indexes and funds entirely and making individual, illiquid investments—that is, investments in carefully researched private companies, partnerships, or buildings which cannot be readily sold.

Perhaps most important, you will be able to easily implement this portfolio within a single brokerage or mutual fund account. The Sandwich portfolio will get you coverage of all the major asset classes in percentages roughly similar to those in the Rational 190 | Work Less, Live More Investing portfolio. Missing will be just four of the 16 asset classes: commodities, high-yield, private equity, and market neutral hedge funds. All but one of the funds is a reliable Vanguard fund. The final one, American Century Foreign Bond (BEGBX), is a good way to get quality, medium-term foreign bonds. Even if you don’t have a Vanguard account, you should find all these funds or their equivalents through any brokerage account that allows you to buy funds through a mutual fund supermarket service. Fees for the Simplified 8-Fund portfolio average 0.32% annually. The Sandwich Portfolio: Eight Funds Plus Money Market Percent of Portfolio Fund Symbol 20% VFINX S&P 500 (or Value Index VIVAX or VWNFX) 8% VTMSX Vanguard Tax-Managed Small 6% VGTSX Vanguard Total International Index 10% VINEX Vanguard International Explorer 6% VEIEX Vanguard Emerging Markets Index 30% VBIIX VG Intermediate Bond Index 11% BEGBX American Century Foreign Bond 5% VGSIX Vanguard REIT Index 4% VMMXX Fund Description Vanguard Prime Money Market 100% The Cornucopia or Rational Investing Portfolio For those who want the full feast, the Rational Investing portfolio is the way to go.


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Beyond the Random Walk: A Guide to Stock Market Anomalies and Low Risk Investing by Vijay Singal

3Com Palm IPO, Andrei Shleifer, asset allocation, buy and hold, capital asset pricing model, correlation coefficient, cross-subsidies, Daniel Kahneman / Amos Tversky, diversified portfolio, endowment effect, fixed income, index arbitrage, index fund, information asymmetry, liberal capitalism, locking in a profit, Long Term Capital Management, loss aversion, margin call, market friction, market microstructure, mental accounting, merger arbitrage, Myron Scholes, new economy, prediction markets, price stability, profit motive, random walk, Richard Thaler, risk-adjusted returns, risk/return, selection bias, Sharpe ratio, short selling, survivorship bias, transaction costs, Vanguard fund

However, none of the alternative financial instruments works for these smallcapitalization stocks, as they are not part of any index, nor do they have traded options. Mutual funds have low transaction costs compared to stocks or futures. Unfortunately, none of the mutual funds fits the requirements—either they hold too many stocks or they hold stocks that are too large. Total market funds, such as Vanguard Total Market, hold about 3,500 of the largest stocks and do not include any of the smaller stocks. Vanguard Total Market fund’s weighted market cap is $32.5 billion, much larger than the objective of a $25 million median market cap. Perhaps the best fit is the Dimensional Fund Advisors U.S. Micro Cap Portfolio (formerly U.S. 9-10 Small Company portfolio), which claims to invest in the “smallest 4 percent of the market universe.” However, it holds 2,900 stocks that span the entire bottom 50 percent of the market.

Clearly, this is a large return for a short period and does not seem difficult to earn. MUTUAL FUNDS Many funds will not charge you a redemption fee provided you don’t trade multiple times in a year. Since the December effect requires only one buy and one sell in a year, it is unlikely that there will be any fees. Large, no-load S&P 500 index funds that are open to retail investors include Vanguard’s 500 Index Fund (VFINX), Dreyfus’s index fund (DSPIX), and Scudder Equity 500 Index Investment Fund (BTIEX). The fund returns are reported in Table 2.6. The returns earned are almost identical to those earned by the S&P 500. However, since the transaction cost is close to zero, the net return is about 1.8 percent over a five-day period. Therefore, index mutual funds are a superior vehicle for capturing the December effect.

The December effect of 1.5 percent could have been profitably exploited during that period using a simple technique: hold the S&P 500 index for about a week at the end of the year. Internet References http://www.cme.com: The Chicago Mercantile Exchange is the primary exchange for trading stock index futures. http://www.indexfunds.com: Provides a list of mutual funds and exchangetraded funds indexed to the S&P 500 and the Nasdaq 100. http://www.rydexfunds.com, http://www.profunds.com, http://www.vanguard.com: Sites of mutual fund families that offer index funds. The first two do not impose any penalty for frequent trading. The January Effect and the New December Effect References for Further Reading Agrawal, Anup, and Kishore Tandon. 1994. Anomalies or Illusions? Evidence from Stock Markets in Eighteen Countries. Journal of International Money and Finance 13(1), 83–106. Barry, Christopher B., and Stephen J.


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A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Eleventh Edition) by Burton G. Malkiel

accounting loophole / creative accounting, Albert Einstein, asset allocation, asset-backed security, beat the dealer, Bernie Madoff, bitcoin, butter production in bangladesh, buttonwood tree, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, Detroit bankruptcy, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial innovation, financial repression, fixed income, framing effect, George Santayana, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Long Term Capital Management, loss aversion, margin call, market bubble, money market fund, mortgage tax deduction, new economy, Own Your Own Home, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, stocks for the long run, survivorship bias, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond, zero-sum game

A SPECIFIC INDEX-FUND PORTFOLIO FOR AGING BABY BOOMERS Cash (5%)* Fidelity Money Market Fund (FXLXX) or Vanguard Prime Money Market Fund (VMMXX) Bonds and Bond Substitutes (27½%)† 7½% U.S. Vanguard IntermediateTerm Bond (VICSX) or iShares Corporate Bond ETF (LQD) 7½% Vanguard Emerging Market Government Bond Fund (VGAVX) 12½% Wisdom Tree Dividend Growth Fund (DGRW) or Vanguard Dividend Growth Fund (VDIGX)† Real Estate Equities (12½%) Vanguard REIT Index Fund (VGSIX) or Fidelity Spartan REIT Index Fund (FRXIX) Stocks (55%) 27% U.S. Stocks Schwab Total Stock Market Index Fund (SWTSX) or Vanguard Total Stock Market Index Fund (VTSMX) 14% Developed International Markets Schwab International Index Fund (SWISX) or Vanguard International Index Fund (VTMGX) 14% Emerging International Markets Vanguard Emerging Markets Index Fund (VEIEX) or Fidelity Spartan Emerging Markets Index Fund (FFMAX) *A short-term bond fund may be substituted for one of the money-market funds listed.

And it does minimize the regret that inevitably follows if you were unlucky enough to have put all your money into the stock market during a peak period such as March of 2000 or October of 2007. To further illustrate the benefits of dollar-cost averaging, let’s move from a hypothetical to a real example. The following table shows the results (ignoring taxes) of a $500 initial investment made on January 1, 1978, and thereafter $100 per month, in the shares of the Vanguard 500 Index mutual fund. Less than $44,000 was committed to the program. The final value was over $480,000. ILLUSTRATION OF DOLLAR-COST AVERAGING WITH VANGUARD’S 500 INDEX FUND Year Ended December 31 Total Cost of Cumulative Investments Total Value of Shares Acquired 1978 $1,600 $1,669 1979 2,800 3,274 1980 4,000 5,755 1981 5,200 6,630 1982 6,400 9,487 1983 7,600 12,783 1984 8,800 14,864 1985 10,000 20,905 1986 11,200 25,935 1987 12,400 28,222 1988 13,600 34,080 1989 14,800 46,127 1990 16,000 45,804 1991 17,200 61,010 1992 18,400 66,818 1993 19,600 74,688 1994 20,800 76,780 1995 22,000 106,945 1996 23,200 132,769 1997 24,400 178,219 1998 25,600 230,621 1999 26,800 280,567 2000 28,000 256,274 2001 29,200 226,624 2002 30,400 177,505 2003 31,600 229,526 2004 32,800 255,481 2005 34,000 268,935 2006 35,200 312,320 2007 36,400 330,353 2008 37,600 208,942 2009 38,800 265,758 2010 40,000 306,758 2011 41,200 313,984 2012 42,400 364,935 2013 43,600 483,747 Of course, no one can be sure that the next forty-five years will provide the same returns as past periods.

If bonds are held outside of retirement accounts, you may well prefer tax-exempt bonds rather than the taxable securities. Moreover, if your common stocks will be held in taxable accounts, you might consider tax-managed index funds. Finally, note that I have given you a choice of index funds from different mutual-fund complexes. Because of my long association with the Vanguard Group, I wanted also to suggest a number of non-Vanguard funds. All the funds listed have moderate expense ratios and are no-load. More information on these funds, including telephone numbers and websites, can be found in the Random Walker’s Address Book, which follows this chapter. ETFs may be used in lieu of mutual funds. ETFs and Taxes One of the advantages, noted above, of passive portfolio management (that is, simply buying and holding an index fund) is that such a strategy minimizes transactions costs as well as taxes.


pages: 201 words: 62,593

The Automatic Millionaire, Expanded and Updated: A Powerful One-Step Plan to Live and Finish Rich by David Bach

asset allocation, diversified portfolio, financial independence, index fund, job automation, late fees, money market fund, Own Your Own Home, risk tolerance, transaction costs, Vanguard fund

Right now there are about 2,200 target dated mutual funds available to you. But really the industry is dominated by the three big: Vanguard, Fidelty, and T. Rowe Price. Combined, they account for 71 percent of the industry, so here’s a list to start with: Vanguard 1-877-662-7447 www.​vanguard.​com Ask about the Vanguard Life Strategy Funds (Vanguard’s asset allocation funds) and Target Retirement Funds. Also ask about the Vanguard STAR Fund (this is a “fund of funds” asset allocation product created using various Vanguard funds). Finally, ask about the Vanguard Balanced Fund, a very low-cost balanced fund with an excellent long-term track record. Fidelity Investments 1-800-FIDELITY (343-3548-9) www.​fidelity.​com Ask about the Fidelity Freedom Funds. These asset allocation funds come with a due date (e.g., 2020, 2030, 2040, 2050).


pages: 621 words: 123,678

Financial Freedom: A Proven Path to All the Money You Will Ever Need by Grant Sabatier

"side hustle", 8-hour work day, Airbnb, anti-work, asset allocation, bitcoin, buy and hold, cryptocurrency, diversified portfolio, Donald Trump, financial independence, fixed income, follow your passion, full employment, Home mortgage interest deduction, index fund, loss aversion, Lyft, money market fund, mortgage debt, mortgage tax deduction, passive income, remote working, ride hailing / ride sharing, risk tolerance, Skype, stocks for the long run, stocks for the long term, TaskRabbit, the rule of 72, time value of money, uber lyft, Vanguard fund

Many companies offer an index fund that tracks the U.S. stock market, and many companies actually offer two levels (investor and admiral/premium), where you pay a higher or lower fee based on how much you invest. Some of the most popular index funds with the lowest fees are the Vanguard Total Stock Market Index Fund (VTSAX) and the Vanguard Total Stock Market Index ETF (VTI), both of which hold the top 2,800 stocks in the United States; the Schwab Total Stock Market Index ETF (SWTSX); BlackRock’s iShares Edge MSCI Min Vol USA ETF (USMV); and the Fidelity Total Market Index Fund Premium Class (FSTVX). There are also many companies that have an S&P 500 fund, like the Vanguard 500 Index Fund Investor Shares (VFINX); the Vanguard 500 Index Fund Admiral Shares (VFIAX); the Schwab S&P 500 Index Fund (SWPPX); and the Fidelity Spartan 500 Index Shares (FUSEX). You might be wondering whether you should pick a total U.S. market fund or an S&P 500 fund.

If you want to invest in bonds, you don’t need to go through the hassle of buying bonds directly. You can easily buy them through a bond fund (which holds a lot of bonds to diversify your risks and maintain an expected rate of return). Check out the Vanguard Total Bond Market Index Fund, which invests in a diversified group of investment-grade (aka high-quality) bonds. This particular fund contains about 30 percent corporate bonds and 70 percent government bonds. Bond funds are low risk but carry a higher potential return than most savings accounts. This allows you to at least keep up with inflation (and potentially beat it). Between 2012 and 2017 the Vanguard Total Bond Market Index Fund has returned approximately 2 to 3 percent each year. When you have money invested in a bond fund in an after-tax account, you can withdraw the money at any time. You will just be responsible for paying taxes on the gains.

You might be wondering whether you should pick a total U.S. market fund or an S&P 500 fund. Depending on who runs your retirement accounts at work or the investment company you choose, you may have access to either a total U.S. market or an S&P 500 fund, not both. Either would be a great choice, and the long-term investment returns will likely be similar between the two. Using the Vanguard 500 Index Fund (VFINX) and Vanguard Total Stock Market Index Fund (VTSAX) as examples, in the table below you can see the returns over the past one, three, five, and ten years were pretty similar. If you are currently investing, how well do your portfolio returns compare to those of either a total stock market or S&P 500 fund? To update these comparison performance numbers, simply do a Google search or go to Vanguard’s tool to compare the performance of any two funds.


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A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel

accounting loophole / creative accounting, Albert Einstein, asset allocation, asset-backed security, backtesting, beat the dealer, Bernie Madoff, BRICs, butter production in bangladesh, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial innovation, fixed income, framing effect, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Long Term Capital Management, loss aversion, margin call, market bubble, money market fund, mortgage tax deduction, new economy, Own Your Own Home, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, stocks for the long run, survivorship bias, The Myth of the Rational Market, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond

Those who need a steady income for living expenses could increase their holdings of real estate equities, because they provide somewhat larger current income. A SPECIFIC INDEX-FUND PORTFOLIO FOR AGING BABY BOOMERS Cash (5%)* Fidelity Money Market Fund (FORXX), or Vanguard Prime Money Market Fund (VMMXX) Bonds (27½%)† Vanguard Total Bond Market Index Fund (VBMFX) Real Estate Equities (12½%) Vanguard REIT Index Fund (VGSIX) Stocks (55%) U.S. Stocks (27%) Fidelity Spartan (FSTMX), T. Rowe Price (POMIX), or Vanguard (VTSMX) Total Stock Market Index Fund Developed International Markets (14%) Fidelity Spartan (VSIIX), or Vanguard (VDMIX) International Index Fund Emerging International Markets (14%) Vanguard Emerging Markets Index Fund (VEIEX) Remember also that I am assuming here that you hold most, if not all, of your securities in tax-advantaged retirement plans. Certainly all bonds should be held in such accounts.

And it does minimize the regret that inevitably follows if you were unlucky enough to have put all your money into the stock market during a peak period such as March of 2000 or October of 2007. To further illustrate the benefits of dollar-cost averaging, let’s move from a hypothetical to a real example. The following table shows the results (ignoring taxes) of a $500 initial investment made on January 1, 1978, and thereafter $100 per month, in the shares of the Vanguard 500 Index mutual fund. Less than $39,000 was committed to the program. The final value was over $265,000. ILLUSTRATION OF DOLLAR-COST AVERAGING WITH VANGUARD’S 500 INDEX FUND Year Ended December 31 Total Cost of Cumulative Investments Total Value of Shares Acquired 1978 $1,600.00 $1,699.26 1979 2,800.00 3,273.66 1980 4,000.00 5,755.25 1981 5,200.00 6,630.16 1982 6,400.00 9,487.21 1983 7,600.00 12,783.16 1984 8,800.00 14,863.80 1985 10,000.00 20,905.05 1986 11,200.00 25,934.97 1987 12,400.00 28,221.32 1988 13,600.00 34,079.49 1989 14,800.00 46,126.09 1990 16,000.00 45,803.07 1991 17,200.00 61,009.59 1992 18,400.00 66,816.94 1993 19,600.00 74,687.08 1994 20,800.00 76,779.25 1995 22,000.00 106,944.33 1996 23,200.00 132,767.97 1997 24,400.00 178,217.41 1998 25,600.00 230,619.41 1999 26,800.00 280,564.59 2000 28,000.00 256,271.48 2001 29,200.00 226,622.13 2002 30,400.00 177,503.25 2003 31,600.00 229,523.84 2004 32,800.00 255,479.22 2005 34,000.00 268,932.69 2006 35,200.00 312,317.65 2007 36,400.00 330,350.05 2008 37,600.00 208,940.55 2009 38,800.00 265,755.99 Of course, no one can be sure that the next forty years will provide the same returns as past periods.

If bonds are held outside of retirement accounts, you may well prefer tax-exempt bonds rather than the taxable securities. Moreover, if your common stocks will be held in taxable accounts, you may want to consider the tax-managed index funds discussed in the next section. Finally, note that I have given you a choice of index funds from different mutual-fund complexes. Because of my long association with the Vanguard Group, I wanted also to suggest a number of non-Vanguard funds. All the funds listed have moderate expense ratios and are no-load. More information on these funds, including telephone numbers and Web sites, is listed in the Random Walker’s Address Book, which follows this chapter. ETFs and the Tax-Managed Index Fund One of the advantages, noted above, of passive portfolio management (that is, simply buying and holding an index fund) is that such a strategy minimizes transactions costs as well as taxes.


pages: 244 words: 79,044

Money Mavericks: Confessions of a Hedge Fund Manager by Lars Kroijer

activist fund / activist shareholder / activist investor, Bernie Madoff, capital asset pricing model, corporate raider, diversification, diversified portfolio, family office, fixed income, forensic accounting, Gordon Gekko, hiring and firing, implied volatility, index fund, intangible asset, Jeff Bezos, Just-in-time delivery, Long Term Capital Management, merger arbitrage, NetJets, new economy, Ponzi scheme, post-work, risk-adjusted returns, risk/return, shareholder value, Silicon Valley, six sigma, statistical arbitrage, Vanguard fund, zero-coupon bond

But wouldn’t Mr Straw be quite upset with the company canteen folks if they forced him to pay this kind of price premium for a slightly more exotic-sounding and tasting fruit as part of his standard company lunch? The example described needs one further explanation. Namely, how did the hedge fund generate its 10 per cent return? If the hedge fund was just long the Standard & Poor’s 500 index and that index was up 10 per cent for the year, Mr Straw would have paid large fees for very little additional value. He could just have bought a Vanguard index fund and paid 0.2 per cent in total fees, not 7 per cent (although he might not be able to avoid some pension-fund costs to gain tax advantages). The directional funds still charge the fees, but do not add as much value (they just own something that went up) as those with 10 per cent pure alpha (value generation) – more on this later. As the events of autumn 2008 suggest, a large number of hedge funds were indeed long the markets and the value they generated was thus lower.

Something will have to give: the hedge-fund industry will either have to start charging lower fees, generally decline in size, or only charge fees when it can demonstrate actual outperformance. As the fallout from the turmoil of 2008 shows, there seems to be a good deal of evidence of at least the first two points. To get an idea of the scale of fees, imagine Mr Straw invested $100 in the type of fund used in the example above, while Mrs Straw takes $100 from her savings and puts it in a Vanguard fund. Now suppose that both those investments return 10 per cent per year before any fees over the ten-year period of the investment until Mr and Mrs Straw are ready for retirement. The results are both obvious and staggering. Investment comparison A simplistic example, but the fees to the hedge fund and fund of funds are ten times higher than those to Vanguard, and this is before pension-fund costs, expenses or trading costs.

When buying exposure to a stock index there are today so many competing products (ETFs, index funds, mutual funds, futures, etc.) that it should be possible to achieve the kind of exposure you desire and still be tax optimised (capital gains versus dividend income, etc.). With the ever-changing tax regime and planning possibilities available, optimising a portfolio for tax is well worth getting expert advice on. Where to invest Along with stock-market futures, index products like Vanguard tracker funds or the many ETFs (exchange traded funds) offer the cheapest access to the various indices they represent. If you buy 20 mutual funds that try to beat the S&P500 index, the chances are that on average they will underperform the index by approximately their fees. The fees in these mutual funds vary but, including trading and related expenses, come to around 1.5–2.0 per cent per year compared with tracker fund fees of roughly 0.2 per cent per year.


Early Retirement Guide: 40 is the new 65 by Manish Thakur

"side hustle", Airbnb, diversified portfolio, financial independence, hedonic treadmill, index fund, Lyft, passive income, passive investing, risk tolerance, Robert Shiller, Robert Shiller, time value of money, uber lyft, Vanguard fund, Zipcar

Keep in mind, these are only investing best practices, not financial recommendations backed up by any professional certification. Speak with your financial advisor about your goals to find an investment that works well for you and your financial situation. Many people find success through other means, but this is the tried and true method that has been used by thousands of other people on their independence journeys. Challenges: 1. Set up a Vanguard fund today! 2. Put in at least $100 into an index fund after setting up your account Set up Automatic Deposit and Investing After understanding your spending habits and setting up your investment fund, it's time to set your investing on autopilot. After working through the budgeting section, you should understand how much is needed each month. Humans are terrible about consistently doing what's good for us, so let's make it as easy as possible to do a great thing for ourselves.


pages: 426 words: 115,150

Your Money or Your Life: 9 Steps to Transforming Your Relationship With Money and Achieving Financial Independence: Revised and Updated for the 21st Century by Vicki Robin, Joe Dominguez, Monique Tilford

asset allocation, Buckminster Fuller, buy low sell high, credit crunch, disintermediation, diversification, diversified portfolio, fiat currency, financial independence, fixed income, fudge factor, full employment, Gordon Gekko, high net worth, index card, index fund, job satisfaction, Menlo Park, money market fund, Parkinson's law, passive income, passive investing, profit motive, Ralph Waldo Emerson, Richard Bolles, risk tolerance, Ronald Reagan, Silicon Valley, software patent, strikebreaker, Thorstein Veblen, Vanguard fund, zero-coupon bond

Mark Zaifman told me that in his own practice—personal and professional—he uses Vanguard, a company that is known for simplicity and low fees. There are other mutual funds, some with socially responsible screens that may be important to you. Trying to speak to those FIers who want to keep it simple, he offered the four Vanguard Funds to narrow the field of thousands of mutual funds down to something manageable. Here’s his explanation: Mark’s suggestions for Your NEW FI Investment Strategy The most conservative approach for this strategy would be to use the Life-Strategy Income Fund, the first of the four Vanguard Funds. Although marketed as a fund for those in retirement, it is also applicable for those who are FI and no longer working for money. This fund seeks current income and has some growth of capital. The fund applies a fixed formula that over time should reflect an asset allocation of approximately 60 percent of the fund’s assets to bonds, 20 percent to short-term reserves and 20 percent to common stocks.

SRI has grown as a field from 55 socially screened mutual funds with $12 billion in assets in 2005 to 260 funds with $202 billion in assets in 2007.2 Brent Kessel, cofounder of Abacus Portfolios and author of It’s Not About the Money says of this approach to investing, “While SRI was originally considered a fringe movement of tree-hugging Californians, the downfall of such corporate giants as Enron, Tyco, and Arthur Andersen brought a whole new population of SRI investors in from both sides of the political aisle.” Vanguard, the family of funds Mark uses with clients, also has an SRI fund, the Vanguard FTSE. Calvert, Ariel and Domini Funds have been around longer, but now, with the popularity of SRI, most mutual funds will offer some screened funds. For those who want to go this route, several FIers recommend the Web site of the Social Investment Forum, www.socialinvest.org, which offers comprehensive contacts, resources and information on socially responsible investing and is a good source of information about trends in the field and how these vehicles compare to the conventional market.

See frugality Thurow, Lester Tightwad Gazette, The (Dacyczyn) Time Bind, The (Hochschild) Time Dollars System tool sharing trading possessions transportation costs auto insurance consumer price index and expense category saving money on subcategories list trash treasury bonds Treasury Direct Treasury Inflation-Protected Securities (TIPS) Trimbath, Tom unconscious spending unemployment United Nations World Commission on Environment and Development unpaid jobs U.S. treasury bonds used items, buying utilities, subcategories list utopian communities vacations value, researching purchases valuing life energy aligning values and behavior evaluating expenditures joy-to-stuff ratio by maximizing income by minimizing spending Vanguard Funds Veblen, Thorstein venture capital victim mentality volunteer vacations volunteerism activism and advocacy after crossover point finding projects and causes freedom of helping and caring redefined Wachtel, Paul wages, disconnecting from work. See work, redefining wall charts adding investment income to awareness from hanging recording income and expenses Wall Street (movie) Wall Street Journal, The, bond information Wampler, Dave wealth, not equal to financial independence What Color Is Your Parachute?


Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies by Jeremy J. Siegel

addicted to oil, asset allocation, backtesting, Black-Scholes formula, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, capital asset pricing model, cognitive dissonance, compound rate of return, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, fixed income, German hyperinflation, implied volatility, index arbitrage, index fund, Isaac Newton, joint-stock company, Long Term Capital Management, loss aversion, market bubble, mental accounting, Myron Scholes, new economy, oil shock, passive investing, Paul Samuelson, popular capitalism, prediction markets, price anchoring, price stability, purchasing power parity, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, stocks for the long run, survivorship bias, technology bubble, The Great Moderation, The Wisdom of Crowds, transaction costs, tulip mania, Vanguard fund

Indexing became so popular that in the first six months of 1999 nearly 70 percent of the money that was invested went into index funds.13 By 2007, all Vanguard 500 Index funds had attracted over $200 billion in assets, but the largest single equity mutual fund is the American Growth Fund with assets of $185 billion.14 One of the attractions of index funds is their extremely low cost. The total annual cost in the Vanguard 500 Index Fund is only 0.18 percent of market value (and as low as 2 basis points for large institutional investors). Because of proprietary trading techniques and interest income from loaning securities, Vanguard S&P 500 Index funds for individual investors have fallen only 9 basis points behind the index over the last 10 years, and its institutional index funds have actually outperformed the index.15 THE PITFALLS OF CAPITALIZATION-WEIGHTED INDEXING Despite their past success, the popularity of indexing, especially those funds linked to the S&P 500 Index, may cause problems for index 12 Five years before the Vanguard 500 Index Fund, Wells Fargo created an equally weighted index fund called “Samsonite,” but its assets remained relatively small. 13 Heather Bell, “Vanguard 500 Turns 25, Legacy in Passive Investing,” Journal of Index Issues, Fourth Quarter 2001, pp. 8–10. 14 Vanguard’s number includes assets of its 500 Index Fund open to both individuals and institutions. 15 The Vanguard Institutional Index Fund Plus shares, with a minimum investment of $200 million, have outperformed the S&P 500 Index by 7 basis points in the 10 years following the fund’s inception on July 7, 1997. 352 PART 5 Building Wealth through Stocks investors in the future.

Steel Group, 49 Utilities sector: in GICS, 53 global shares in, 175i, 177 Utility, 322 Valuation, 144–145 value versus growth stocks and, 144–145 Value Line Index, 47n, 256 Value stocks, 362–363 growth stocks versus, 144–145 nature of, 157 Value-weighted indexes, 42–45 (See also Center for Research in Security Prices [CRSP] index; Nasdaq Index; Standard & Poor’s [S&P] index) Valuing Wall Street (Smithers and Wright), 117 Vanguard 500 Index Fund, 263n Vanguard Institutional Index Fund Plus, 351n Vanguard S&P 500 Index funds, 351 Van Strum, Kenneth S., 80n Verizon, 177 Vesting, 106 Viceira, Luis M., 35n Vietnam War, 233 bear market and, 85 Virginia Carolina Chemicals, 60i, 63 Vishny, R., 326n VIX Index, 281–282, 282i, 334 Vodafone, 177 Volatility (see Market volatility) 380 Volcker, Paul, 9, 195 Vuolteenaho, Tuomo, 158n Wachovia Bank, 21n Wages, Nixon’s freezing of, 194 Wall Street Journal, 38, 290 Wal-Mart, 155, 176i, 177 Wang, Jiang, 304n War: market movements and, 225, 231–235 (See also specific wars) War on terrorism, 234 Weber, Steven, 218n Wein, Byron, 86 Index Welch, Ivo, 325n Wells Fargo, 351n Werner, Walter, 12n, 21n Western Co., 63 White, Weld & Co., 97 Williams, Frank J., 319q Williams, John Burr, 101 Wilshire 5000 index, 342 Wisdom Tree Investments, 356 Withers, Hartley, 81 Wm.

Thus, the 1990s witnessed an enormous increase in passive investing, the placement of funds whose sole purpose was to match the performance of an index. The oldest and most popular of the index funds is the Vanguard 500 Index Fund.12 The fund, started by visionary John Bogle, raised only $11.4 million when it debuted in 1976, and few thought the concept would survive. But slowly and surely indexing gathered momentum, and the fund’s assets reached $17 billion at the end of 1995. In the latter stages of the 1990s bull market, the popularity of indexing soared. By March 2000, when the S&P 500 Index reached its alltime high, the fund claimed the title of the world’s largest equity fund with assets over $100 billion. Indexing became so popular that in the first six months of 1999 nearly 70 percent of the money that was invested went into index funds.13 By 2007, all Vanguard 500 Index funds had attracted over $200 billion in assets, but the largest single equity mutual fund is the American Growth Fund with assets of $185 billion.14 One of the attractions of index funds is their extremely low cost.


pages: 357 words: 91,331

I Will Teach You To Be Rich by Sethi, Ramit

Albert Einstein, asset allocation, buy and hold, buy low sell high, diversification, diversified portfolio, index fund, late fees, money market fund, mortgage debt, mortgage tax deduction, prediction markets, random walk, risk tolerance, Robert Shiller, Robert Shiller, shareholder value, Silicon Valley, survivorship bias, the rule of 72, Vanguard fund

To make this a little easier, when you click “Products and Services” on most sites, you’ll be able to find a fund screener that will let you add search filters like “international index funds with an expense ratio of less than 0.75%” to find funds that fit your criteria. Remember, this isn’t simple. Creating your own portfolio takes significant research. As an example of what you might end up with, here’s a sample portfolio made of all Vanguard funds: Stocks (“Equities”) 30 percent—Total Market Index/equities (VTSMX) 20 percent—Total International Stock Index/equities (VGTSX) 20 percent—REIT index/equities (VGSIX) Bonds 5 percent—U.S. treasury bond index/bonds (VFISX) 5 percent—Vanguard Intermediate-Term Treasury Fund (VFITX) 5 percent—Vanguard Long-Term Treasury Fund (VUSTX) 15 percent—TIPS bond index/bonds (VIPSX) These are just a few of the literally thousands of index funds that exist. You can be flexible with the funds. If you want to be more or less aggressive, you can change the allocation to match your risk tolerance.

But in 2000, just two years later, U.S. large-cap stocks lost 9.10 percent, foreign stocks lost 14.17 percent, and REITS gained 31.04 percent. Similarly, different types of bonds offer different benefits, including rates of return and tax advantages. STOCKS AND BONDS HAVE MANY FLAVORS WHAT A GRANNY NEEDS: TYPICAL ASSET ALLOCATIONS BY AGE Here’s what typical investors’ asset allocations—remember, that’s the mix of different investments—might look like as they get older. These figures are taken from Vanguard’s lifecycle funds. The fact that performance varies so much in each asset class means two things: First, if you’re trying to make a quick buck off investing, you’ll usually lose money because you have no idea what will happen in the near future. Anyone who tells you they do is a fool or a commission-based salesman. Second, you should own different categories of stocks (and maybe bonds) to balance out your portfolio.

In other words, if you invested $5,000 today, let it sit there, and earned a 10 percent return, you’d have $10,000 in about seven years. And it doubles from there, too. Of course, you could have even more by adding a small amount every month using the power of compounding. CHOOSING A LIFECYCLE FUND FOR YOUR ROTH IRA Two companies with popular lifecycle funds are Vanguard and T. Rowe Price, both of which are great. Vanguard’s Target Date 2045 fund (that is, assuming you’ll retire around sixty-five, your “target date” of retirement will be somewhere around 2045) has a very low 0.19 percent expense ratio. The minimum investment to get started is $3,000, and you can set up monthly recurring contributions of at least $100 each. (Note: Vanguard also charges a $30 annual account maintenance fee which you can get waived by signing up at Vanguard.com and getting your account notifications by e-mail instead of snail mail.)


pages: 363 words: 28,546

Portfolio Design: A Modern Approach to Asset Allocation by R. Marston

asset allocation, Bretton Woods, business cycle, capital asset pricing model, capital controls, carried interest, commodity trading advisor, correlation coefficient, diversification, diversified portfolio, equity premium, Eugene Fama: efficient market hypothesis, family office, financial innovation, fixed income, German hyperinflation, high net worth, hiring and firing, housing crisis, income per capita, index fund, inventory management, Long Term Capital Management, mortgage debt, passive investing, purchasing power parity, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, Sharpe ratio, Silicon Valley, stocks for the long run, superstar cities, survivorship bias, transaction costs, Vanguard fund

The Tremont hedge fund data set, for example, begins in 1994, while the HFRI data set begins in 1990. 13. Since geometric averages are involved, the premium is measured using the compound formula, (1.102)/(1.099) – 1 = 0.3%. And the estimate of the EAFE return based on the S&P 500’s 9.4 percent return is calculated as (1.094)∗(1.003) – 1 = 9.7%. 14. These portfolios are all invested in Vanguard Index Funds. The analysis below substitutes the bond and stock indexes which most closely correspond to the Vanguard funds involved. 15. Margaritaville was developed by Scott Burns, a Dallas Morning News financial columnist. Dr. Bernstein is a financial advisor to high net worth individuals, and Second Grader is presumably a young investor with a long enough horizon to invest 90 percent in equity! After we introduce alternative investments, we will consider another MarketWatch portfolio, the Unconventional Success portfolio recommended by David Svensen of the Yale Endowment.

PORTFOLIOS OF STOCKS AND BONDS By the time of retirement, the investor should have reduced the proportion of stocks in the portfolio way below that chosen during earlier working years. As discussed above, the Vanguard Target Retirement Fund shifts the investor from a 90 percent stock portfolio when the investor is 25 years from retirement to a 50/50 portfolio at retirement. The 50/50 retirement portfolio is a common one chosen, at least early in retirement. Because risk is central to the success or failure of spending rules, we will try to reduce risk by diversifying the portfolio just as in the previous chapter on foundations. In the case of bonds, the bond returns are based on the Barclays Aggregate index. In the case of stocks, both foreign and domestic stocks are included, with foreign stocks being one-fifth of the total stock allocation (as in the Vanguard Fund). Foreign stocks are represented by the Morgan Stanley EAFE index, while U.S. stocks are represented by the Russell 3000 index.

By the time of retirement 15 years later, this investor will have only 50 percent invested A 303 P1: a/b c15 P2: c/d QC: e/f JWBT412-Marston T1: g December 20, 2010 17:6 304 Printer: Courier Westford PORTFOLIO DESIGN At Rerement 15 years from rerement Foreign Stocks 15% Foreign Stocks 10% Bonds 25% U.S. Stocks 40% U.S. Stocks 60% Ordinary Bonds 40% Inflaon Protected Bonds 10% FIGURE 15.1 Portfolios for Investors 15 years Prior to and at Retirement (Vanguard 2025 Target Retirement Fund) Source: www.vanguard.com. in stocks and 50 percent invested in bonds with a 10 percent allocation in inflation-protected bonds (to help protect against inflation in retirement). Target retirement funds are designed to model the life cycle of investing beginning with the early years of working when very aggressive allocations are called for. Figure 15.2 shows the evolution over time of the Vanguard allocations in their 2035 target retirement fund.


pages: 416 words: 106,532

Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond: The Innovative Investor's Guide to Bitcoin and Beyond by Chris Burniske, Jack Tatar

Airbnb, altcoin, asset allocation, asset-backed security, autonomous vehicles, bitcoin, blockchain, Blythe Masters, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, Clayton Christensen, clean water, cloud computing, collateralized debt obligation, commoditize, correlation coefficient, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, disintermediation, distributed ledger, diversification, diversified portfolio, Donald Trump, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, fiat currency, financial innovation, fixed income, George Gilder, Google Hangouts, high net worth, Jeff Bezos, Kenneth Rogoff, Kickstarter, Leonard Kleinrock, litecoin, Marc Andreessen, Mark Zuckerberg, market bubble, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, packet switching, passive investing, peer-to-peer, peer-to-peer lending, Peter Thiel, pets.com, Ponzi scheme, prediction markets, quantitative easing, RAND corporation, random walk, Renaissance Technologies, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ross Ulbricht, Satoshi Nakamoto, Sharpe ratio, Silicon Valley, Simon Singh, Skype, smart contracts, social web, South Sea Bubble, Steve Jobs, transaction costs, tulip mania, Turing complete, Uber for X, Vanguard fund, WikiLeaks, Y2K

A recent article in Huffington Post had this to say: Millennials, assisted by a cadre of impressively socially awkward Bitcoin startup VC types, are piling intellectual and financial capital into this whole cryptocurrency idea—Bitcoin, Ethereum, all of it. What “e-” in front of any noun did for techie investor excitement in the 1990s, “crypto” and “blockchain” seems to be doing today.7 Are millennials turning to bitcoin and cryptoassets for their investments? Is a Vanguard fund or a small investment in Apple any better? Whereas the Vanguard fund has a minimum investment amount and buying an equity will require a commission, millennials see cryptoasset markets as a way to begin investing with a modest amount of money and in small increments, which is often not possible with stocks or funds.8 The important point is that at least they’re doing something to invest their funds and build the groundwork for a healthy financial future.

See Union Square Ventures Utility, 109, 115 of blockchains, 204 Utility Value, 117–119, 176–177, 180 Valuation, xiv of cryptoassets, 175–177 discounting and, 179–182 fundamental analysis and, 171–184 idea of, 152 methods of, 204–205 velocity and, 177–179 Value, 13, 15, 124 of blockchains, 255 characteristics based on, 79 of companies, 152 of cryptocommodities, 51 governments and, 34 increases in, 202 of investments, 85, 89, 90 loss of, 89 metal and, 143–144 of networks, 41, 44, 123, 171, 188, 196, 205, 291n1 society and, 35 as speculative, 117–119 of transactions, 204 of Yuan (China), 133–134 Value-traps, 265 Vanguard fund, 282 Variables, 16, 212 Variegation, 142 Vasek, Marie, 215 Vaulting, 225 VCs. See Venture capital investors Velocity of USD, 178 valuation and, 177–179 Venture capital investors (VCs), 57, 199 Venture capitalism, 247–253 blockchains and, 254 Virtual currency, 275–276 Volatility, 104. See also Risk absolute returns and, 100 assets and, 94 bitcoin and, 95, 96, 131 cryptoassets and, 92, 97 Ether and, 130–131 markets and, 131 maturation and, 129 Monero and, 130 prices and, 93 returns and, 97 Ripple and, 130 Volume, 301n24 attention to, 208–209 trading and, 123–125 of transactions, 37 Vontobel, 241 Wall Street Journal, 132, 238 Wallets, 211–229, 302n37 Watts per gigahash (W/GH), 215 Websites fraud and, 215 Smith + Crown as, 287 SpendBitcoins.com as, 198 Wellink, Nout, 145 Western Union, 268 W/GH.


pages: 190 words: 59,892

How to American: An Immigrant's Guide to Disappointing Your Parents by Jimmy O. Yang

call centre, hacker house, Silicon Valley, Uber for X, Vanguard fund

I started to hate everything about the internship, and I couldn’t wait until my three-month sentence was over. I hated mutual funds, I hated CNBC and I hated Hercules. But at the same time, I knew how proud my dad was of his son who was following in his footsteps to become a financial adviser. He’d ask me with a sweet sense of pride on his face: “How’s the internship going?” “It’s going great! Today we worked on a couple Vanguard funds.” I said it with a fake stapled grin on my stupid face. I didn’t have the heart to tell him I hated the internship and I thought Vanguard funds were fucking stupid. During my last week of the internship, Dad delivered some breaking news: “Jimmy! My friend at Smith Barney said he wants to offer you a full-time job when you graduate! Congratulations!” I’d never seen him so excited. I’m sure this was one of the happiest moments of his life, but in contrast, this was one of the most dismal moments of my life.


pages: 44 words: 12,675

Turning the Flywheel: A Monograph to Accompany Good to Great by Jim Collins

Amazon Web Services, index fund, Jeff Bezos, Socratic dialogue, Vanguard fund

The moment you think of yourself as great, your slide toward mediocrity will have already begun. Notes 1Stephen Ressler, Understanding the World’s Greatest Structures (Chantilly, VA: The Teaching Company, 2011), Lecture 24. 2Brad Stone, The Everything Store (New York, NY: Little, Brown and Company, 2013), 6–8, 12, 14, 100–102, 126–128, 188, 262–263, 268. 3Erika Fry, “Mutual Fund Giant Vanguard Flexes Its Muscles,” Fortune, December 8, 2016, http://fortune.com/vanguard-mutual-funds-investment/; “Fast Facts about Vanguard,” The Vanguard Group, Inc, Accessed in 2017, https://about.vanguard.com/who-we-are/fast-facts/. 4Robert N. Noyce, “MOSFET Semiconductor IC Memories,” Electronics World, October 1970, 46; Gene Bylinsky, “How Intel Won Its Bet on Memory Chips,” Fortune, November 1973, 142–147, 184; Robert N. Noyce, “Innovation: The Fruit of Success,” Technology Review, February 1978, 24; “Innovative Intel,” Economist, June 16, 1979, 94; Michael Annibale, “Intel: The Microprocessor Champ Gambles on Another Leap Forward,” Business Week, April 14, 1980, 98; Mimi Real and Robert Warren, A Revolution in Progress . . .


Playing With FIRE (Financial Independence Retire Early): How Far Would You Go for Financial Freedom? by Scott Rieckens, Mr. Money Mustache

Airbnb, cryptocurrency, effective altruism, financial independence, index fund, job satisfaction, McMansion, passive income, remote working, Vanguard fund

Money Mustache community and philosophy “a worldwide cult phenomenon” — the blog has 300 million page views since its inception in 2011 — and he addressed Pete by telling him that he was “in the top-five most-requested guests for this podcast.” That had my attention. Pete explained that all he’d done was live like he was in college even after he was making a good salary as an engineer. Over the years, he had saved a total of between twenty-five and twenty-eight times his annual spending and invested that money in Vanguard index funds (which wouldn’t be the last time I’d hear that recommendation!). Then, at thirty years old, Pete and his wife quit their cubicle jobs when their baby boy was born, since their investments were now creating enough passive income to recover their living expenses. He went on to say that this same basic formula works for most people. So 19 PLAYING WITH FIRE 20 all Taylor and I needed to do to retire was save twenty-five times our annual expenses?

Invest in great American businesses without paying all the fees of a mutual fund manager and hang on to those companies, and you will win over the long term.” 112 I Want to Invest. What Do I Do Next? If you’ve set up an investment account before, you probably know how simple it is. But if not and/or if you’re like me, the process of setting up the account can feel intimidating and can be a reason to put off investing. You might not be ready to invest yet, but setting up the account is still an important first step and Vanguard allows you to fund your account at a later date. Here are the steps to follow to open a Vanguard account: Go to personal.vanguard.com and click, “Open Your Account.” You’ll be asked if you’re opening a new account or moving an outside account, and their system will guide you through the process from there. If you’d prefer to open your account over the phone, call 877-3203099 and one of their advisers will walk you through it. 2.

Avoid Money Managers (or Be Prepared to Pay) As it turns out, trying to beat the performance of the stock market statistically doesn’t work. Only 15 percent of professionals manage to beat it, and what’s the likelihood that the person you’ve hired is one of those 15 percent? Not very high. Because an index fund doesn’t require a building full of portfolio managers, analysts, and traders to work diligently day in and day out to try to beat the stock market, indexing is dirt cheap: the expense ratio of the Vanguard index fund VTSAX, a FIRE favorite, was 0.04% when this book went to press. Meanwhile, the typical human-managed mutual funds typically charge 1 to 2 percent per year. In the past, that mutual fund cost didn’t ring alarm bells for me. A percent or two seemed like a perfectly reasonable amount WHAT THE HECK IS AN INDEX FUND? 1. 113 of money to spend on someone helping me manage my money. Then I heard Brad Barrett of the ChooseFI podcast talk through a calculation.


pages: 670 words: 194,502

The Intelligent Investor (Collins Business Essentials) by Benjamin Graham, Jason Zweig

3Com Palm IPO, accounting loophole / creative accounting, air freight, Andrei Shleifer, asset allocation, business cycle, buy and hold, buy low sell high, capital asset pricing model, corporate governance, corporate raider, Daniel Kahneman / Amos Tversky, diversified portfolio, dogs of the Dow, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, George Santayana, hiring and firing, index fund, intangible asset, Isaac Newton, Long Term Capital Management, market bubble, merger arbitrage, money market fund, new economy, passive investing, price stability, Ralph Waldo Emerson, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, sharing economy, short selling, Silicon Valley, South Sea Bubble, Steve Jobs, stocks for the long run, survivorship bias, the market place, the rule of 72, transaction costs, tulip mania, VA Linux, Vanguard fund, Y2K, Yogi Berra

Two Acronyms to the Rescue Fortunately, you can bolster your defenses against inflation by branching out beyond stocks. Since Graham last wrote, two inflation-fighters have become widely available to investors: REITs. Real Estate Investment Trusts, or REITs (pronounced “reets”), are companies that own and collect rent from commercial and residential properties.10 Bundled into real-estate mutual funds, REITs do a decent job of combating inflation. The best choice is Vanguard REIT Index Fund; other relatively low-cost choices include Cohen & Steers Realty Shares, Columbia Real Estate Equity Fund, and Fidelity Real Estate Investment Fund.11 While a REIT fund is unlikely to be a foolproof inflation-fighter, in the long run it should give you some defense against the erosion of purchasing power without hampering your overall returns. TIPS. Treasury Inflation-Protected Securities, or TIPS, are U.S. government bonds, first issued in 1997, that automatically go up in value when inflation rises.

Nearly every growth fund owns Cisco and GE and Microsoft and Pfizer and Wal-Mart—and in almost identical proportions. This behavior is so prevalent that finance scholars simply call it herding.4 But by protecting their own fee income, fund managers compromise their ability to produce superior returns for their outside investors. FIGURE 9-2 The Funnel of Fund Performance Looking back from December 31, 2002, how many U.S. stock funds outperformed Vanguard 500 Index Fund? One year: 1,186 of 2,423 funds (or 48.9%) Three years: 1,157 of 1,944 funds (or 59.5%) Five years: 768 of 1,494 funds (or 51.4%) Ten years: 227 of 728 funds (or 31.2%) Fifteen years: 125 of 445 funds (or 28.1%) Twenty years: 37 of 248 funds (or 14.9%) Source: Lipper Inc. Because of their fat costs and bad behavior, most funds fail to earn their keep. No wonder high returns are nearly as perishable as unrefrigerated fish.

Longleaf’s Mason Hawkins looks for corporate managers who are “good partners”—meaning that they communicate candidly about problems, have clear plans for allocating current and future cash flow, and own sizable stakes in the company’s stock (preferably through cash purchases rather than through grants of options). But “if managements talk more about the stock price than about the business,” warns Robert Torray of the Torray Fund, “we’re not interested.” Christopher Davis of the Davis Funds favors firms that limit issuance of stock options to roughly 3% of shares outstanding. At Vanguard Primecap Fund, Howard Schow tracks “what the company said one year and what happened the next. We want to see not only whether managements are honest with shareholders but also whether they’re honest with themselves.” (If a company boss insists that all is hunky-dory when business is sputtering, watch out!) Nowadays, you can listen in on a company’s regularly scheduled conference calls even if you own only a few shares; to find out the schedule, call the investor relations department at corporate headquarters or visit the company’s website.


pages: 280 words: 73,420

Crapshoot Investing: How Tech-Savvy Traders and Clueless Regulators Turned the Stock Market Into a Casino by Jim McTague

algorithmic trading, automated trading system, Bernie Madoff, Bernie Sanders, Bretton Woods, buttonwood tree, buy and hold, computerized trading, corporate raider, creative destruction, credit crunch, Credit Default Swap, financial innovation, fixed income, Flash crash, High speed trading, housing crisis, index arbitrage, locking in a profit, Long Term Capital Management, margin call, market bubble, market fragmentation, market fundamentalism, Myron Scholes, naked short selling, pattern recognition, Ponzi scheme, quantitative trading / quantitative finance, Renaissance Technologies, Ronald Reagan, Sergey Aleynikov, short selling, Small Order Execution System, statistical arbitrage, technology bubble, transaction costs, Vanguard fund, Y2K

The e-mail said, “To the contrary, we would argue that the U.S. equity markets were a shining model of reliability and healthy function during what some are calling one of the most challenging and difficult times in recent market history.” A third participant wrote the SEC in advance of the meeting, “Implementing any type of regulation that would limit the tools or the effectiveness of automation available for use by any class of investor in the name of ‘fairness’ would turn back the clock on the U.S. equity market and undo years of innovation and investment.” The only mutual fund company invited to sit on the panel was Vanguard Funds. It was an outlier among mutual fund firms in that it staunchly defended HFT, arguing that the activity kept costs down by narrowing stock spreads and reducing transaction costs. Vanguard had a personal agenda: It was one of the largest managers of exchange-traded funds (ETFs), a product that was a cross between a mutual fund and an index option. Arnuk quipped in a blog that Vanguard churned out ETFs faster than Hasbro churned out Hannah Montana toys.

See consolidated tape time delay of consolidated tape, 72, 199-205, 225-226 “Toxic Equity Trading Order Flow on Wall Street: The Real Force Behind the Explosion in Volume and Volatility” (Arnuk and Saluzzi), 19 Toyota, approval ratings, 92 trade-through rule, 144-146 Tradeworx, 153-155 Trading Places (film), 29 Trillium Brokerage Services LLC, 210, 212 U–V uncertainty, volatility and, 177 unification of commodities and equities exchanges, 36, 70 “upstairs” market, 119-121 Uptick Rule, 50-51, 54 Vanguard Funds, 185 Vega, Clara, 98 volatility during Flash Crash, 72-73 after Great Recession, 2-3 in high-frequency trading (HFT), 8-9 reasons for, 175-182 rhythm of, 176-177 volume of trading declines in NYSE, 146-147 due to automated trading, 64 on equities exchanges, 31 during Flash Crash, 81 inflating, 22 revenue generated from, 165-166 W–Z Wachovia National Bank, 100 Waddell & Reed Financial, Inc., 69, 213-219 Warner, Mark, 187 Washington Post, 196 Weild, David, 142-143 Weisberg, Theodore, 222 Wells Fargo, 100 Whalen, Christopher, 40 Where Are the Customer’s Yachts?


pages: 517 words: 139,477

Stocks for the Long Run 5/E: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies by Jeremy Siegel

Asian financial crisis, asset allocation, backtesting, banking crisis, Black-Scholes formula, break the buck, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, capital asset pricing model, carried interest, central bank independence, cognitive dissonance, compound rate of return, computer age, computerized trading, corporate governance, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, Deng Xiaoping, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Financial Instability Hypothesis, fixed income, Flash crash, forward guidance, fundamental attribution error, housing crisis, Hyman Minsky, implied volatility, income inequality, index arbitrage, index fund, indoor plumbing, inflation targeting, invention of the printing press, Isaac Newton, joint-stock company, London Interbank Offered Rate, Long Term Capital Management, loss aversion, market bubble, mental accounting, money market fund, mortgage debt, Myron Scholes, new economy, Northern Rock, oil shock, passive investing, Paul Samuelson, Peter Thiel, Ponzi scheme, prediction markets, price anchoring, price stability, purchasing power parity, quantitative easing, random walk, Richard Thaler, risk tolerance, risk/return, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, stocks for the long run, survivorship bias, technology bubble, The Great Moderation, the payments system, The Wisdom of Crowds, transaction costs, tulip mania, Tyler Cowen: Great Stagnation, Vanguard fund

The oldest and most popular of the index funds is the Vanguard 500 Index Fund.13 The fund, started by visionary John Bogle, raised only $11.4 million when it debuted in 1976, and few thought the concept would survive. But slowly and surely, indexing gathered momentum, and the fund’s assets reached $17 billion at the end of 1995. In the latter stages of the 1990s bull market, the popularity of indexing soared. By March 2000, when the S&P 500 Index reached its all-time high, the fund claimed the title of the world’s largest equity fund, with assets over $100 billion. Indexing became so popular that in the first six months of 1999 nearly 70 percent of the money that was invested went into index funds.14 By 2013, all Vanguard 500 Index funds had attracted over $275 billion in assets, and Vanguard’s Total Stock Market Funds, which include smaller stocks, attracted $250 billion.

Indexing became so popular that in the first six months of 1999 nearly 70 percent of the money that was invested went into index funds.14 By 2013, all Vanguard 500 Index funds had attracted over $275 billion in assets, and Vanguard’s Total Stock Market Funds, which include smaller stocks, attracted $250 billion. One of the attractions of index funds is their extremely low cost. The total annual cost in the Vanguard 500 Index Fund is only 0.15 percent of market value (and as low as 2 basis points for large institutional investors). Because of proprietary trading techniques and interest income from loaning securities, Vanguard S&P 500 Index funds for individual investors have fallen only 9 basis points behind the index over the last 10 years, and its S&P 500 Index fund for institutional investors has actually outperformed the benchmark index.15 THE PITFALLS OF CAPITALIZATION-WEIGHTED INDEXING Despite the past success of index funds, their popularity, especially those funds linked to the S&P 500 Index, may cause problems for index investors in the future.

Malkiel, A Random Walk Down Wall Street, 8th ed., New York: Norton, 2003, pp. 372-274. 11. John C. Bogle, The Little Book of Common Sense Investing, Hoboken, NJ: Wiley, 2007, Chap. 9. 12. Ellis, “The Loser’s Game,” Financial Analysts Journal, p. 19. 13. Five years before the Vanguard 500 Index Fund, Wells Fargo created an equally weighted index fund called “Samsonite,” but its assets remained relatively small. 14. Heather Bell, “Vanguard 500 Turns 25, Legacy in Passive Investing,” Journal of Index Issues, Fourth Quarter 2001, pp. 8-10. 15. The Vanguard Institutional Index Fund Plus shares, with a minimum investment of $200 million, have outperformed the S&P 500 Index by 3 basis points over the 10 years ending June 30, 2013. 16. Roger J. Bos, Event Study: Quantifying the Effect of Being Added to an S&P Index, New York: McGraw-Hill, Standard & Poor’s, September 2000. 17.


The Smartest Investment Book You'll Ever Read: The Simple, Stress-Free Way to Reach Your Investment Goals by Daniel R. Solin

asset allocation, buy and hold, corporate governance, diversification, diversified portfolio, index fund, market fundamentalism, money market fund, Myron Scholes, passive investing, prediction markets, random walk, risk tolerance, risk-adjusted returns, risk/return, transaction costs, Vanguard fund, zero-sum game

First, he looked at the performance of all 494 actively managed mutual funds in the United States that had, as their goal, beating the S&P 500 Index for the five-year period July 1993 through June 1998. How hard could this be? The managers of these funds are among the best, brightest and highest-paid people in this country. Some of them earn millions of dollars to beat the S&P. Their funds charge more than eight times the cost of a simple index fund, like the Vanguard 500 Index Fund (VFINX). And we know this fund will always give investors the returns of the S&P 500 Index (reduced only by the amount of its low fees), because it is set up to do precisely that. O'Neal then did the same analysis for the next five-year period, from July 1998 through June 2003. Here is what he found: Only 46% of the actively managed funds beat the index during the first five-year period and only a pathetic 8% beat the index during the second five-year period.

Su market timing (predicting the future) Toronto Stock Exchange (TS£), 24, 135 Toronto Stock Exchange 300 (TSE 300), 113 trailcr fees, 60 Su also costs and fees, IOvesdng Trueman, Bren, 157 trusteeship, standards for, 99-101,138,168 trusts, income, 134-35, 169 Trzcinka, Charles, 151 Tufano, Peter, 149-50 Unconventional5uC(m (Swensen), 108, 182 universities, as Smart Investors, 106, 108 U.S. se<:urities industry, in Canada, 119, 152 U.S. stocks barriers to Canadian investors in, 119, 160 in index funds, 19 value stocks, 84-87, 114 Vanguard 500 Index Fund, 45 Vanguard Group, 89 Want, Liping, 169 Warywoda, Mark, 160 websites for Index Funds Advisors, 182 for this book, 124 Weinberg, Neil, 81 Weiss Ratings, Inc., 155 What Kind ofan Investor Art' You? (Deaves), 150--51, 162, l SI Wheeler, Daniel M., 91 WiUis, Andrew, 167 world stocks. &t'international srocks wrap accounts, 65--66, 161 Wynne, Harold, 153-54 Yacktman, Donald, 145 Yale University endowment fund, 108 Zensche, D irk, 134, 169


pages: 519 words: 118,095

Your Money: The Missing Manual by J.D. Roth

Airbnb, asset allocation, bank run, buy and hold, buy low sell high, car-free, Community Supported Agriculture, delayed gratification, diversification, diversified portfolio, estate planning, Firefox, fixed income, full employment, hedonic treadmill, Home mortgage interest deduction, index card, index fund, late fees, mortgage tax deduction, Own Your Own Home, passive investing, Paul Graham, random walk, Richard Bolles, risk tolerance, Robert Shiller, Robert Shiller, speech recognition, stocks for the long run, traveling salesman, Vanguard fund, web application, Zipcar

If the Fidelity Freedom 2035 is too aggressive for you, for example, go with the Fidelity Freedom 2025 instead. You can read more about lifecycle funds in this New York Times article: http://tinyurl.com/NYT-tdfunds. All-in-one funds If you like the idea of investing in just one fund but you don't want its asset allocation to change over time, you have a handful of other single-fund options, including: Vanguard STAR Fund (VGSTX), a collection of 11 other Vanguard mutual funds. The STAR fund is 45% U.S. stocks, 15% foreign stocks, 35% bonds, and 5% cash. (Investing in cash means putting money into things like money market accounts and CDs, which you learned about in Chapter 7.) This is a great fund to start with because you can invest as little as $1,000 into it (some funds have much higher initial investments). Fidelity Four-in-One Index Fund (FFNOX), a collection of four other Fidelity mutual funds.

Note Exchange-traded funds (or ETFs) are basically index funds that you can buy and sell like stocks (instead of going through a mutual fund company). To learn more about the subtle differences between index funds and ETFs, head to http://tinyurl.com/YH-etfs. In Unconventional Success: A Fundamental Approach to Personal Investment (Free Press, 2005), David Swensen writes, "Fully 95% of active investors lose to the passive alternative, dropping 3.8% per annum to the Vanguard 500 Index Fund results." In other words, people who own index funds have typically earned almost 4% more each year than those who own actively managed funds. (This long article offers a good summary of the arguments for using index funds: http://tinyurl.com/dowie-index.) By owning index funds, you can beat the returns of nearly everyone you know. But to do this, you can't let yourself get caught up in classic investing mistakes like those described in the next section.

In his book, he suggests several different portfolios, including this "no-brainer" collection of index funds that keeps things simple: 25% Vanguard 500 Index (VFINX) 25% Vanguard Small-Cap Index (NAESX) 25% Vanguard Total International Stock Index (VGTSX) 25% Vanguard Total Bond Market Index (VBMFX) You can read more about this portfolio at http://tinyurl.com/LP-nobrain. The Coffeehouse Portfolio by Bill Schultheis Bill Schultheis, the author of The New Coffeehouse Investor (Portfolio, 2009), believes that the secret to financial success is mastering the basics: saving, asset allocation, and matching the market. He says you can match the market with this lazy portfolio: 40% Vanguard Total Bond Index (VBMFX) 10% Vanguard 500 Index Fund (VFINX) 10% Vanguard Value Index (VIVAX) 10% Vanguard Total International Stock Index (VGSTX) 10% Vanguard REIT Index (VGSIX) 10% Vanguard Small-Cap Value Index (VISVX) 10% Vanguard Small-Cap Index (NAESX) To read more about The Coffeehouse Portfolio, head to http://tinyurl.com/LP-coffee. Other lazy portfolios These are just a few suggestions. There are scores of index funds out there, and countless ways to build portfolios around them.


pages: 230 words: 76,655

Choose Yourself! by James Altucher

Airbnb, Albert Einstein, Bernie Madoff, bitcoin, cashless society, cognitive bias, dark matter, Elon Musk, estate planning, Mark Zuckerberg, money market fund, Network effects, new economy, PageRank, passive income, pattern recognition, payday loans, Peter Thiel, Ponzi scheme, Rodney Brooks, rolodex, Saturday Night Live, sharing economy, short selling, side project, Silicon Valley, Skype, software as a service, Steve Jobs, superconnector, Uber for X, Vanguard fund, Y2K, Zipcar

In most cases, all of these sophisticated vehicles are highly correlated with the US stock market, which is highly correlated with global markets. Everything I’ve said so far in this chapter might suggest that I like John Bogle’s approach. John Bogle is a hero for many in the investment community. He is the founder of the Vanguard funds, which charge super-low fees to be fairer to the investor. This is not such a bad approach. However, you still often have to pay fees to the bank to buy into his funds. There’s still an annual fee (albeit very low) and there’s till this nonsense about lending out their shares so people can short the stocks they own (to be fair, I don’t know if Vanguard does this but many funds like Vanguard do). Again, I’m not saying “do” or “don’t” (yet). But I will tell you exactly what I do with almost all of the shares I own. Not every share, but the bulk. I’m sitting right now at a little white desk, typing into a computer.


pages: 295 words: 66,824

A Mathematician Plays the Stock Market by John Allen Paulos

Benoit Mandelbrot, Black-Scholes formula, Brownian motion, business climate, business cycle, butter production in bangladesh, butterfly effect, capital asset pricing model, correlation coefficient, correlation does not imply causation, Daniel Kahneman / Amos Tversky, diversified portfolio, dogs of the Dow, Donald Trump, double entry bookkeeping, Elliott wave, endowment effect, Erdős number, Eugene Fama: efficient market hypothesis, four colour theorem, George Gilder, global village, greed is good, index fund, intangible asset, invisible hand, Isaac Newton, John Nash: game theory, Long Term Capital Management, loss aversion, Louis Bachelier, mandelbrot fractal, margin call, mental accounting, Myron Scholes, Nash equilibrium, Network effects, passive investing, Paul Erdős, Paul Samuelson, Ponzi scheme, price anchoring, Ralph Nelson Elliott, random walk, Richard Thaler, Robert Shiller, Robert Shiller, short selling, six sigma, Stephen Hawking, stocks for the long run, survivorship bias, transaction costs, ultimatum game, Vanguard fund, Yogi Berra

If the light bulb needed changing the market would have already done it. Efficient market theorists tend to believe in passive investments such as broad-gauged index funds, which attempt to track a given market index such as the S&P 500. John Bogle, the crusading founder of Vanguard and presumably a believer in efficient markets, was the first to offer such a fund to the general investing public. His Vanguard 500 fund is unmanaged, offers broad diversification and very low fees, and generally beats the more expensive, managed funds. Investing in it does have a cost, however: One must give up the fantasy of a perspicacious gunslinger/investor outwitting the market. And why do such theorists believe the market to be efficient? They point to a legion of investors of all sorts all seeking to make money by employing all sorts of strategies.

To the extent these predictions reflect a consensus of opinion, they’re already accounted for. To the extent that they don’t, they’re tantamount to forecasting coin flips. Whatever your views on the subject, the arguments for an efficient market spelled out in Burton Malkiel’s A Random Walk Down Wall Street and elsewhere can’t be grossly wrong. After all, most mutual fund managers continue to generate average gains less than those of, say, the Vanguard Index 500 fund. (This has always seemed to me a rather scandalous fact.) There is other evidence for a fairly efficient market as well. There are few opportunities for risk-free money-making or arbitrage, prices seem to adjust rapidly in response to news, and the autocorrelation of the stock prices from day to day, week to week, month to month, and year to year is small (albeit not zero). That is, if the market has done well (or poorly) over a given time period in the past, there is no strong tendency for it to do well (or poorly) during the next time period.

getting what you pay for insider trading and overvaluation price anomalies that lead to predictability price targets of selecting. see stock-picking uniformity of positive ratings value stocks Stocks for the Long Run (Siegel) stop-loss orders strike prices, of stock options subterranean information processing support levels survivorship bias Taleb, Nassim taxes, progressive technical analysis blackjack strategies as parallel to Elliott wave theory illusion of control created by moving averages as predictor of stock prices vs. random-walk theory resistance and support levels sequence complexity and trading rules and trends and predictability telecommunications industry Thaler, Richard on calendar effects contrarian anomalies in stock studies of on counter-productive behavior notion of mental accounts thinly traded stocks pump and dump strategy and shorting and distorting strategy time saving, heuristic rules for Titman, Sheridan traders. see also investors “blow up” and becoming “ghosts,” irrational interactions between technical traders and value traders Wolfram model of interactions between trading strategies. see also investment strategies; predictability, of stock market buy-sell rules complexity of data mining and market predictions and role of chance in technical traders vs. value traders treasury bills trend analysis. see also technical analysis Tversky, Amos ultimatum games undervalued stocks, lists of unemployment United Nations UUNet division, WorldCom (WCOM) value investing. see also fundamental analysis accounting practices and better returns than with growth investing contrarian basis of contrasted with growth investing risk and value stocks Vanguard 500 fund variance from mean as measure of risk portfolio volatility and volatility Beta (B) values and diversification and measuring with standard deviation online trading and options prices and resistance and support levels and stock market stocks treasury bills Wall Street. see also stock markets European market causing reaction on variety of influences effecting Wall Street Journal Warner, Kurt Web. see Internet Weill, Sanford whim. see also chance windfall money The Winner’s Curse (Thaler) Wolff, Alexander Wolff, Edward Wolfram, Stephen World Class Options Market Maker (WCOMM) world markets, liquidity in World Trade Center WorldCom (WCOM) acquisitions by anchoring to fifty-two-week high attempts to help out board game buying more as price drops decision to sell emotions dictating increased investment in guilt and despair over losses impact of Ebbers sell-off infatuation with margin calls on moving averages and purchase of Digex as example of “losing through winning,” recommended as strong buy in 1990s UUNet division Yahoo!


pages: 198 words: 53,264

Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick

activist fund / activist shareholder / activist investor, Airbnb, Albert Einstein, asset allocation, bitcoin, Bretton Woods, buy and hold, buy low sell high, cognitive bias, cognitive dissonance, Credit Default Swap, cryptocurrency, Daniel Kahneman / Amos Tversky, endowment effect, financial innovation, fixed income, hindsight bias, index fund, invention of the wheel, Isaac Newton, John Meriwether, Kickstarter, Long Term Capital Management, loss aversion, mega-rich, merger arbitrage, Myron Scholes, Paul Samuelson, quantitative easing, Renaissance Technologies, Richard Thaler, Robert Shiller, Robert Shiller, Snapchat, Stephen Hawking, Steve Jobs, Steve Wozniak, stocks for the long run, transcontinental railway, value at risk, Vanguard fund, Y Combinator

Ibid., 192. 22. Ibid., 80. 23. Quoted in Lowenstein, When Genius Failed, 64. 24. Nassim Taleb, Fooled by Randomness (New York: Random House, 2004), 242. 25. Jim Cramer, “Einstein Has Left the Building,” TheStreet.com, September 3, 1998. CHAPTER 5 Jack Bogle Find What Works for You Sometimes in life, we make the greatest forward progress by going backward. —Jack Bogle The Vanguard 500 Index fund is the world's largest mutual fund, with $292 billion in assets. That's 292 followed by nine zeros. How do you get to be so gigantic? Start with $11 million and grow 29% per year for the past 40 years. To give you an idea of how much money $292 billion is, if you were to stack it in hundred dollar bills, it would stretch 198 miles, which is just about the round‐trip distance from New York City to Vanguard's headquarters in Valley Forge, Pennsylvania.

Hopefully, after reading how a giant like Bogle was dealt a few blows, you'll realize that investing is a lifelong journey of self‐discovery. If you're still on your journey, keep searching. Notes 1. Credit Suisse, “Looking for Easy Games,” January 4, 2017. 2. Morningstar, “Recommendations for Fund Companies Not Named Vanguard,” December 27, 2016. 3. John C. Bogle, “The Professor, the Student, and the Index Fund,” johncbogle.com, September 4, 2011. 4. Vanguard, “Reflections on Wellington Fund's 75th Birthday,” 2006. 5. Ibid. 6. Adam Smith, Supermoney, foreword by John C. Bogle (Hoboken, NJ: Wiley, 2007). 7. John C. Bogle, The Clash of the Cultures (Hoboken, NJ: Wiley, 2012). 8. Institutional Investor, “The Whiz Kids Take Over,” January 1968. 9. Bogle, The Clash of the Cultures, 262. 10. Michael Regan, “Q&A with Jack Bogle: ‘We're in the Middle of a Revolution,’” Bloomberg.com, November 23, 2016. 11.

John Brooks, The Go‐Go Years (Hoboken, NJ: Wiley, 1999), 128. 12. Bogle, The Clash of the Cultures, 272. 13. Smith, Supermoney. 14. Ibid. 15. Bogle, The Clash of the Cultures, 272. 16. Smith. 17. Ibid. 18. Quoted in John C. Bogle, “Lightning Strikes,” Institutional Investor 40, no. 5 (Special 40th Anniversary Issue, 2014): 42–59. 19. Bogle, The Clash of the Cultures, 278. 20. Ibid. 21. Ali Masarwah. “Indexing, Vanguard Drove Global Fund Flows,” Morningstar.com, February 4, 2017. CHAPTER 6 Michael Steinhardt Stay in Your Lane Investors who confine themselves to what they know, as difficult as that may be, have a considerable advantage over everyone else. —Seth Klarman Making money in the markets is challenging even when you have a deep understanding of what it is that you're doing. Consider specialized professional financial analysts, for example, who have expertise in one particular industry.


pages: 825 words: 228,141

MONEY Master the Game: 7 Simple Steps to Financial Freedom by Tony Robbins

3D printing, active measures, activist fund / activist shareholder / activist investor, addicted to oil, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, backtesting, bitcoin, buy and hold, clean water, cloud computing, corporate governance, corporate raider, correlation does not imply causation, Credit Default Swap, Dean Kamen, declining real wages, diversification, diversified portfolio, Donald Trump, estate planning, fear of failure, fiat currency, financial independence, fixed income, forensic accounting, high net worth, index fund, Internet of things, invention of the wheel, Jeff Bezos, Kenneth Rogoff, lake wobegon effect, Lao Tzu, London Interbank Offered Rate, market bubble, money market fund, mortgage debt, new economy, obamacare, offshore financial centre, oil shock, optical character recognition, Own Your Own Home, passive investing, profit motive, Ralph Waldo Emerson, random walk, Ray Kurzweil, Richard Thaler, risk tolerance, riskless arbitrage, Robert Shiller, Robert Shiller, self-driving car, shareholder value, Silicon Valley, Skype, Snapchat, sovereign wealth fund, stem cell, Steve Jobs, survivorship bias, telerobotics, the rule of 72, thinkpad, transaction costs, Upton Sinclair, Vanguard fund, World Values Survey, X Prize, Yogi Berra, young professional, zero-sum game

Some say he’s done more for the individual investor than anyone in the history of business. How did he do it? When Jack Bogle founded the Vanguard Group in 1974, index funds were just an academic theory. But Bogle was willing to bet his company on the idea that low-cost, low-fee mutual funds that tracked the performance of the whole stock market would outperform most managed funds year after year. Why? Because investors as a group can’t beat the market, because they are the market. Talk about a disrupter! At first, his index funds were mocked as “Bogle’s Folly.” A competitor even called the idea un-American. But Bogle brushed off his critics and went on to build Vanguard into the largest mutual fund management firm in the world, with $2.86 trillion in assets under management. How big is that? If Vanguard were a country, its economy would be the same size as Great Britain’s!

It was the most provocative, probing interview of my long career, a reaction shared, I’m sure, by the other souls with strong investment values and sharp financial minds who populate this fine book. This book will enlighten you and reinforce your understanding of how to master the money game and, in the long run, earn your financial freedom.” —John C. Bogle, founder, the Vanguard Group and the Vanguard index funds, #1 largest mutual funds in the world “This book is not the typical financial book in any way. It is packed with wisdom and vital philosophies to enrich your life. A lot of books out there have more sizzle than steak to offer. Tony’s is different. This book will change your life.” —Dr. David Babbel, professor of finance, Wharton School of the University of Pennsylvania “In this book, Tony masterfully weaves anecdote and expertise to simplify the process of investing for readers—priming their financial education and helping them effectively plan for their future.”

For example, you can “own” the entire market (let’s say all 500 stocks in the S&P 500) for as little as 0.14%—or as the investment world calls it, 14 basis points (bps). That’s just 14 cents for every $100 you invest. (Just a quick FYI for you insiders: there are 100 basis points in 1%, so 50 basis points is 0.5% and so on.) Owning the entire market is accomplished through a low-cost index fund such as those offered through Vanguard or Dimensional Fund Advisors. And we already know that owning the market beats 96% of all the mutual fund “stock pickers” over a sustained period. Sure, you might be willing to pay 3% to an extraordinary hedge fund manager like Ray Dalio, who has a 21% annualized return (before fees) since launching his fund! But with most mutual funds, we are paying nearly 30 times, or 3,000%, more in fees, and for what?


pages: 231 words: 76,283

Work Optional: Retire Early the Non-Penny-Pinching Way by Tanja Hester

"side hustle", Affordable Care Act / Obamacare, Airbnb, anti-work, asset allocation, barriers to entry, buy and hold, crowdsourcing, diversification, estate planning, financial independence, full employment, gig economy, hedonic treadmill, high net worth, index fund, labor-force participation, longitudinal study, medical bankruptcy, mortgage debt, obamacare, passive income, post-work, remote working, rent control, ride hailing / ride sharing, risk tolerance, stocks for the long run, Vanguard fund

Therefore, index funds are passively managed, and instead of being constantly tweaked to maximize gains, fund managers simply buy shares of the stocks and bonds included in the index they are seeking to mirror, in proportion to the shares in the index, and then sit back and let the magic of compounding happen. That passive management means that investors pay minuscule management fees in relation to actively managed funds, often under 0.25% per year. Some of the broad market index funds with the lowest fees are the Schwab US Broad Market Fund, iShares Core S&P Total US Stock Market Fund, Vanguard Total Stock Market Fund, Fidelity Spartan 500 Index Fund, and a range of other funds with Vanguard, Fidelity, USAA, and T. Rowe Price, all of which have total expense ratios under 0.4%. But even those small percentage differences affect how much magic money you generate from your invested assets, so pay attention to fees even with index funds. Index funds have other benefits as well, namely in terms of taxes and health care premium calculation.

Your goal is to invest for the long term, investing on schedule no matter what the markets are doing, and then keeping your hands off of it until you begin living off your magic money sources. As to where you invest it, that’s up to you, but choosing one or two diversified stock funds and one or two diversified bond funds will keep you well covered. Some favorites of financial experts and early retirees are the Vanguard Total Stock Market Index Fund (VTSMX or VTSAX) and Total Bond Market Index Fund (VBMFX or VBTLX), S&P 500 index funds like the Fidelity Spartan 500 fund, and other index funds with extremely low fees. Because these funds already invest in a broad swath of the stock and bond markets, you don’t have to worry about choosing the right mix of assets to insulate you from risk and expose you to growth opportunities.


pages: 300 words: 77,787

Investing Demystified: How to Invest Without Speculation and Sleepless Nights by Lars Kroijer

Andrei Shleifer, asset allocation, asset-backed security, Bernie Madoff, bitcoin, Black Swan, BRICs, Carmen Reinhart, cleantech, compound rate of return, credit crunch, diversification, diversified portfolio, equity premium, estate planning, fixed income, high net worth, implied volatility, index fund, intangible asset, invisible hand, Kenneth Rogoff, market bubble, money market fund, passive investing, pattern recognition, prediction markets, risk tolerance, risk/return, Robert Shiller, Robert Shiller, selection bias, sovereign wealth fund, too big to fail, transaction costs, Vanguard fund, yield curve, zero-coupon bond

Cheap and liquid index exposure is now commonplace and something most major financial firms offer. The right product for you is really an individual choice dependent partly on your tax and currency situation. But the key facts are the same. Buy as broad an index tracker as you can and as cheaply as you can. If you do that, you are doing pretty well. 1 At the time of writing, in the UK the only way to buy the Vanguard funds below £100,000 is through Alliance Trust. Vanguard has been making noises about introducing easier and more direct options. 2 See The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk by William Bernstein (American Media International LLC, 2004). part four Other things to think about chapter 15 * * * Pension and insurance For many individuals their investing lives are dominated less by issues relating to their rational portfolio, but rather by the options and choices with regard to pensions, life annuities and related products.


pages: 89 words: 29,198

The Big Secret for the Small Investor: A New Route to Long-Term Investment Success by Joel Greenblatt

backtesting, discounted cash flows, diversified portfolio, hiring and firing, index fund, Sharpe ratio, time value of money, Vanguard fund

A reasonable expectation for outperformance over market-cap-weighted indexes is approximately 2 percent per year over the very long term. iShares Russell 1000 Value Index Fund (symbol: IWD)—larger stocks iShares Russell 2000 Value Index Fund (symbol: IWN)—smaller stocks iShares Russell Midcap Value Index Fund (symbol: IWS) iShares Russell Small Cap Value Index Fund (symbol: IJS) Vanguard Value ETF (symbol: VTV) Vanguard Mid-Cap Value Index Fund (symbol: VOE) Vanguard Small-Cap Value ETF: (symbol: VBR) INTERNATIONAL VALUE INDEX ETF iShares MSCI EAFE Value Index Fund (symbol: EFV)—based on EAFE International Value Index MUTUAL FUNDS (“VALUE-WEIGHTED”) We have created a free website, valueweightedindex.com, to keep readers updated on what I believe will be a growing area in the investment field. In addition to value-weighted mutual funds (remember, since these are mutual funds, they do not have some of the tax advantages of ETFs—for nontaxable accounts, of course, this should not present an issue), it will also cover equally weighted and value-oriented ETFs.


pages: 840 words: 202,245

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present by Jeff Madrick

accounting loophole / creative accounting, Asian financial crisis, bank run, Bretton Woods, business cycle, capital controls, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, desegregation, disintermediation, diversified portfolio, Donald Trump, financial deregulation, fixed income, floating exchange rates, Frederick Winslow Taylor, full employment, George Akerlof, Hyman Minsky, income inequality, index fund, inflation targeting, inventory management, invisible hand, John Meriwether, Kitchen Debate, laissez-faire capitalism, locking in a profit, Long Term Capital Management, market bubble, minimum wage unemployment, MITM: man-in-the-middle, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, new economy, North Sea oil, Northern Rock, oil shock, Paul Samuelson, Philip Mirowski, price stability, quantitative easing, Ralph Nader, rent control, road to serfdom, Robert Bork, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Ronald Reagan: Tear down this wall, shareholder value, short selling, Silicon Valley, Simon Kuznets, technology bubble, Telecommunications Act of 1996, The Chicago School, The Great Moderation, too big to fail, union organizing, V2 rocket, value at risk, Vanguard fund, War on Poverty, Washington Consensus, Y2K, Yom Kippur War

The government decided to prosecute on the basis of a flimsy case of tampering and obstruction of justice, rather than outright fraud, but after two trials ended in hung juries, Quattrone was acquitted in 2007 and back in the financial business. Kickbacks and payoffs contributed to the stock market bubble. But after the 2000 crash, nearly all the thousands of IPOs issued in the late 1990s had fallen to below their initial offering prices. Half of the ones that hadn’t gone out of business were selling for less than $1 a share. John Bogle, who had founded Vanguard Funds, estimated that the top executives of both old-line and newly public companies earned in total $1 trillion when they sold their shares during the bull market of the late 1990s. Fees and commission payments to investment banks, brokers, and mutual funds totaled another $1.275 trillion, he figured. “If the winners raked in what we can roughly estimate as at least $2.275 trillion, who lost all the money?”

., prl.1, prl.2, 7.1 Trump, Donald Tsai, Gerald Tudor Investment Tunney, John, 7.1, 7.2 Turner, Ed Turner, Ted, 8.1, 8.2, 8.3, 8.4, 8.5, 13.1 Turner Broadcasting Network (TNT), 8.1, 8.2, 8.3 Tuttle, Holmes Twentieth Century Fox, 7.1, 8.1, 8.2 Two Lucky People (Friedman and Friedman), 2.1 Tyco, 17.1, 17.2 Tynan, Kenneth UBS, 19.1, 19.2, 19.3, 19.4 Uhler, James Carvel, prl.1, prl.2 Uhler, Lewis, ix–x, prl.1, prl.2, 2.1, 7.1, 7.2 underwriters, 1.1, 6.1, 13.1, 13.2, 16.1, 16.2, 16.3, 17.1, 17.2, 17.3, 17.4, 17.5, 17.6, 17.7, 18.1, 19.1 unemployment insurance, 2.1, 2.2, 7.1 unemployment rate, prl.1, 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 3.1, 3.2, 4.1, 6.1, 8.1, 8.2, 9.1, 9.2, 9.3, 9.4, 9.5, 10.1, 11.1, 11.2, 11.3, 11.4, 12.1, 12.2, 12.3, 14.1, 14.2, 14.3, 14.4, 14.5, 17.1, 19.1, 19.2, 19.3, 19.4, 19.5, 19.6 United Technologies, 4.1, 5.1 Unruh, Jesse Updike, John uranium, 4.1, 5.1, 14.1 Utah International, 4.1, 5.1, 5.2, 12.1, 12.2 Value at Risk (VAR), 15.1, 15.2, 15.3, 15.4, 15.5, 17.1, 17.2 Vanguard Funds Van Horn, Rob Versailles, Treaty of (1919) Veterans Administration (VA), 18.1, 18.2 Viacom, 8.1, 16.1 Vietnam War, prl.1, 1.1, 2.1, 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 7.1, 10.1, 12.1, 19.1 Vilar, Alberto Viner, Jacob, 2.1, 2.2 Vinson & Elkins Volcker, Paul, 11.1, 11.2; background of, 3.1, 6.1, 11.3; in Carter administration, 11.4, 11.5, 11.6; as Federal Reserve chairman, itr.1, 6.2, 6.3, 6.4, 9.1, 9.2, 11.7, 13.1, 13.2, 13.3, 14.1, 15.1, 18.1, 19.1, 19.2; Greenspan compared with, 14.2, 14.3, 14.4, 14.5, 14.6; inflation policy of, 6.5, 6.6, 6.7, 6.8, 9.3, 11.8, 11.9, 11.10, 11.11, 11.12, 11.13, 11.14, 11.15, 11.16, 11.17, 14.7, 14.8; interest rates policy of, 6.9, 6.10, 9.4, 11.18, 11.19, 11.20, 11.21, 11.22, 15.2, 18.2, 18.3; in Reagan administration, 11.23, 11.24, 11.25; tax policy of, 11.26, 11.27, 11.28; as Treasury undersecretary, 3.2, 3.3, 6.11, 6.12, 6.13, 9.5, 9.6; unemployment rate and, 11.29, 11.30 Voorhis, Jerry Vranos, Michael, 12.1, 18.1 Wachtel, Paul wage controls, 2.1, 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 14.1 wage levels, itr.1, prl.1, prl.2, prl.3, 1.1, 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11, 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 4.1, 4.2, 8.1, 8.2, 9.1, 9.2, 9.3, 10.1, 10.2, 11.1, 11.2, 11.3, 11.4, 11.5, 12.1, 12.2, 13.1, 14.1, 14.2, 14.3, 16.1, 17.1, 17.2, 19.1, 19.2 Walker, Charls Wall, Danny Wallace, George Wallich, Henry Wall Street, x, 1.1, 1.2, 1.3, 1.4, 3.1, 4.1, 6.1, 8.1, 8.2, 8.3, 9.1, 9.2, 9.3, 11.1, 12.1, 12.2, 12.3, 12.4, 13.1, 13.2, 13.3, 13.4, 13.5, 14.1, 14.2, 14.3, 14.4, 14.5, 15.1, 15.2, 15.3, 15.4, 15.5, 15.6, 16.1, 16.2, 16.3, 16.4, 16.5, 16.6, 17.1, 17.2, 18.1, 19.1, 19.2, 19.3, 19.4, 19.5, 19.6, 19.7, 19.8, 19.9, 19.10, 19.11, 19.12, 19.13, 19.14 Wall Street Journal, 2.1, 6.1, 16.1, 16.2, 17.1, 17.2 Wal-Mart, 8.1, 8.2 Walras, Léon Walters, Barbara Walton, Bud Walton, Sam, 8.1, 8.2, 12.1 Warner, Douglas, III Warner-Amex Cable, 8.1, 8.2 Warner Bros., 7.1, 8.1, 8.2 Warner Bros.


pages: 250 words: 77,544

Personal Investing: The Missing Manual by Bonnie Biafore, Amy E. Buttell, Carol Fabbri

asset allocation, asset-backed security, business cycle, buy and hold, diversification, diversified portfolio, Donald Trump, employer provided health coverage, estate planning, fixed income, Home mortgage interest deduction, index fund, Kickstarter, money market fund, mortgage tax deduction, risk tolerance, risk-adjusted returns, Rubik’s Cube, Sharpe ratio, stocks for the long run, Vanguard fund, Yogi Berra, zero-coupon bond

They’re great if you have enough money to meet the minimum initial purchases, which can be $1,000 to $3,000 or more. You don’t pay commissions on purchases, just the expense ratio. 2. Set up an automatic deposit for the first asset class. Take the amount you contribute toward your goal each month, and multiply it by the percentage for the first asset class. Set up an automatic deposit for that amount for the index fund that represents the asset class, such as the Vanguard 500 Index Fund for large company stocks. Automatic deposits are the ultimate in laziness, because you set them up and let them rip. (You can adjust them later on, if necessary.) Automatic deposits also help you succeed by regularly contributing to your plan through thick and thin, good times and bad, high prices and low (read about dollar-cost averaging on page 4). 3. Repeat step 2 for each additional asset class.

See also mutual funds Adams, Bob (company financial status analysis tool by), 112 adjusted funds from operations (AFFO), 147 age, as asset allocation guideline, 164 aging parents, caring for, 24, 34–35 anchoring, 44 back-end loads, 92 bad habits in investing, 45–52 balance sheet, 106–108 Bankrate Credit Card calculator, 41 bankruptcy of company, 58, 59 basis points for bonds, 137 Bernstein, William (author), 168 bid price of bonds, 139 blend funds, 78, 79 Bogle, John (founder of Vanguard Group, Inc.), 168 bond funds, 78, 81–82, 130 bonds, 58–59, 129–138 average life of, 137 basis points for, 137 buying, 138–140 call provisions of, 134 capital gains from, 59, 128, 130 compared to bond funds, 130 credit quality of, 131–133 current yield of, 137 in default, 131 diversifying, 140 high-yield (speculative) bonds, 132, 159 interest paid by, 58–59, 63, 128, 135 interest rate (coupon rate) for, 128, 129, 133, 134–135 interest rate risk, 138, 159 investment grade, 132 maturity of, 58, 129, 133–134 price of, 59, 136–137, 139 prospectus for, 132 reasons to invest in, 128 returns from, 156–157 reviewing, 170 risk of, 59, 131 secured bonds, 131 senior bonds, 132 subordinated bonds, 132 tax issues regarding, 63, 69, 130 unsecured bonds, 131 yield to maturity, 137 books by Bogle, John (founder of Vanguard Group, Inc.), 168 Buying a Home: The Missing Manual (O’Reilly), 40 The Intelligent Asset Allocator (McGraw-Hill), 168 Unconventional Success (Free Press), 169 Your Money: The Missing Manual (O’Reilly), 40 Bringing It All Together worksheet, 37 bucket list.


pages: 348 words: 82,499

DIY Investor: How to Take Control of Your Investments & Plan for a Financially Secure Future by Andy Bell

asset allocation, bank run, buy and hold, collapse of Lehman Brothers, credit crunch, diversification, diversified portfolio, estate planning, eurozone crisis, fixed income, high net worth, hiring and firing, Isaac Newton, Kickstarter, lateral thinking, money market fund, Northern Rock, passive investing, place-making, quantitative easing, selection bias, short selling, South Sea Bubble, technology bubble, transaction costs, Vanguard fund

Cost The number one attraction of ETFs and their kind is their low cost, making them a perfect way for the cost-conscious DIY investor to get access to equity and other markets. Costs are very low indeed. It is not only the giant US Spider ETF that has got a total expense ratio of 0.1 per cent. These ultra-low charges are available for UK markets too. Vanguard offers a FTSE 100 with a total expense ratio of 0.1 per cent. Some physical-backed ETFs, like the Vanguard fund, charge an explicit 0.5 per cent initial charge to cover the cost of stamp duty paid by the fund. The impact of your investment platform’s costs on the total cost of ETF investing The arrival of ultra-low-cost ETF managers in the UK has caused a bit of a stir in investment platforms. With the ETF’s annual management charge having no loading for a payment to investment platforms, or indeed advisers, ETFs truly are cleanly and keenly priced.


pages: 504 words: 126,835

The Innovation Illusion: How So Little Is Created by So Many Working So Hard by Fredrik Erixon, Bjorn Weigel

"Robert Solow", Airbnb, Albert Einstein, American ideology, asset allocation, autonomous vehicles, barriers to entry, Basel III, Bernie Madoff, bitcoin, Black Swan, blockchain, BRICs, Burning Man, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, Clayton Christensen, Colonization of Mars, commoditize, corporate governance, corporate social responsibility, creative destruction, crony capitalism, dark matter, David Graeber, David Ricardo: comparative advantage, discounted cash flows, distributed ledger, Donald Trump, Elon Musk, Erik Brynjolfsson, fear of failure, first square of the chessboard / second half of the chessboard, Francis Fukuyama: the end of history, George Gilder, global supply chain, global value chain, Google Glasses, Google X / Alphabet X, Gordon Gekko, high net worth, hiring and firing, Hyman Minsky, income inequality, income per capita, index fund, industrial robot, Internet of things, Jeff Bezos, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, Joseph Schumpeter, Just-in-time delivery, Kevin Kelly, knowledge economy, laissez-faire capitalism, Lyft, manufacturing employment, Mark Zuckerberg, market design, Martin Wolf, mass affluent, means of production, Mont Pelerin Society, Network effects, new economy, offshore financial centre, pensions crisis, Peter Thiel, Potemkin village, price mechanism, principal–agent problem, Productivity paradox, QWERTY keyboard, RAND corporation, Ray Kurzweil, rent-seeking, risk tolerance, risk/return, Robert Gordon, Ronald Coase, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, Silicon Valley, Silicon Valley startup, Skype, sovereign wealth fund, Steve Ballmer, Steve Jobs, Steve Wozniak, technological singularity, telemarketer, The Chicago School, The Future of Employment, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, transaction costs, transportation-network company, tulip mania, Tyler Cowen: Great Stagnation, uber lyft, University of East Anglia, unpaid internship, Vanguard fund, Yogi Berra

Yet it is far more than any other owner of GE. The biggest direct holder of floated stock in GE had collected merely 1.9 million shares, which can be compared to Vanguard Group’s 566 million. To know who owns General Electric it is necessary, as a first step, to ask: who owns the Vanguard Group? That turns out to be the wrong question, because the Vanguard Group is not investing its own money. It just represents Vanguard’s different funds, and the company, which pioneered the market for mutual index funds, operates – like other funds – on a principle of diversified allocation of capital. Hence, Vanguard does not necessarily hold GE stocks because it has an idea for how to make a successful company even more successful, despite being an asset manager that is a more active owner than many other asset managers. Vanguard manages assets of almost $3 trillion and invests in a great number of companies.

It is impossible to say, of course, but quite a number of them are not direct savers – they are beneficiaries of employers and others that have invested in pension plans. Even if we took the stairs down to the mezzanine or ground floor of savers, the group would be too large to ask what they want to do with their intermediated ownership of GE. It seems safe to say, however, that they are not putting their savings in Vanguard funds because they want an ownership role in GE. If it is impossible to know the identity of the owners, it is equally impossible to know what the owners want. When companies are principally owned and controlled by owners whose agendas are, at best, arcane, capitalism turns gray. Most people do not acknowledge there is a problem in obscure and gray ownership. The basic rebuttal is that investors simply desire investment returns and if the company cannot generate it investors will leave.


pages: 162 words: 50,108

The Little Book of Hedge Funds by Anthony Scaramucci

Andrei Shleifer, asset allocation, Bernie Madoff, business process, carried interest, corporate raider, Credit Default Swap, diversification, diversified portfolio, Donald Trump, Eugene Fama: efficient market hypothesis, fear of failure, fixed income, follow your passion, Gordon Gekko, high net worth, index fund, John Meriwether, Long Term Capital Management, mail merge, margin call, mass immigration, merger arbitrage, money market fund, Myron Scholes, NetJets, Ponzi scheme, profit motive, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk-adjusted returns, risk/return, Ronald Reagan, Saturday Night Live, Sharpe ratio, short selling, Silicon Valley, Thales and the olive presses, Thales of Miletus, the new new thing, too big to fail, transaction costs, Vanguard fund, Y2K, Yogi Berra, zero-sum game

Scott Frush, Understanding Hedge Funds (New York: McGraw-Hill, 2006). 4. Mark J. P. Anson, The Handbook of Alternative Assets (Hoboken, NJ: John Wiley & Sons, 2006), 123. Chapter One What Is a Hedge Fund? The Traditional Long-Only Portfolio versus the Alternative Hedge Fund Portfolio Hedge funds are generally perceived to be the investment of choice of the rich and the informed, and they are more interesting and fun to discuss than your Vanguard index fund. —Cliff Asness, AQR Capital Management The year was 1989. I had just started working at Goldman Sachs in the world of investment banking—the industry adored by many Ivy League students and business school graduates. A few floors up, legendary research director Lee Cooperman was asked by Goldman Sachs to create a mutual fund and lead the Asset Management Division. This long-only equity mutual fund was called GS Capital Growth.


pages: 372 words: 89,876

The Connected Company by Dave Gray, Thomas Vander Wal

A Pattern Language, Albert Einstein, Amazon Mechanical Turk, Amazon Web Services, Atul Gawande, Berlin Wall, business cycle, business process, call centre, Clayton Christensen, commoditize, complexity theory, creative destruction, David Heinemeier Hansson, disruptive innovation, en.wikipedia.org, factory automation, Googley, index card, industrial cluster, interchangeable parts, inventory management, Jeff Bezos, John Markoff, Kevin Kelly, loose coupling, low cost airline, market design, minimum viable product, more computing power than Apollo, profit maximization, Richard Florida, Ruby on Rails, self-driving car, shareholder value, side project, Silicon Valley, skunkworks, software as a service, South of Market, San Francisco, Steve Jobs, Steven Levy, Stewart Brand, The Wealth of Nations by Adam Smith, Tony Hsieh, Toyota Production System, Vanguard fund, web application, WikiLeaks, Zipcar

Notes for Chapter Four AMERICAN EXPRESS 2011 Global Customer Service Barometer, a research paper prepared for American Express by Echo, http://about.americanexpress.com/news/docs/2011x/AXP_2011_csbar_market.pdf. HATED COMPANIES “The most hated companies, and the most hated industries, are service providers.” From “Banks, Utilities, Telecoms Top Most Hated Companies List,” by Jason Chupick, PRNewser, October 14, 2011, http://www.mediabistro.com/prnewser/banks-utilities-telecoms-top-most-hated-companies-list_b28712. VANGUARD Vanguard Mutual Funds information based on interviews conducted by the author, 2011. Chapter 5. How companies lose touch Your most unhappy customers are your greatest source of learning. — Bill Microsoft Gates Companies tend to lose touch with customers as they grow, for a variety of reasons. Companies must find ways to create, maintain, and develop deep connections as they grow. Why Do Companies Lose Touch?

Think about the information available to Whole Foods employees on demand: they can look up any store on the platform and see the best-selling items in the store. They can rank stores by sales, growth, or profitability. If they want to look for the best cutting-edge practices, they know exactly where to look and whom to talk to. To maintain a shared awareness of customer issues and concerns, Vanguard Mutual Funds collects customer feedback through multiple channels like surveys, focus groups, comments on the website, customers conversations with phone associates, and so on. The customer feedback is aggregated and published to the entire company in a daily email called Voice of the Client (or VOC for short), so everyone can see the actual things that customers are saying, in their own words, on a daily basis.


pages: 537 words: 144,318

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money by Steven Drobny

Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, business process, buy and hold, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, commoditize, Commodity Super-Cycle, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, diversification, diversified portfolio, equity premium, family office, fiat currency, fixed income, follow your passion, full employment, George Santayana, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, invisible hand, Kickstarter, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, market microstructure, moral hazard, Myron Scholes, North Sea oil, open economy, peak oil, pension reform, Ponzi scheme, prediction markets, price discovery process, price stability, private sector deleveraging, profit motive, purchasing power parity, quantitative easing, random walk, reserve currency, risk tolerance, risk-adjusted returns, risk/return, savings glut, selection bias, Sharpe ratio, short selling, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, stocks for the long run, stocks for the long term, survivorship bias, The Great Moderation, Thomas Bayes, time value of money, too big to fail, transaction costs, unbiased observer, value at risk, Vanguard fund, yield curve, zero-sum game

Protégé bet on the performance of five funds-of-hedge funds—specifically, the averaged returns that those vehicles deliver net of all fees, costs, and expenses. Buffett bet on the performance of the Vanguard S&P 500 Admiral Fund. The time frame is January 1, 2008 to December 31, 2017. Each side committed roughly $320,000. The total funds of about $640,000 were used to buy a zero-coupon Treasury bond that will deliver $1 million at the bet’s conclusion, which will be given to charity regardless of who wins. If Protégé wins, the money is to be given to Absolute Return for Kids (ARK), an international philanthropy based in London. If Buffett wins, the intended recipient is Girls Inc. of Omaha. To see more information about the bet, go to www.longbets.org. During the course of 2008, the Vanguard S&P 500 fund was down 37 percent and on average (net of all fees, costs, and expenses) the five funds-of-funds selected by Protégé were down 23.9 percent.

During the course of 2008, the Vanguard S&P 500 fund was down 37 percent and on average (net of all fees, costs, and expenses) the five funds-of-funds selected by Protégé were down 23.9 percent. At year-end 2009, the Vanguard 500 Index Fund’s (VFINX) return was 26.5 percent while the HFRI Fund of Funds Composite Index (a proxy for the five funds-of-hedge-funds) was up 11.2 percent for the year. After two years of performance, the approximate BAV (Bet Asset Value) is: Protégé 84.6; Buffett 79.7. You cannot have it both ways. Either you take an absolute return approach regardless of the market environment, or you just go for efficient beta and be happy with the outcome. I use the former approach when managing my personal money. I have the vast majority of my wealth in my own fund and with other hedge fund managers whom I respect, where I am confident in their ability to make money year in and year out. Some years might be up a lot, while others only up a little, but there is a very high probability that each year will at least be positive.

National Labor Relations Board (NLRB), corporate pension ruling U.S. public/private pension fund assets growth inflation, impact U.S. TIPS (2008-2009) U.S. Treasuries investment purchase worthlessness U.S. Treasury bonds (1987-1988) markets, protest Notes Valuation examination importance Valuation-driven tactical asset allocation models, time frame (increase) Value-at-Risk (VaR) calculation model Value-driven fundamental models, belief Vanguard 500 Index Funds (VFINX) return Vega, limits Venture capital opportunities, cash flow production Vision macro Visualization VIX, Fed funds (relationship) VIX Index (2007-2009) Volatility adjustment collapse dampening explanation usage Volcker, Paul Wages, transmission Washington State Investment Board West Texas Intermediate (WTI) crude World financial system, collapse World Trade Organization (WTO), China entry Wyatt, Watson Wynn, Steve credit bubble, recognition creditworthiness diversification perspective feedback, usage future correlations, usage historical correlations, usage interview lessons macro scenario, preparation money making ability multiple scenarios, tracking psychology, importance risk capital, reduction skill, recognition Swedish bond market, forward market introduction time horizon, alteration volatilities, usage Yale Asset Class, results Yale Endowment Investment Committee long-term investment popularity/usage Yale Model Yale University, endowments annual long-term performance control (Swensen) decline equity returns portfolio composition Yield curves, impact Zero-sum game, alpha extraction (relationship) Zimbabwe hyperinflation inflation/equities (2005-2008) market


pages: 461 words: 128,421

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

activist fund / activist shareholder / activist investor, Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, bank run, beat the dealer, Benoit Mandelbrot, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, discovery of the americas, diversification, diversified portfolio, Edward Glaeser, Edward Thorp, endowment effect, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, market bubble, market design, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, prediction markets, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

Then the magazine that had gotten him into the mutual fund business, Fortune, came through for him with a lengthy article by a recent graduate of the University of Rochester’s Business School, headlined “Index Funds—An Idea Whose Time Is Coming.”39 After that, the money flowed.40 Now it’s possible that the index fund would have been created even in the absence of these writings and of the efficient market hypothesis that helped inspire them. But it’s hard to see how. The work of ivory tower scholars had launched a new school of investing, one that would survive and flourish in the decades to come. It was one of the great practical triumphs in the history of the social sciences. AFTER THE LAUNCH OF THE Vanguard index fund, Paul Samuelson announced in his Newsweek column that he had celebrated the birth of his first grandson by buying the boy a few shares.41 Ben Graham, just before he died in 1976, offered his own endorsement. In a Q&A with Charley Ellis in the Financial Analysts Journal, Graham defended index funds against their detractors on Wall Street and said that, in some matters, he now considered himself “on the side of the ‘efficient market’ school of thought now generally accepted by the professors.”

Years later, as pension funds heeded their consultants’ calls to diversify into new asset classes, many even began investing in the funds of 1980s corporate raiders that had rebranded themselves as “private equity” firms. Unruh died in 1987, but Dale Hanson—hired away from Wisconsin’s state pension fund that year to run Calpers—proved a more than capable successor as a shareholder activist. Hanson saw that his potential allies weren’t just the other pension funds that belonged to the Council of Institutional Investors, but mutual fund companies such as Fidelity and Vanguard. The mutual funds had no interest in waging public battles with the corporations whose 401(k) business they were courting, but their burgeoning size (and in Vanguard’s case, its indexing bent) made it ever harder for them to bail out of underperforming companies. If Hanson wanted to raise a little hell, they weren’t averse to quietly supporting him. It all came to a head during the economic downturn of the early 1990s.


file:///C:/Documents%20and%... by vpavan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, asset allocation, Berlin Wall, business cycle, buttonwood tree, buy and hold, corporate governance, corporate raider, disintermediation, diversification, diversified portfolio, Donald Trump, estate planning, fixed income, index fund, intangible asset, interest rate swap, margin call, money market fund, Myron Scholes, new economy, price discovery process, profit motive, risk tolerance, shareholder value, short selling, Silicon Valley, Small Order Execution System, Steve Jobs, stocks for the long run, stocks for the long term, technology bubble, transaction costs, Vanguard fund, women in the workforce, zero-coupon bond, éminence grise

But that fund portfolio could hold 20 percent of its assets in high-yield bonds, also called junk bonds. One of the collapsed Heartland funds called itself the Heartland Short Duration High-Yield Municipal Bond Fund. Investors may have been fooled by the term "municipal," which to many connotes safety and security. But few of Heartland's bonds were actually guaranteed by the government units that issued them. The Vanguard Short-Term Municipal Bond Fund has a similar name, but is invested in bonds guaranteed by local governments with high ratings. The industry has been engaged in a lengthy debate over whether the SEC should require more frequent disclosure of a fund's portfolio holdings. Currently, funds must reveal holdings twice a year in shareholder reports. At the SEC, I agreed with the industry's point of view that more frequent disclosure would drive up fees and that most shareholders would pay little attention.

Because brokers can choose from among thousands of mutual funds when making client recommendations, fund companies are forced to pay these premiums, especially since payment guarantees them access to a trained retail sales force. But investors are kept in the dark. When their broker recommends a fund, they don't know enough to ask: Are you suggesting this fund because your research shows it's the best investment for me, or because your firm is paid $1 million to push it? If your head is spinning from all of this, take the easiest and safest route and pick a low-cost index fund. Many Vanguard, Fidelity, and TIAA-CREF funds fit the criteria I outlined above. Vanguard, for example, has twenty-one no-load index funds to choose from. Start off with the boring but predictable returns of a broad-based index fund— one that tracks the S&P 500 or, to get exposure to the entire market, the Wilshire 5000— over the more alluring, but volatile, managed funds. Index funds generate less capital gains taxes and also charge lower fees and expenses.


pages: 288 words: 16,556

Finance and the Good Society by Robert J. Shiller

Alvin Roth, bank run, banking crisis, barriers to entry, Bernie Madoff, buy and hold, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, cognitive dissonance, collateralized debt obligation, collective bargaining, computer age, corporate governance, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Donald Trump, Edward Glaeser, eurozone crisis, experimental economics, financial innovation, financial thriller, fixed income, full employment, fundamental attribution error, George Akerlof, income inequality, information asymmetry, invisible hand, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, land reform, loss aversion, Louis Bachelier, Mahatma Gandhi, Mark Zuckerberg, market bubble, market design, means of production, microcredit, moral hazard, mortgage debt, Myron Scholes, Nelson Mandela, Occupy movement, passive investing, Ponzi scheme, prediction markets, profit maximization, quantitative easing, random walk, regulatory arbitrage, Richard Thaler, Right to Buy, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, selection bias, self-driving car, shareholder value, Sharpe ratio, short selling, Simon Kuznets, Skype, Steven Pinker, telemarketer, Thales and the olive presses, Thales of Miletus, The Market for Lemons, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, Vanguard fund, young professional, zero-sum game, Zipcar

But it is perhaps not necessary for governments to put any caps on the salaries that investment managers earn, for the market forces needed to bring them down may already be in place. If we are seeing the bursting of a bubble in investment manager compensation, we may see relatively lean times in coming years for people in this line of business. Anyone contemplating going into this line of work must take such considerations into mind. In his book Enough! True Measures of Money, Business, and Life, the founder of the Vanguard Funds, John C. Bogle, laments that many in the nancial community are milking society based on their false hopes of extraordinary pro ts. There must be some element of truth here, but the true magnitude of this “milking” is hard to pin down, as Bogle himself recognizes: “I know of not one academic study that has systematically attempted to calculate the value extracted by our nancial system from the returns earned by investors.”13 It will be just as hard to measure the bene t that the nancial community provides in improving the allocation of resources and incentives to achieve business success.


pages: 511 words: 132,682

Competition Overdose: How Free Market Mythology Transformed Us From Citizen Kings to Market Servants by Maurice E. Stucke, Ariel Ezrachi

affirmative action, Airbnb, Albert Einstein, Andrei Shleifer, Bernie Sanders, Boeing 737 MAX, Cass Sunstein, choice architecture, cloud computing, commoditize, corporate governance, Corrections Corporation of America, Credit Default Swap, crony capitalism, delayed gratification, Donald Trump, en.wikipedia.org, George Akerlof, gig economy, Goldman Sachs: Vampire Squid, Google Chrome, greed is good, hedonic treadmill, income inequality, income per capita, information asymmetry, invisible hand, job satisfaction, labor-force participation, late fees, loss aversion, low skilled workers, Lyft, mandatory minimum, Mark Zuckerberg, market fundamentalism, mass incarceration, Menlo Park, meta analysis, meta-analysis, Milgram experiment, mortgage debt, Network effects, out of africa, payday loans, Ponzi scheme, precariat, price anchoring, price discrimination, profit maximization, profit motive, race to the bottom, Richard Thaler, ride hailing / ride sharing, Robert Bork, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Shoshana Zuboff, Silicon Valley, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Stanford prison experiment, Stephen Hawking, The Chicago School, The Market for Lemons, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Davenport, Thorstein Veblen, Tim Cook: Apple, too big to fail, transaction costs, Uber and Lyft, uber lyft, ultimatum game, Vanguard fund, winner-take-all economy

Davenport, “The Anti-Goldman Culture,” Harvard Business Review, March 15, 2012, https://hbr.org/2012/03/the-anti-goldman-culture. 44.Liz Hoffman, “How Banks Lost the Battle for Power on Wall Street,” Wall Street Journal, September 7, 2018, https://www.wsj.com/articles/how-banks-lost-the-battle-for-power-on-wall-street-1536312634; Vanguard in the first seven months of 2017 attracted over $177.3 billion in investments, which was about as much as its ten closest competitors—combined. And the biggest losers were Goldman Sachs and the other scandal-ridden banks that lost their social purpose, like JPMorgan Chase & Co. and Wells Fargo & Co. Ryan Vlastelica, “Investors Flock to Vanguard Funds, Dump Goldman, Wells Fargo, and Others,” MarketWatch, July 12, 2017, https://on.mktw.net/2OomPvp. 45.One important foundation of this literature is the shared value initiative, led by Harvard Business Professor Michael Porter. https://www.sharedvalue.org/partners/thought-leaders/michael-e-porter. 46.Harvard Business Review Analytic Services, The Business Case for Purpose (2015), 1, https://hbr.org/resources/pdfs/comm/ey/19392HBRReportEY.pdf.


pages: 417 words: 97,577

The Myth of Capitalism: Monopolies and the Death of Competition by Jonathan Tepper

Affordable Care Act / Obamacare, air freight, Airbnb, airline deregulation, bank run, barriers to entry, Berlin Wall, Bernie Sanders, big-box store, Bob Noyce, business cycle, Capital in the Twenty-First Century by Thomas Piketty, citizen journalism, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, computer age, corporate raider, creative destruction, Credit Default Swap, crony capitalism, diversification, don't be evil, Donald Trump, Double Irish / Dutch Sandwich, Edward Snowden, Elon Musk, en.wikipedia.org, eurozone crisis, Fall of the Berlin Wall, family office, financial innovation, full employment, German hyperinflation, gig economy, Gini coefficient, Goldman Sachs: Vampire Squid, Google bus, Google Chrome, Gordon Gekko, income inequality, index fund, Innovator's Dilemma, intangible asset, invisible hand, Jeff Bezos, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, late capitalism, London Interbank Offered Rate, low skilled workers, Mark Zuckerberg, Martin Wolf, means of production, merger arbitrage, Metcalfe's law, multi-sided market, mutually assured destruction, Nash equilibrium, Network effects, new economy, Northern Rock, offshore financial centre, passive investing, patent troll, Peter Thiel, plutocrats, Plutocrats, prediction markets, prisoner's dilemma, race to the bottom, rent-seeking, road to serfdom, Robert Bork, Ronald Reagan, Sam Peltzman, secular stagnation, shareholder value, Silicon Valley, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, undersea cable, Vanguard fund, very high income, wikimedia commons, William Shockley: the traitorous eight, zero-sum game

Einer Elhauge, “Horizontal Shareholding,” Harvard Law Review 129 (March 10, 2016), http://www.antitrustinstitute.org/sites/default/files/Elhauge.pdf. 11. https://www.forbes.com/sites/christinenegroni/2017/11/28/airlines-on-track-to-nickel-and-dime-travelers-for-record-82b-in-extra-fees-in-2017-study-says/#3e03d00b4792. 12. José Azar, Martin Schmalz, and Isabel Tecu, “Why Common Ownership Creates Antitrust Risks,” CPI Antitrust Chronicle (June 2017). 13. Ibid. 14. https://www.forbes.com/sites/laurengensler/2017/02/25/warren-buffett-annual-letter-2016-passive-active-investing/#1bae82286bbd. 15. https://www.theatlas.com/charts/S1lPjxkM-. 16. https://www.nytimes.com/2017/04/14/business/mutfund/vanguard-mutual-index-funds-growth.html. 17. https://www.theatlantic.com/magazine/archive/2017/09/are-index-funds-evil/534183/?utm_source=twb. 18. National Bureau of Economic Research, “Explaining Low Investment Spending,” http://www.nber.org/digest/feb17/w22897.html. 19. https://www.theatlantic.com/business/archive/2017/06/how-companies-decide-ceo-pay/530127/. 20. https://www.mercurynews.com/2018/05/07/butler-who-do-stock-buy-backs-leave-behind/. 21. https://www.bloomberg.com/gadfly/articles/2018-03-05/five-charts-that-show-where-those-corporate-tax-savings-are-going. 22. https://www.brookings.edu/wp-content/uploads/2016/06/lazonick.pdf. 23.


pages: 209 words: 53,175

The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by Morgan Housel

"side hustle", airport security, Amazon Web Services, Bernie Madoff, business cycle, computer age, coronavirus, discounted cash flows, diversification, diversified portfolio, Donald Trump, financial independence, Hans Rosling, Hyman Minsky, income inequality, index fund, invisible hand, Isaac Newton, Jeff Bezos, Joseph Schumpeter, knowledge worker, labor-force participation, Long Term Capital Management, margin call, Mark Zuckerberg, new economy, Paul Graham, payday loans, Ponzi scheme, quantitative easing, Renaissance Technologies, Richard Feynman, risk tolerance, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Stephen Hawking, Steven Levy, stocks for the long run, the scientific method, traffic fines, Vanguard fund, working-age population

But this is what works for us. We invest money from every paycheck into these index funds—a combination of U.S. and international stocks. There’s no set goal—it’s just whatever is leftover after we spend. We max out retirement accounts in the same funds, and contribute to our kids’ 529 college savings plans. And that’s about it. Effectively all of our net worth is a house, a checking account, and some Vanguard index funds. It doesn’t need to be more complicated than that for us. I like it simple. One of my deeply held investing beliefs is that there is little correlation between investment effort and investment results. The reason is because the world is driven by tails—a few variables account for the majority of returns. No matter how hard you try at investing you won’t do well if you miss the two or three things that move the needle in your strategy.


Hedgehogging by Barton Biggs

activist fund / activist shareholder / activist investor, asset allocation, backtesting, barriers to entry, Bretton Woods, British Empire, business cycle, buy and hold, diversification, diversified portfolio, Elliott wave, family office, financial independence, fixed income, full employment, hiring and firing, index fund, Isaac Newton, job satisfaction, margin call, market bubble, Mikhail Gorbachev, new economy, oil shale / tar sands, paradox of thrift, Paul Samuelson, Ponzi scheme, random walk, Ronald Reagan, secular stagnation, Sharpe ratio, short selling, Silicon Valley, transaction costs, upwardly mobile, value at risk, Vanguard fund, zero-sum game, éminence grise

However, let’s say you are retired, have $25 million of financial assets, and a working familiarity with investing.You figure that you need an income after taxes of between $400,000 and $500,000 a year to live in the style you’re accustomed to, and you have $150,000 of other income from your pension, social security, and so forth. So you put $5 million into a portfolio of high-grade, medium-term tax exempts, which gives you roughly $225,000. I would buy $2 million ($85,000 of pretax income) of 10-year Treasury bonds as a strategic reserve. Then, with the remaining $18 million, I would buy $5 to $7 million of Vanguard index equity funds.The remaining $10 to $13 million should go to either 5 to 10 hedge funds (if you can identify and follow that number) or a couple of funds of funds. The idea is bonds for income, equities for growth, and hedge funds for all seasons. Obviously, this is a simplistic model, and a lot depends on your level of income, expertise, and the competence of your financial adviser. Sam also has a good perspective of what is going on in the hedgefund industry.

Instead, right now in mid-2005, large caps are relatively attractive compared to small caps, and large-cap growth is relatively undervalued compared to large-cap value. The Leuthold large-cap growth index of 90 companies is selling at 20.5 times earnings and the Leuthold value index is at 11.9 times, which is a growth to value price earnings ratio of 1.68 versus the historical median of 2.5. For IRAs the Vanguard index funds make sense to me. Sure, you can capture alpha, extra return, if you identify a winner mutual fund, but you are bucking a number of headwinds in terms of higher costs, performance cycles, manager turnover, and so on. When the time comes and small value is cheap again, Vanguard has a Small-Cap Value Index Fund.The stock selection is based on the MSCI Index, which, in making its selection, uses eight value and growth factors including price/book value, dividend yield, earnings yield, sales growth, and longterm-earnings growth.


pages: 497 words: 124,144

Red Moon Rising by Matthew Brzezinski

Albert Einstein, anti-communist, Columbine, cuban missile crisis, Kitchen Debate, RAND corporation, Ronald Reagan, skunkworks, trade route, Vanguard fund, walking around money, white picket fence

Medaris responded in the petty spirit of interservice rivalry: “So I also closed the door and told our people to give the Air Force no information on our satellite plans.” It was juvenile and “preposterous,” he admitted in retrospect, but he couldn’t help himself. Unbeknownst to Medaris, there was a reason for the newfound secrecy; a third party also coveted the WS-117L: the CIA. Richard Bissell had been eyeing the project ever since he had started searching for a replacement for the U-2. He had helped fund Vanguard from his slush fund and tried to covertly buy the Itek Corporation, an optical research laboratory in Boston, which was working on recoverable cameras that could operate from outer space. In the summer of 1957, Bissell, Edwin Land, and James Killian had begun hatching a scheme with Schriever for the CIA to assume direct control over spy satellites, as it had done with spy planes. Schriever was amenable because his missiles would be used to launch the CIA satellites, and he could still play a significant role in the operation.

Eisenhower Library, Abilene, Kansas, at http://www.history.nasa.gov/sputnik/iik4.html. 227 “piece by rotten piece”: Stehling, Project Vanguard, p. 119. 227 There were moisture problems, poorly located pressure indicator lines, unsoldered wire connections, corroded and leaky fittings: Ibid., pp. 109-11. “What! You want to put a ball in that rocket?”: Ibid., pp. 87-88. “We’re never going to make it”: Green and Lomask, Vanguard, p. 131. 228 “an unaccepted, incompletely developed vehicle”: Ibid., p. 177. “An astonishing piece of stupidity”: Time, October 21, 1957. the Stewart Committee had been “prejudiced”: Stehling, Project Vanguard, p. 60. 229 “the funds estimated by Secretary Quarles were totally inadequate”: Witkin, ed., The Challenge of the Sputniks, p. 21. Wilson interviewed by Mike Wallace: Ibid., p. 47. “Implicit in all the criticism”: Ambrose, Eisenhower, p. 457. a crack team of Wall Street lawyers: Robert A. Caro, Master of the Senate: The Years of Lyndon Johnson (New York: Alfred A. Knopf, 2002), p. 1022. 230 “He never asked the head of my organization”: Eilene Galloway, NASA Oral History transcript, at http://www.jsc.nasa.gov/history/oral_histories/NASA_HQ/Herstory/GallowayE/EG_8-7-00.pdf.


pages: 274 words: 93,758

Phishing for Phools: The Economics of Manipulation and Deception by George A. Akerlof, Robert J. Shiller, Stanley B Resor Professor Of Economics Robert J Shiller

"Robert Solow", Andrei Shleifer, asset-backed security, Bernie Madoff, business cycle, Capital in the Twenty-First Century by Thomas Piketty, collapse of Lehman Brothers, corporate raider, Credit Default Swap, Daniel Kahneman / Amos Tversky, dark matter, David Brooks, desegregation, en.wikipedia.org, endowment effect, equity premium, financial intermediation, financial thriller, fixed income, full employment, George Akerlof, greed is good, income per capita, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, late fees, loss aversion, market bubble, Menlo Park, mental accounting, Milgram experiment, money market fund, moral hazard, new economy, Pareto efficiency, Paul Samuelson, payday loans, Ponzi scheme, profit motive, publication bias, Ralph Nader, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, short selling, Silicon Valley, the new new thing, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, too big to fail, transaction costs, Unsafe at Any Speed, Upton Sinclair, Vanguard fund, Vilfredo Pareto, wage slave

Halah Touryalai, “10 Wall Street Expenses That Make the SEC’s Budget Look Pathetic,” Forbes, February 17, 2011, accessed January 16, 2015, http://www.forbes.com/fdc/welcome_mjx.shtml. The same can be said of Citigroup’s expenditures for marketing and advertising: larger than the whole SEC budget. 19. Vanguard, “See the Difference Low-Cost Mutual Funds Can Make,” accessed January 7, 2015, https://investor.vanguard.com/mutual-funds/low-cost. 20. Edward Wyatt, “Judge Blocks Citigroup Settlement With S.E.C.,” New York Times, November 28, 2011, accessed June 10, 2015, http://www.nytimes.com/2011/11/29/business/judge-rejects-sec-accord-with-citi.html?pagewanted=all. 21. Jed S. Rakoff, “The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?” New York Review of Books, January 9, 2014. 22. Harry Markopolos, No One Would Listen: A True Financial Thriller (Hoboken, NJ: Wiley, 2010), Kindle location 587. 23.

Cambridge, MA: Harvard University Press, 2012. van Amsterdam, Jan, A. Opperhuizen, M. Koeter, and Willem van den Brink. “Ranking the Harm of Alcohol, Tobacco and Illicit Drugs for the Individual and the Population.” European Addiction Research 16 (2010): 202–7. DOI:10.1159/000317249. Vanguard. “See the Difference Low-Cost Mutual Funds Can Make.” Accessed January 7, 2015. https://investor.vanguard.com/mutual-funds/low-cost. Veblen, Thorstein. The Theory of the Leisure Class: An Economic Study of the Evolution of Institutions. New York: Macmillan, 1899. Velotta, Richard N. “Gaming Commission Rejects Slot Machines at Cash Registers.” Las Vegas Sun, March 18, 2010. Last accessed May 12, 2015. http://lasvegassun.com/news/2010/mar/18/gaming-commission-rejects-slot-machines-cash-regis/?utm_source=twitterfeed&utm_medium=twitter.


pages: 375 words: 105,067

Pound Foolish: Exposing the Dark Side of the Personal Finance Industry by Helaine Olen

American ideology, asset allocation, Bernie Madoff, buy and hold, Cass Sunstein, Credit Default Swap, David Brooks, delayed gratification, diversification, diversified portfolio, Donald Trump, Elliott wave, en.wikipedia.org, estate planning, financial innovation, Flash crash, game design, greed is good, high net worth, impulse control, income inequality, index fund, London Whale, longitudinal study, Mark Zuckerberg, money market fund, mortgage debt, oil shock, payday loans, pension reform, Ponzi scheme, post-work, quantitative easing, Ralph Nader, RAND corporation, random walk, Richard Thaler, Ronald Reagan, Saturday Night Live, Stanford marshmallow experiment, stocks for the long run, too big to fail, transaction costs, Unsafe at Any Speed, upwardly mobile, Vanguard fund, wage slave, women in the workforce, working poor, éminence grise

Over the years Quinn made numerous enemies, ranging from brokers to heads of mutual fund companies, for relentlessly putting the financial interests of the consumer ahead of the financial interests of the financial services industry. Quinn sees herself as both a part of the consumer movement and the personal finance and investment communities. She names as her contemporaries such financial pioneers as Bruce Bent, the creator of the now ubiquitous money market fund, and John Bogle, the force behind Vanguard’s low-cost index funds. Yet a look at Quinn’s work demonstrates both the promise and the perils of the financial advice arena. A quick run through the many, many profiles of her penned over the years shows howlers mixed in with the prescient comments, sometimes in the same piece, proving how hard it is to get this forecasting thing right. In a USA Today interview in 1991, for example, she opines “You can no longer count on your real estate to make you rich,” a statement that was objectively untrue, at least at that time.


pages: 232 words: 71,965

Dead Companies Walking by Scott Fearon

bank run, Bernie Madoff, business cycle, corporate raider, creative destruction, crony capitalism, Donald Trump, Eugene Fama: efficient market hypothesis, fear of failure, Golden Gate Park, hiring and firing, housing crisis, index fund, Jeff Bezos, Joseph Schumpeter, late fees, McMansion, moral hazard, new economy, pets.com, Ponzi scheme, Ronald Reagan, short selling, Silicon Valley, Snapchat, South of Market, San Francisco, Steve Jobs, survivorship bias, Upton Sinclair, Vanguard fund, young professional

And it’s not just me saying this. The numbers back me up. The great author and investor John Bogle—who invented the passive index fund back in the 1970s—examined the average returns of equity mutual funds from 1983 to 2003. A dollar invested in those kinds of funds in the early 1980s netted just $7.10 in profits twenty years later. Over the same period, a dollar invested in the S&P 500 index, which Bogle’s Vanguard 500 Fund tracks, would have brought in over $11.50.§ Think about those numbers for a second. The overseers of the Vanguard 500 merely invest in all the stocks of the S&P 500. Compare that to your average mutual fund, where you’ve got highly paid professional investors buying and selling individual stocks all day, every day. (And when I say highly paid, I mean it. Bogle has calculated the total fees and commissions reaped by the financial industry at more than $500 billion a year.)


pages: 415 words: 125,089

Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein

"Robert Solow", Albert Einstein, Alvin Roth, Andrew Wiles, Antoine Gombaud: Chevalier de Méré, Bayesian statistics, Big bang: deregulation of the City of London, Bretton Woods, business cycle, buttonwood tree, buy and hold, capital asset pricing model, cognitive dissonance, computerized trading, Daniel Kahneman / Amos Tversky, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Lloyd's coffeehouse, endowment effect, experimental economics, fear of failure, Fellow of the Royal Society, Fermat's Last Theorem, financial deregulation, financial innovation, full employment, index fund, invention of movable type, Isaac Newton, John Nash: game theory, John von Neumann, Kenneth Arrow, linear programming, loss aversion, Louis Bachelier, mental accounting, moral hazard, Myron Scholes, Nash equilibrium, Norman Macrae, Paul Samuelson, Philip Mirowski, probability theory / Blaise Pascal / Pierre de Fermat, random walk, Richard Thaler, Robert Shiller, Robert Shiller, spectrum auction, statistical model, stocks for the long run, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thomas Bayes, trade route, transaction costs, tulip mania, Vanguard fund, zero-sum game

Today's hero is often tomorrow's blockhead. Over the long run, active investment managers-investors who purport to be stock-pickers and whose portfolios differ in composition from the market as a whole-seem to lag behind market indexes like the S&P 500 or even broader indexes like the Wilshire 5000 or the Russell 3000. Over the past decade, for example, 78% of all actively managed equity funds underperformed the Vanguard Index 500 mutual fund, which tracks the unmanaged S&P 500 Composite; the data for earlier periods are not as clean, but the S&P has been a consistent winner over long periods of time. There is nothing new about this pattern. In 1933, Alfred Cowles, a wealthy investor and a brilliant amateur scholar, published a study covering a large number of printed financial services as well as every purchase and sale made over four years by twenty leading fire insurance companies.

*Kahneman has described his introduction to experimentation when one of his professors told the story of a child being offered the choice between a small lollipop today or a larger lollipop tomorrow. The child's response to this simple question correlated with critical aspects of the child's life, such as family income, one or two parents present, and degree of trust. *An excellent review of this matter appears in "The Triumph of Indexing," a booklet published by the Vanguard Group of mutual funds in May 1995. This controversial subject receives more detailed treatment later in this chapter. *In a speech to the National Association of Realtors in May 1995, none other than the Chairman of the Federal Reserve Board, Alan Greenspan, confirmed the piggy bank metaphor: "It is hard to overestimate the importance of house price trends for consumer psyches and behavior.... Consumers view their home equity as a cushion or security blanket against the possibility of future hard times."


pages: 716 words: 192,143

The Enlightened Capitalists by James O'Toole

activist fund / activist shareholder / activist investor, anti-communist, Ayatollah Khomeini, Bernie Madoff, British Empire, business cycle, business process, California gold rush, carbon footprint, City Beautiful movement, collective bargaining, corporate governance, corporate social responsibility, Credit Default Swap, crowdsourcing, cryptocurrency, desegregation, Donald Trump, double entry bookkeeping, end world poverty, equal pay for equal work, Frederick Winslow Taylor, full employment, garden city movement, germ theory of disease, glass ceiling, God and Mammon, greed is good, hiring and firing, income inequality, indoor plumbing, inventory management, invisible hand, James Hargreaves, job satisfaction, joint-stock company, Kickstarter, knowledge worker, Lao Tzu, longitudinal study, Louis Pasteur, Lyft, means of production, Menlo Park, North Sea oil, passive investing, Ponzi scheme, profit maximization, profit motive, Ralph Waldo Emerson, rolodex, Ronald Reagan, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, Socratic dialogue, sovereign wealth fund, spinning jenny, Steve Jobs, Steve Wozniak, stocks for the long run, stocks for the long term, The Fortune at the Bottom of the Pyramid, The Wealth of Nations by Adam Smith, Tim Cook: Apple, traveling salesman, Uber and Lyft, uber lyft, union organizing, Vanguard fund, white flight, women in the workforce, young professional

When giant businesses are seen as behaving ethically, responsibly, and in the public interest, the citizenry tends to be satisfied that the system of corporate capitalism is fair. But when corporate behavior is perceived as rapacious, narrowly self-interested, and insensitive to the needs of society, those citizens may demand radical changes to the system. The threat of radical change may be what led CEOs attending the 2018 Davos meeting into earnest discussion about social responsibility. There, the chairman of Wall Street’s Vanguard investment fund, Bill McNabb, called on his fellow executives to end their obsession with short-term profits and instead focus on addressing such major social problems as climate change and employee well-being. This came fast on the heels of a similar plea by Larry Fink, CEO of $6 trillion investment fund BlackRock, who had recently declared that “society is demanding that companies, both public and private, serve a social purpose . . . and benefit all their stakeholders.”

Union Carbide, 173 United Airlines, 290–91, 411–12 United Auto Workers, 108 United Garment Workers of America (UGWA), 181 United Kingdom (UK) bathing habits and Lever, 51, 53 Bolton, 52, 56–57, 64 Brexit, 446 “British disease,” 215 changes to economic order proposed, xv chief executive salaries in, 469 child labor in, 22, 23 chocolate makers, 84 contingent workforces and virtual workplaces in, 474–75, 477 cooperative movement, 29, 415, 417, 418 corporate capitalism and profit primacy in, 438 effect of industrialization in, 4 eighteenth century working conditions, 8 exporting cloth, 4–5 finance and banking, public concern about misbehavior in, 467 Financial Reporting Council, 462 gender pay inequity and, 469 global warming concerns and enlightened business practices, 432 history of textile mills in, 3–4 John Lewis Partnership among largest retail chains, 120 labor unrest (1960s), 129 Manchester, 5, 6, 8–10, 11, 208 Marks & Spencer as dominant retailer, 211 middle class growth in, 432 no demand for socially responsible companies, 427 old-age pensions law, 59 social entrepreneurship and, 456 socialized medicine, 212 Stewardship Code, 462 tabloids, 61 welfare-state and, 129 See also Lewis, John Spedan; Lever, William; Owen, Robert; Roddick, Anita United States contingent workforces and virtual workplaces in, 473–75, 477 corporate capitalism and profit primacy in, 438 declines in productivity and job satisfaction, 476 Dodd-Frank legislation, 462 finance and banking, public concern about misbehavior in, 467 first stock exchanges, 47 Gilded Age, 31 global warming concerns and enlightened business practices, 432 large manufacturing facilities encouraged by Hamilton, 3–4 largest retail business, 41 middle class growth in, 432 new cooperatives in, 419 no demand for socially responsible companies, 427 public disclosure of top executive compensation required, 469 rioting in 1877 against capitalist practices, 31 social entrepreneurship and, 456 tax legislation prohibiting industrial foundations, 434–35 See also specific companies Universal Pictures, 473, 474 University of California Berkeley, 194 Hass School of Business, 182 Levi Strauss scholarships, 178, 182 “unmanagement,” 298–99, 304 UPS, 409–10 Up the Organization (Townsend), 279–80, 283, 285, 286, 287 US Steel, xxx, 249, 265 utilitarianism, 21, 27 utopian communities Google Alphabet’s Quayside, 450–51 Hershey and, 79 Owen’s New Harmony, 27–28, 44 Owen’s “villages of co-operation,” 26 Penney’s Penney Farms, 44–45 See also living conditions of workers Vagelos, Roy, 334–41, 427, 428, 436, 477 accomplishments, 341 background and personal life, 335 cure for river blindness and, 335–38, 339 decision to sell vaccine patent to China, 338 legacy of, 340–41 Merck and ethical business practices, 335–39 Merck retirement, 338–39 opposition to giving away Mectizan, 337 philanthropy of, 341 Regeneron Pharmaceuticals and, 341 Vanderbuilt, Cornelius, xxxiii Vandevelde, Luc, 221 Vanguard investment fund, xiv, 461 Victoria, Queen, 20 Vogel, David, 308, 429 “Two and a Half Cheers for Conscious Capitalism,” 454, 455–56 Volkswagen, 173, 429 Waddock, Sandra, 373–74 wages ACIPCO and, 138, 139 Avis and, 281 Ben & Jerry’s and, 384 British textile mills, 5 Carnegie’s philosophy on paying the minimum, xxxiii executive-employee wage gap, 469–72 Ford’s $5 a day, xxviii, 20, 113 Herman Miller and, 228–29, 232, 234 “iron law” of, 21 J&J and, 149–50, 157 labor costs vs. total labor costs and, 290–91 Levi Strauss and, 190 Lincoln Electric, 94–95, 98, 99–101 link between compensation and perception of fairness, 471 living wages, 85, 138, 139, 150, 154, 157, 401 Nucor, average yearly, 276 Owen’s philosophy and, 20, 21 Patagonia and, 401 proven methods of equitable compensation, 472 Scanlon plan, 228–29, 234, 472 SWA and, 290–91 well-paid workers and productivity, 157, 290–91 W.


Principles of Corporate Finance by Richard A. Brealey, Stewart C. Myers, Franklin Allen

3Com Palm IPO, accounting loophole / creative accounting, Airbus A320, Asian financial crisis, asset allocation, asset-backed security, banking crisis, Bernie Madoff, big-box store, Black-Scholes formula, break the buck, Brownian motion, business cycle, buy and hold, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, carried interest, collateralized debt obligation, compound rate of return, computerized trading, conceptual framework, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-subsidies, discounted cash flows, disintermediation, diversified portfolio, equity premium, eurozone crisis, financial innovation, financial intermediation, fixed income, frictionless, fudge factor, German hyperinflation, implied volatility, index fund, information asymmetry, intangible asset, interest rate swap, inventory management, Iridium satellite, Kenneth Rogoff, law of one price, linear programming, Livingstone, I presume, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, market bubble, market friction, money market fund, moral hazard, Myron Scholes, new economy, Nick Leeson, Northern Rock, offshore financial centre, Ponzi scheme, prediction markets, price discrimination, principal–agent problem, profit maximization, purchasing power parity, QR code, quantitative trading / quantitative finance, random walk, Real Time Gross Settlement, risk tolerance, risk/return, Robert Shiller, Robert Shiller, shareholder value, Sharpe ratio, short selling, Silicon Valley, Skype, Steve Jobs, The Nature of the Firm, the payments system, the rule of 72, time value of money, too big to fail, transaction costs, University of East Anglia, urban renewal, VA Linux, value at risk, Vanguard fund, yield curve, zero-coupon bond, zero-sum game, Zipcar

See also Black-Scholes option pricing model warrant, 549–550 Valuation horizon, 94–95, 96, 485–487 Value additivity, 430, 881–882 conglomerate mergers and, 833–835 defined, 182 diversification and, 182 economic value added (EVA), 305–307, 725–726 Value at risk (VA), 601–602 Value Line, 85n Value maximization agency problem in, 12 as goal of corporation, 7–12, 16–17, 245–266 Value stocks, 203–204 Van Dijk, M. A., 330n Vanguard 500 Index Fund, 327–328 Vanguard Index Funds, 327–328, 361 Vanguard Total Stock Market index, 361 Variability, measuring, 170–171 Variable-rate demand notes (VRDNs), 795, 796 Variance defined, 167–168 in measuring portfolio risk, 167–170 portfolio, 167–170, 171–174 in portfolio theory, 193n Venture capital, 371–375, 377 market for, 373–375 stages of financing, 371–373 Vermaelen, T., 405n Veronesi, P., 383n Vertical mergers, 807, 809–810 Viacom, 387, 827 Viasys Health Care, 844 Villalonga, B., 849n Virgin Atlantic, 226 Virgin Group, 226 Vishny, R.

BEYOND THE PAGE ● ● ● ● ● Mutual fund cumulative returns brealey.mhhe.com/c13 BEYOND THE PAGE ● ● ● ● ● Mutual fund performance brealey.mhhe.com/c13 The evidence on efficient markets has convinced many professional and individual investors to give up pursuit of superior performance. They simply “buy the index,” which maximizes diversification and cuts costs to the bone. Individual investors can buy index funds, which are mutual funds that track stock market indexes. There is no active management, so costs are very low. For example, management fees for the Vanguard 500 Index Fund, which tracks the S&P 500 Index, were .17% per year in 2011 (.06% per year for investments over $10,000). The size of this fund was $102 billion. How far could indexing go? Not to 100%: If all investors hold index funds then nobody will be collecting information and prices will not respond to new information when it arrives. An efficient market needs some smart investors who gather information and attempt to profit from it.

In contrast, a closed-end fund has a fixed number of shares that are traded on an exchange. If you want to invest in a closed-end fund, you cannot buy new shares from the fund; you must buy existing shares from another stockholder in the fund. BEYOND THE PAGE ● ● ● ● ● Exchange traded funds brealey.mhhe.com/c14 If you simply want low-cost diversification, one option is to buy a mutual fund that invests in all the stocks in a stock market index. For example, the Vanguard Index Fund holds all the stocks in the Standard & Poor’s Composite Index. An alternative is to invest in an exchange traded fund, or ETF, which is a portfolio of stocks that can be bought or sold in a single trade. These include Standard & Poor’s Depository Receipts (SPDRs, or “spiders”), which are portfolios matching Standard & Poor’s stock market indexes. You can also buy DIAMONDS, which track the Dow Jones Industrial Average; QUBES or QQQs, which track the Nasdaq 100 index; and Vanguard ETFs that track the Vanguard Total Stock Market index, which is a basket of almost all of the stocks traded in the United States.


pages: 265 words: 93,231

The Big Short: Inside the Doomsday Machine by Michael Lewis

Asperger Syndrome, asset-backed security, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, facts on the ground, financial innovation, fixed income, forensic accounting, Gordon Gekko, high net worth, housing crisis, illegal immigration, income inequality, index fund, interest rate swap, John Meriwether, London Interbank Offered Rate, Long Term Capital Management, medical residency, money market fund, moral hazard, mortgage debt, pets.com, Ponzi scheme, Potemkin village, quantitative trading / quantitative finance, Robert Bork, short selling, Silicon Valley, the new new thing, too big to fail, value at risk, Vanguard fund, zero-sum game

And we're not the only ones watching it." Mike Burry couldn't see exactly who was following his financial moves, but he could tell which domains they came from. In the beginning his readers came from EarthLink and AOL. Just random individuals. Pretty soon, however, they weren't. People were coming to his site from mutual funds like Fidelity and big Wall Street investment banks like Morgan Stanley. One day he lit into Vanguard's index funds and almost instantly received a cease and desist order from Vanguard's attorneys. Burry suspected that serious investors might even be acting on his blog posts, but he had no clear idea who they might be. "The market found him," says the Philadelphia mutual fund manager. "He was recognizing patterns no one else was seeing." By the time Burry moved to Stanford Hospital in 1998 to take up his residency in neurology, the work he had done between midnight and three in the morning had made him a minor but meaningful hub in the land of value investing.


pages: 346 words: 89,180

Capitalism Without Capital: The Rise of the Intangible Economy by Jonathan Haskel, Stian Westlake

"Robert Solow", 23andMe, activist fund / activist shareholder / activist investor, Airbnb, Albert Einstein, Andrei Shleifer, bank run, banking crisis, Bernie Sanders, business climate, business process, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, cloud computing, cognitive bias, computer age, corporate governance, corporate raider, correlation does not imply causation, creative destruction, dark matter, Diane Coyle, Donald Trump, Douglas Engelbart, Douglas Engelbart, Edward Glaeser, Elon Musk, endogenous growth, Erik Brynjolfsson, everywhere but in the productivity statistics, Fellow of the Royal Society, financial innovation, full employment, fundamental attribution error, future of work, Gini coefficient, Hernando de Soto, hiring and firing, income inequality, index card, indoor plumbing, intangible asset, Internet of things, Jane Jacobs, Jaron Lanier, job automation, Kenneth Arrow, Kickstarter, knowledge economy, knowledge worker, laissez-faire capitalism, liquidity trap, low skilled workers, Marc Andreessen, Mother of all demos, Network effects, new economy, open economy, patent troll, paypal mafia, Peter Thiel, pets.com, place-making, post-industrial society, Productivity paradox, quantitative hedge fund, rent-seeking, revision control, Richard Florida, ride hailing / ride sharing, Robert Gordon, Ronald Coase, Sand Hill Road, Second Machine Age, secular stagnation, self-driving car, shareholder value, sharing economy, Silicon Valley, six sigma, Skype, software patent, sovereign wealth fund, spinning jenny, Steve Jobs, survivorship bias, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, total factor productivity, Tyler Cowen: Great Stagnation, urban planning, Vanguard fund, walkable city, X Prize, zero-sum game

One of the odd things about venture capital is the persistence of strong performance among funds—that is to say, the fact that the best 25 percent of venture capital funds tend to be the same funds, year after year and even decade after decade. This is far from usual in financial markets. A recent UK study found in the mutual fund industry that the best-performing 20 percent of fund managers were among the worst performing 20 percent a year later (Vanguard 2015). Private equity funds show similar variability over time. But high-performing VC firms tend to do well in fund after fund year after year. One might think this is because venture capitalists are professional, highly remunerated people who are good at picking investments or at sitting on company boards. But then again, the people who run mutual fund businesses and private equity funds are professional and highly paid too, and the superior performance of these funds does not persist.

Bank of England Staff Working Paper, No. 564. http://www.bankofengland.co.uk/research/Pages/workingpapers/2015/swp564.aspx. Triplett, J. E. 1996. “Depreciation in Production Accounts and in Income and Wealth Accounts: Resolution of an Old Debate.” Economic Inquiry 34 (1): 93–115. van Ark, Bart, Janet Hao, Carol Corrado, and Charles Hulten. 2009. “Measuring Intangible Capital and Its Contribution to Economic Growth in Europe.” European Investment Bank Papers 14 (1): 62–93. Vanguard. 2015. “Can Active Funds Deliver Persistent Performance?” https://www.vanguard.co.uk/documents/adv/literature/can-active-funds-deliver-persistent-performance.pdf. Walters, Ben. 2016. “What Are Queer Spaces for Anyway?” Not Television. http://www.nottelevision.net/what-are-queer-spaces-for-anyway/. Weitzmann, M. L. 1976. “On the Welfare Significance of National Product in a Dynamic Economy.” Quarterly Journal of Economics 90 (1): 156–62. http://www.jstor.org/stable/1886092. ———. 1980.


pages: 304 words: 22,886

Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler, Cass R. Sunstein

Al Roth, Albert Einstein, asset allocation, availability heuristic, call centre, Cass Sunstein, choice architecture, continuous integration, Daniel Kahneman / Amos Tversky, desegregation, diversification, diversified portfolio, endowment effect, equity premium, feminist movement, fixed income, framing effect, full employment, George Akerlof, index fund, invisible hand, late fees, libertarian paternalism, loss aversion, Mahatma Gandhi, Mason jar, medical malpractice, medical residency, mental accounting, meta analysis, meta-analysis, Milgram experiment, money market fund, pension reform, presumed consent, price discrimination, profit maximization, rent-seeking, Richard Thaler, Right to Buy, risk tolerance, Robert Shiller, Robert Shiller, Saturday Night Live, school choice, school vouchers, transaction costs, Vanguard fund, Zipcar

The problem with this approach is that, as we have already mentioned, most people hardly ever change their portfolios unless they change jobs and have to fill out a new set of forms. So a better way to judge what people are thinking is to look at the percentage of money being invested in stocks by new participants who have just made the decision. We have data on one large group of such participants who were customers of plans administered by the Vanguard mutual fund company. In 1992 new participants were allocating 58 percent of their assets to equities, and by 2000 that percentage had risen to 74. In the next two years, however, the allocation to equities for new participants fell back to 54 percent. Their market timing was backward. They were heavily buying stocks when stock prices were high, and then selling stocks when their prices were low. We observe similar behavior in the asset allocations within equities.


pages: 545 words: 137,789

How Markets Fail: The Logic of Economic Calamities by John Cassidy

"Robert Solow", Albert Einstein, Andrei Shleifer, anti-communist, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black-Scholes formula, Blythe Masters, Bretton Woods, British Empire, business cycle, capital asset pricing model, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, different worldview, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Kickstarter, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Ponzi scheme, price discrimination, price stability, principal–agent problem, profit maximization, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

If fundamental analysis doesn’t work and most fund managers routinely fail to outperform the market, there can be no justification for the hefty fees that actively managed mutual funds charge investors. Investing in index funds, which keep their fees at minimal levels, is much more sensible. By 2000, tens of millions of Americans had taken Malkiel’s advice and placed much of their retirement money in these types of savings vehicles. (For many years, Malkiel served as a director of the Vanguard Group, which pioneered index funds. Fama joined another firm that manages index funds, Dimensional Fund Advisors.) The rise of efficient market theory also signaled the beginning of quantitative finance. In addition to the random walk model of stock prices, the period between 1950 and 1970 saw the development of the mean-variance approach to portfolio diversification, which Harry Markowitz, another Chicago economist, pioneered; the capital asset pricing model, which a number of different scholars developed independently of one another; and the Black-Scholes option pricing formula, which Fischer Black, an applied mathematician from Harvard, and Myron Scholes, a finance Ph.D. from Chicago, developed.

.”: Quoted in John Cassidy, Dot.con: The Greatest Story Ever Sold (New York: HarperPerennial, 2002), 122–23. 179 “[I]f they want to beat their . . .”: Quoted in “Valuing Those Internet Stocks,” BusinessWeek, February 8, 1999. 179 “I simply can’t analyze . . .”: Quoted in Fidelity Magellan Annual Report, March 31, 1999, available at www.secinfo.com/d1RUq.6c.htm. 179 “Time has come . . .”: “Fidelity Magellan Fund-FMAGX-Rated ‘Aggressive Buy’ and Vanguard 500 Index Fund-VFINX-Rated ‘Buy’ by FidelityAdviser.com,” Business Wire, April 1, 1999. 180 “Is the stock market in a speculative bubble?”: Lauren R. Rublin, “Party On! America’s Portfolio Managers Grow More Bullish on Stocks and Interest Rates,” Barron’s, May 3, 1999, 31–38. 181 Pension fund investment in the Internet bubble: Eli Ofek and Matthew Richardson, “DotCom Mania: The Rise and Fall of Internet Stock Prices,” Journal of Finance 57, no. 3 (June 2003): 1122. 181 “From an efficient markets perspective . . .”: Markus K.


pages: 478 words: 126,416

Other People's Money: Masters of the Universe or Servants of the People? by John Kay

Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, buy and hold, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, corporate governance, Credit Default Swap, cross-subsidies, dematerialisation, disruptive innovation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial innovation, financial intermediation, financial thriller, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, income inequality, index fund, inflation targeting, information asymmetry, intangible asset, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, John Meriwether, light touch regulation, London Whale, Long Term Capital Management, loose coupling, low cost airline, low cost carrier, M-Pesa, market design, millennium bug, mittelstand, money market fund, moral hazard, mortgage debt, Myron Scholes, NetJets, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, Paul Samuelson, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, regulatory arbitrage, Renaissance Technologies, rent control, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, Schrödinger's Cat, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, Washington Consensus, We are the 99%, Yom Kippur War


pages: 236 words: 77,735

Rigged Money: Beating Wall Street at Its Own Game by Lee Munson

affirmative action, asset allocation, backtesting, barriers to entry, Bernie Madoff, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, call centre, Credit Default Swap, diversification, diversified portfolio, estate planning, fiat currency, financial innovation, fixed income, Flash crash, follow your passion, German hyperinflation, High speed trading, housing crisis, index fund, joint-stock company, money market fund, moral hazard, Myron Scholes, passive investing, Ponzi scheme, price discovery process, random walk, risk tolerance, risk-adjusted returns, risk/return, stocks for the long run, stocks for the long term, too big to fail, trade route, Vanguard fund, walking around money

Longleaf Partners got fed up back in 2003 when Schwab raised the OneSource fees to 40 basis points. In a letter to shareholders, the fund said that the fees were “duplicative and excessive.”3 Schwab shot back and prohibited clients from purchasing Longleaf funds except for a select group of institutional advisers. The only problem is that Schwab decides who gets to be a part of that select group. Now that doesn’t sound fair to me. Big players with their own marketing muscle like Vanguard and American Funds would rather be out of the NTF game. How could Vanguard offer rock bottom prices if forced to pay 0.4 percent to Schwab? Well, they just pay less. That is easy to do if you are already a major player with strong demand. If you are using a transaction fee fund—the type of fund where you pay a small fee to trade in your brokerage account—Schwab still gets some money from the fund. Schwab says it is usually $20, but “sometimes as high as $30.”


pages: 280 words: 79,029

Smart Money: How High-Stakes Financial Innovation Is Reshaping Our WorldÑFor the Better by Andrew Palmer

Affordable Care Act / Obamacare, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Black-Scholes formula, bonus culture, break the buck, Bretton Woods, call centre, Carmen Reinhart, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Graeber, diversification, diversified portfolio, Edmond Halley, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, family office, financial deregulation, financial innovation, fixed income, Flash crash, Google Glasses, Gordon Gekko, high net worth, housing crisis, Hyman Minsky, implied volatility, income inequality, index fund, information asymmetry, Innovator's Dilemma, interest rate swap, Kenneth Rogoff, Kickstarter, late fees, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, margin call, Mark Zuckerberg, McMansion, money market fund, mortgage debt, mortgage tax deduction, Myron Scholes, negative equity, Network effects, Northern Rock, obamacare, payday loans, peer-to-peer lending, Peter Thiel, principal–agent problem, profit maximization, quantitative trading / quantitative finance, railway mania, randomized controlled trial, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, Thales of Miletus, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application

They may be fast, critics say, but they are thoughtless.22 Yet the academic consensus also broadly supports the contention that high-frequency traders have helped bring down transaction costs. The British government’s lengthy 2012 investigation of automated trading found that liquidity had improved, bid-ask spreads had narrowed, and markets had become more efficient. Testimony delivered to the Securities and Exchange Commission in 2010 by George Sauter of Vanguard, a big fund manager, concluded that “high-frequency traders provide liquidity and ‘knit’ together our increasingly fragmented marketplace, resulting in tighter spreads that benefit all investors.”23 (Critics riposte that narrower spreads are illusory if the prices quoted are not the ones at which trades are actually executed.) It is true that investors’ holding periods have gone down and down in recent years, but if short termism is a problem, its roots go deeper than the arrival of the ultrafast traders: the average holding period for British shares approached eight years in the mid-1960s and had come down to around one year by the mid-1980s.


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The Trouble With Billionaires by Linda McQuaig

"Robert Solow", battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, British Empire, Build a better mousetrap, carried interest, collateralized debt obligation, computer age, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Douglas Engelbart, Douglas Engelbart, employer provided health coverage, financial deregulation, fixed income, full employment, George Akerlof, Gini coefficient, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of the telephone, invention of the wheel, invisible hand, Isaac Newton, Jacquard loom, Joseph-Marie Jacquard, laissez-faire capitalism, land tenure, lateral thinking, Mark Zuckerberg, market bubble, Martin Wolf, mega-rich, minimum wage unemployment, Mont Pelerin Society, Naomi Klein, neoliberal agenda, Northern Rock, offshore financial centre, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, pre–internet, price mechanism, purchasing power parity, RAND corporation, rent-seeking, rising living standards, road to serfdom, Ronald Reagan, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, trickle-down economics, Vanguard fund, very high income, wealth creators, women in the workforce

In fact, entrepreneurs make up a very small portion of today’s top earners, estimated at ‌less than 4 per cent.17 Today’s super-rich elite is composed mostly of corporate and financial professionals, who account for some 60 per cent of those in the top-earning 0.1 per cent (with lawyers and real estate developers accounting for another 10 per cent). In the past, corporate and financial professionals were regarded as agents who managed the enterprises of the owning class. In recent decades, however, these management professionals have moved centre-stage, grabbing more power for themselves – and a much larger share of the financial rewards. The result, according to John C. Bogle, founder and former chairman of US-based Vanguard Group mutual fund organization, has been ‘grotesquely excessive compensation paid to executive chiefs’ – compensation that is ‘unjustified by ‌any remotely comparable business achievement’.18 Bogle argues that the corporate world is now riddled with conflicts of interest, leaving little check on the cosy relations between CEOs and corporate directors, compensation committees and auditors. Similarly, in the UK, the High Pay Commission concluded that ‘pay at the top has spiralled alarmingly to stratospheric levels in some of our biggest companies’.


pages: 598 words: 172,137

Who Stole the American Dream? by Hedrick Smith

Affordable Care Act / Obamacare, Airbus A320, airline deregulation, anti-communist, asset allocation, banking crisis, Bonfire of the Vanities, British Empire, business cycle, business process, clean water, cloud computing, collateralized debt obligation, collective bargaining, commoditize, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, David Brooks, Deng Xiaoping, desegregation, Double Irish / Dutch Sandwich, family office, full employment, global supply chain, Gordon Gekko, guest worker program, hiring and firing, housing crisis, Howard Zinn, income inequality, index fund, industrial cluster, informal economy, invisible hand, Joseph Schumpeter, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, laissez-faire capitalism, late fees, Long Term Capital Management, low cost airline, low cost carrier, manufacturing employment, market fundamentalism, Maui Hawaii, mega-rich, MITM: man-in-the-middle, mortgage debt, negative equity, new economy, Occupy movement, Own Your Own Home, Paul Samuelson, Peter Thiel, Plutonomy: Buying Luxury, Explaining Global Imbalances, Ponzi scheme, Powell Memorandum, Ralph Nader, RAND corporation, Renaissance Technologies, reshoring, rising living standards, Robert Bork, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, shareholder value, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Steve Jobs, The Chicago School, The Spirit Level, too big to fail, transaction costs, transcontinental railway, union organizing, Unsafe at Any Speed, Vanguard fund, We are the 99%, women in the workforce, working poor, Y2K

As the Harvard-Cornell team put it, there were “lucky directors” motivated to manipulate the option dates of their “lucky CEOs” because the board members also “luckily” got backdated options. Options: A Smokescreen for Wealth Transfer Some of the sharpest criticism of the stock options game came not from academics or liberal politicians, but from staunch capitalists such as John C. (Jack) Bogle, founder and longtime chairman of the Vanguard mutual fund family. Bogle contended that ordinary shareholders were being cheated by the massive stock grants given to CEOs because the value of everyone else’s shares was being diluted by the gift of free or low-cost shares to the executive elite. In his book The Battle for the Soul of Capitalism, Bogle derided the whole concept as a smokescreen for a massive “wealth transfer to [corporate] insiders” from ordinary investors.


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Blue Ocean Strategy, Expanded Edition: How to Create Uncontested Market Space and Make the Competition Irrelevant by W. Chan Kim, Renée A. Mauborgne

Asian financial crisis, borderless world, call centre, cloud computing, commoditize, creative destruction, disruptive innovation, endogenous growth, haute couture, index fund, information asymmetry, interchangeable parts, job satisfaction, Joseph Schumpeter, Kickstarter, knowledge economy, market fundamentalism, NetJets, Network effects, RAND corporation, Skype, telemarketer, The Wealth of Nations by Adam Smith, There's no reason for any individual to have a computer in his home - Ken Olsen, Thomas Kuhn: the structure of scientific revolutions, Vanguard fund, zero-sum game

So instead of using brokers and regional branch offices, Direct Line uses information technology to improve claims handling, and it passes on some of the cost savings to customers in the form of lower insurance premiums. For more than twenty years since its inception, Direct Line’s blue ocean strategic move has been winning customers and awards including that for the best, most trusted, and most innovative motor insurance brand in the UK. In the United States, The Vanguard Group (in index funds) and Charles Schwab (in brokerage services) did the same thing in the investment industry, creating a blue ocean by transforming emotionally oriented businesses based on personal relationships into high-performance, low-cost functional businesses. Does your industry compete on functionality or emotional appeal? If you compete on emotional appeal, what elements can you strip out to make it functional?


pages: 264 words: 115,489

Take the Money and Run: Sovereign Wealth Funds and the Demise of American Prosperity by Eric C. Anderson

asset allocation, banking crisis, Bretton Woods, business continuity plan, business process, buy and hold, collective bargaining, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, diversified portfolio, fixed income, floating exchange rates, housing crisis, index fund, Kenneth Rogoff, open economy, passive investing, profit maximization, profit motive, random walk, reserve currency, risk tolerance, risk-adjusted returns, risk/return, Ronald Reagan, sovereign wealth fund, the market place, The Wealth of Nations by Adam Smith, too big to fail, Vanguard fund

According to the Norges Bank Investment Management team, their performance could best be attributed to two events: (1) the fund’s move to place more than 40% of its investments in the equity market since 1998, and (2) the “worst decline in global equities markets since the 1930s,” which began in 2000.37 Needless to say, this performance has garnered significant criticism at home, with at least one critic claiming the fund’s investment managers only “make Norway more poor.”38 (The Norges Bank team actually did not do as poorly as one might first suspect. A review of stock performance using a buy-and-hold model for the same time period (1998–2006) reveals that the following rates of return could have been expected by purchasing only “name brand” shares: Dow Jones Industrials 6.11%, Standard & Poor’s 500 Index 4.94%, Vanguard 500 Index Fund 7.37%, and NASDAQ Composite Index 5.88%.) China’s new sovereign wealth fund managers have also suffered setbacks in their efforts to wisely invest the approximately $200 billion39 Beijing has placed in their hands.40 The China Investment Corporation (CIC) purchased a 9.3% share of the Blackstone Group private equity firm for $3 billion prior to the firm’s initial public offering (IPO) in June 2007.


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Everything for Everyone: The Radical Tradition That Is Shaping the Next Economy by Nathan Schneider

1960s counterculture, Affordable Care Act / Obamacare, Airbnb, altcoin, Amazon Mechanical Turk, back-to-the-land, basic income, Berlin Wall, Bernie Sanders, bitcoin, blockchain, Brewster Kahle, Burning Man, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, Clayton Christensen, collaborative economy, collective bargaining, Community Supported Agriculture, corporate governance, creative destruction, crowdsourcing, cryptocurrency, Debian, disruptive innovation, do-ocracy, Donald Knuth, Donald Trump, Edward Snowden, Elon Musk, Ethereum, ethereum blockchain, Food sovereignty, four colour theorem, future of work, gig economy, Google bus, hydraulic fracturing, Internet Archive, Jeff Bezos, jimmy wales, joint-stock company, Joseph Schumpeter, Julian Assange, Kickstarter, Lyft, M-Pesa, Marc Andreessen, Mark Zuckerberg, Marshall McLuhan, mass immigration, means of production, multi-sided market, new economy, offshore financial centre, old-boy network, Peter H. Diamandis: Planetary Resources, post-work, precariat, premature optimization, pre–internet, profit motive, race to the bottom, Richard Florida, Richard Stallman, ride hailing / ride sharing, Sam Altman, Satoshi Nakamoto, self-driving car, shareholder value, sharing economy, Silicon Valley, Slavoj Žižek, smart contracts, Steve Jobs, Steve Wozniak, Stewart Brand, transaction costs, Turing test, Uber and Lyft, uber lyft, underbanked, undersea cable, universal basic income, Upton Sinclair, Vanguard fund, white flight, Whole Earth Catalog, WikiLeaks, women in the workforce, working poor, Y Combinator, Y2K, Zipcar


pages: 463 words: 105,197

Radical Markets: Uprooting Capitalism and Democracy for a Just Society by Eric Posner, E. Weyl

3D printing, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, anti-communist, augmented reality, basic income, Berlin Wall, Bernie Sanders, Branko Milanovic, business process, buy and hold, carbon footprint, Cass Sunstein, Clayton Christensen, cloud computing, collective bargaining, commoditize, Corn Laws, corporate governance, crowdsourcing, cryptocurrency, Donald Trump, Elon Musk, endowment effect, Erik Brynjolfsson, Ethereum, feminist movement, financial deregulation, Francis Fukuyama: the end of history, full employment, George Akerlof, global supply chain, guest worker program, hydraulic fracturing, Hyperloop, illegal immigration, immigration reform, income inequality, income per capita, index fund, informal economy, information asymmetry, invisible hand, Jane Jacobs, Jaron Lanier, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, labor-force participation, laissez-faire capitalism, Landlord’s Game, liberal capitalism, low skilled workers, Lyft, market bubble, market design, market friction, market fundamentalism, mass immigration, negative equity, Network effects, obamacare, offshore financial centre, open borders, Pareto efficiency, passive investing, patent troll, Paul Samuelson, performance metric, plutocrats, Plutocrats, pre–internet, random walk, randomized controlled trial, Ray Kurzweil, recommendation engine, rent-seeking, Richard Thaler, ride hailing / ride sharing, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Rory Sutherland, Second Machine Age, second-price auction, self-driving car, shareholder value, sharing economy, Silicon Valley, Skype, special economic zone, spectrum auction, speech recognition, statistical model, stem cell, telepresence, Thales and the olive presses, Thales of Miletus, The Death and Life of Great American Cities, The Future of Employment, The Market for Lemons, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transaction costs, trickle-down economics, Uber and Lyft, uber lyft, universal basic income, urban planning, Vanguard fund, women in the workforce, Zipcar

Despite this not being anywhere near a majority stake, when Vanguard calls, Delta’s CEO will answer the phone because Vanguard is Delta’s largest shareholder. TABLE 4.1: The top five shareholders of the six largest US banks Source: José Azar, Sahil Raina, & Martin C. Schmalz, Ultimate Ownership and Bank Competition (unpublished manuscript, July 23, 2016), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2710252. *Warrants without voting rights. Furthermore, most institutional investors (but not Vanguard) offer many managed funds that pick stocks and thus threaten to sell stock if the firms they invest in do not follow their advice. The actual role of institutional investors in governance remains the subject of debate. But the debate misses the real importance of the rise of institutional investors: that if they control the firms they own, then they can use this control for bad purposes as well as good. Consider again table 4.1, representing ownership patterns in the US banking industry.21 The largest owners of these banks are, almost uniformly, the same group of institutional investors.


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Basic Economics by Thomas Sowell

affirmative action, air freight, airline deregulation, American Legislative Exchange Council, bank run, barriers to entry, big-box store, British Empire, business cycle, clean water, collective bargaining, colonial rule, corporate governance, correlation does not imply causation, cross-subsidies, David Brooks, David Ricardo: comparative advantage, declining real wages, Dissolution of the Soviet Union, diversified portfolio, European colonialism, fixed income, Fractional reserve banking, full employment, global village, Gunnar Myrdal, Hernando de Soto, hiring and firing, housing crisis, income inequality, income per capita, index fund, informal economy, inventory management, invisible hand, John Maynard Keynes: technological unemployment, joint-stock company, Just-in-time delivery, Kenneth Arrow, knowledge economy, labor-force participation, land reform, late fees, low cost airline, low cost carrier, low skilled workers, means of production, Mikhail Gorbachev, minimum wage unemployment, moral hazard, offshore financial centre, oil shale / tar sands, payday loans, price discrimination, price stability, profit motive, quantitative easing, Ralph Nader, rent control, road to serfdom, Ronald Reagan, Silicon Valley, surplus humans, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, transcontinental railway, Vanguard fund, War on Poverty

In other words, money invested in bonds during those inflationary decades would not buy as much when these bonds were cashed in as when the bonds were bought, even though larger sums of money were received in the end. With the restoration of price stability in the last two decades of the twentieth century, both stocks and bonds had positive rates of real returns.{483} But, during the first decade of the twenty-first century, all that changed, as the New York Times reported: If you invested $100,000 on Jan. 1, 2000, in the Vanguard index fund that tracks the Standard & Poor’s 500, you would have ended up with $89,072 by mid-December of 2009. Adjust that for inflation by putting it in January 2000 dollars and you’re left with $69,114.{484} With a more diversified portfolio and a more complex investment strategy, however, the original $100,000 investment would have grown to $313,747 over the same time period, worth $260,102 in January 2000 dollars, taking inflation into account.{485} Risk is always specific to the time at which a decision is made.


pages: 358 words: 106,729

Fault Lines: How Hidden Fractures Still Threaten the World Economy by Raghuram Rajan

accounting loophole / creative accounting, Andrei Shleifer, Asian financial crisis, asset-backed security, assortative mating, bank run, barriers to entry, Bernie Madoff, Bretton Woods, business climate, business cycle, Clayton Christensen, clean water, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, diversification, Edward Glaeser, financial innovation, fixed income, floating exchange rates, full employment, global supply chain, Goldman Sachs: Vampire Squid, illegal immigration, implied volatility, income inequality, index fund, interest rate swap, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, Long Term Capital Management, longitudinal study, market bubble, Martin Wolf, medical malpractice, microcredit, money market fund, moral hazard, new economy, Northern Rock, offshore financial centre, open economy, price stability, profit motive, Real Time Gross Settlement, Richard Florida, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, school vouchers, short selling, sovereign wealth fund, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, Vanguard fund, women in the workforce, World Values Survey


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Finding Alphas: A Quantitative Approach to Building Trading Strategies by Igor Tulchinsky

algorithmic trading, asset allocation, automated trading system, backtesting, barriers to entry, business cycle, buy and hold, capital asset pricing model, constrained optimization, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, discounted cash flows, discrete time, diversification, diversified portfolio, Eugene Fama: efficient market hypothesis, financial intermediation, Flash crash, implied volatility, index arbitrage, index fund, intangible asset, iterative process, Long Term Capital Management, loss aversion, market design, market microstructure, merger arbitrage, natural language processing, passive investing, pattern recognition, performance metric, popular capitalism, prediction markets, price discovery process, profit motive, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk tolerance, risk-adjusted returns, risk/return, selection bias, sentiment analysis, shareholder value, Sharpe ratio, short selling, Silicon Valley, speech recognition, statistical arbitrage, statistical model, stochastic process, survivorship bias, systematic trading, text mining, transaction costs, Vanguard fund, yield curve

In contrast to the Russell 2000, large-cap and total-market-tracking products typically do not suffer as much of a rebalancing drag on their portfolios. The S&P 500, for example, tends not to see as much reversion in added stocks, perhaps owing to their higher liquidity or late purchases by closet trackers, who cannot predict S&P additions as easily. Meanwhile, the CRSP US. Total Market Index, which is tracked by Vanguard Group’s largest index funds, encompasses the entire US market, from large caps to microcaps, and accordingly does not trigger any trading Finding an Index Alpha227 requirements when cap-size migrations occur. (However, funds benchmarked to the individual capitalization ranges would still need to trade and thus potentially would impact market prices for some illiquid stocks.) OTHER INDEX ANOMALIES Captive Capital-Raising by Newly Indexed Companies Index changes can lead to other market anomalies.



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Makers and Takers: The Rise of Finance and the Fall of American Business by Rana Foroohar

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, additive manufacturing, Airbnb, algorithmic trading, Alvin Roth, Asian financial crisis, asset allocation, bank run, Basel III, bonus culture, Bretton Woods, British Empire, business cycle, buy and hold, call centre, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, centralized clearinghouse, clean water, collateralized debt obligation, commoditize, computerized trading, corporate governance, corporate raider, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, crowdsourcing, David Graeber, deskilling, Detroit bankruptcy, diversification, Double Irish / Dutch Sandwich, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial deregulation, financial intermediation, Frederick Winslow Taylor, George Akerlof, gig economy, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, High speed trading, Home mortgage interest deduction, housing crisis, Howard Rheingold, Hyman Minsky, income inequality, index fund, information asymmetry, interest rate derivative, interest rate swap, Internet of things, invisible hand, John Markoff, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, London Whale, Long Term Capital Management, manufacturing employment, market design, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, non-tariff barriers, offshore financial centre, oil shock, passive investing, Paul Samuelson, pensions crisis, Ponzi scheme, principal–agent problem, quantitative easing, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, Rana Plaza, RAND corporation, random walk, rent control, Robert Shiller, Robert Shiller, Ronald Reagan, Satyajit Das, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, Snapchat, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, Steve Jobs, technology bubble, The Chicago School, the new new thing, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, Tobin tax, too big to fail, trickle-down economics, Tyler Cowen: Great Stagnation, Vanguard fund, zero-sum game


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Energy: A Human History by Richard Rhodes

Albert Einstein, animal electricity, California gold rush, Cesare Marchetti: Marchetti’s constant, Copley Medal, dark matter, David Ricardo: comparative advantage, decarbonisation, demographic transition, Dmitri Mendeleev, Drosophila, Edmond Halley, energy transition, Ernest Rutherford, Fellow of the Royal Society, flex fuel, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of the steam engine, invisible hand, Isaac Newton, James Watt: steam engine, joint-stock company, Menlo Park, Mikhail Gorbachev, new economy, nuclear winter, oil rush, oil shale / tar sands, oil shock, peak oil, Ralph Nader, Richard Feynman, Ronald Reagan, selection bias, Simon Kuznets, The Rise and Fall of American Growth, Thomas Malthus, Thorstein Veblen, uranium enrichment, urban renewal, Vanguard fund, working poor, young professional

Reflection, surface and contact resistance, and other factors halved that efficiency, suggesting that 11 percent was probably a maximum.3 The real problem with early PV cells was cost: after one six-month trial application in a Georgia telephone system, Bell made no further effort to use them.4 One of the German scientists who came to the United States after World War II, working for the army at its Signal Corps laboratory at Fort Monmouth, New Jersey, was impressed with Bell’s PV cells. Hans K. Ziegler championed installing them on the first US communications satellite, Vanguard I, a project funded by the Department of Defense and the US Navy. The two funders fought over the power source: the Navy preferred batteries. In a compromise that became a seminal experiment, both power sources were installed on the 6.4-inch, 3.5-pound Vanguard I, which was launched on 17 March 1958 atop a three-stage Vanguard rocket. By June, the batteries had run down; the PV cells continued supplying 1 watt of power for six years.5 Early PV cells were expensive because they were sawn from large single crystals grown for use making transistors, even though PV didn’t need silicon of transistor purity.


pages: 976 words: 235,576

The Meritocracy Trap: How America's Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite by Daniel Markovits

"Robert Solow", 8-hour work day, activist fund / activist shareholder / activist investor, affirmative action, Anton Chekhov, asset-backed security, assortative mating, basic income, Bernie Sanders, big-box store, business cycle, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, carried interest, collateralized debt obligation, collective bargaining, computer age, corporate governance, corporate raider, crony capitalism, David Brooks, deskilling, Detroit bankruptcy, disruptive innovation, Donald Trump, Edward Glaeser, Emanuel Derman, equity premium, European colonialism, everywhere but in the productivity statistics, fear of failure, financial innovation, financial intermediation, fixed income, Ford paid five dollars a day, Frederick Winslow Taylor, full employment, future of work, gender pay gap, George Akerlof, Gini coefficient, glass ceiling, helicopter parent, high net worth, hiring and firing, income inequality, industrial robot, interchangeable parts, invention of agriculture, Jaron Lanier, Jeff Bezos, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, knowledge economy, knowledge worker, Kodak vs Instagram, labor-force participation, longitudinal study, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, mass incarceration, medical residency, minimum wage unemployment, Myron Scholes, Nate Silver, New Economic Geography, new economy, offshore financial centre, Paul Samuelson, payday loans, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, precariat, purchasing power parity, rent-seeking, Richard Florida, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, school choice, shareholder value, Silicon Valley, Simon Kuznets, six sigma, Skype, stakhanovite, stem cell, Steve Jobs, supply-chain management, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, Thomas Davenport, Thorstein Veblen, too big to fail, total factor productivity, transaction costs, traveling salesman, universal basic income, unpaid internship, Vanguard fund, War on Poverty, Winter of Discontent, women in the workforce, working poor, young professional, zero-sum game

, Brookings Institution, CCF Brief no. 50 (May 2013): 1–9, 6, www.brookings.edu/wp-content/uploads/2016/06/08-should-everyone-go-to-college-owen-sawhill.pdf. Hereafter cited as Owen and Sawhill, Should Everyone Go to College? The average rate of return of a diversified stock portfolio over the past decades is under 7 percent. The average annual return over the last ten years for the Vanguard Balanced Composite Index, for example, is 6.83 percent. See “Benchmark Returns,” Vanguard, last modified September 30, 2018, https://personal.vanguard.com/us/funds/tools/benchmarkreturns. See Goldin and Katz, The Race Between Education and Technology, 336. See also David Card, “The Causal Effect of Education on Earnings,” in Handbook of Labor Economics, vol. 3A, ed. Orley C. Ashenfelter and David Card (Amsterdam: Elsevier, 1999): 1801–63; David Card, “Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems,” Econometrica 69 (September 2001): 1127–60.


pages: 349 words: 134,041

Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives by Satyajit Das

accounting loophole / creative accounting, Albert Einstein, Asian financial crisis, asset-backed security, beat the dealer, Black Swan, Black-Scholes formula, Bretton Woods, BRICs, Brownian motion, business process, buy and hold, buy low sell high, call centre, capital asset pricing model, collateralized debt obligation, commoditize, complexity theory, computerized trading, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, currency peg, disintermediation, diversification, diversified portfolio, Edward Thorp, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, financial innovation, fixed income, Haight Ashbury, high net worth, implied volatility, index arbitrage, index card, index fund, interest rate derivative, interest rate swap, Isaac Newton, job satisfaction, John Meriwether, locking in a profit, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Marshall McLuhan, mass affluent, mega-rich, merger arbitrage, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mutually assured destruction, Myron Scholes, new economy, New Journalism, Nick Leeson, offshore financial centre, oil shock, Parkinson's law, placebo effect, Ponzi scheme, purchasing power parity, quantitative trading / quantitative finance, random walk, regulatory arbitrage, Right to Buy, risk-adjusted returns, risk/return, Satyajit Das, shareholder value, short selling, South Sea Bubble, statistical model, technology bubble, the medium is the message, the new new thing, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, volatility smile, yield curve, Yogi Berra, zero-coupon bond

‘You lied to us,’ thundered the chairman. Not really, it is how the game is played. The trustee meetings were never the same again. Agents all The entire investment management process is flawed – projected returns are too high and actual returns are measured with tools that the fund managers and asset consultants choose. It is like getting a student to mark their own exams. John Bogle, the founder of Vanguard, a low-cost mutual fund manager, is the Bolshevik of the industry. His arguments are simple: fund expenses are too high; trading costs eat into returns as fund managers churn portfolios to the delight of dealers; hidden fees and charges eat into the value of investments; a small difference of 1% or 2% each year in return over 30 years is staggering. Bogle argues that fund managers do not put the investor’s interests first but exploit their ignorance instead.


pages: 419 words: 130,627

Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase by Duff McDonald

bank run, Blythe Masters, Bonfire of the Vanities, centralized clearinghouse, collateralized debt obligation, conceptual framework, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Exxon Valdez, financial innovation, fixed income, G4S, housing crisis, interest rate swap, Jeff Bezos, John Meriwether, Kickstarter, laissez-faire capitalism, Long Term Capital Management, margin call, market bubble, money market fund, moral hazard, negative equity, Nelson Mandela, Northern Rock, profit motive, Renaissance Technologies, risk/return, Rod Stewart played at Stephen Schwarzman birthday party, Saturday Night Live, sovereign wealth fund, statistical model, Steve Ballmer, Steve Jobs, technology bubble, The Chicago School, too big to fail, Vanguard fund, zero-coupon bond, zero-sum game

In reality, Bibliowicz ran only mutual fund sales, a department with a mere 18 people. Despite the loftiness of the title, she didn’t oversee money management, operations, or finance for the fund group. Dimon and Bibliowicz had been friends since childhood, but their relationship began to fray the next year, when Dimon pushed for the company to sell no-load mutual funds in response to the success of Vanguard and other no-load fund companies. Bibliowicz resisted the idea, arguing that the company should stick to its own internal funds—brokers were far more motivated to sell them, after all, because of the commissions—and Weill himself sided with her in discussions on the subject. Dimon eventually won the debate, and in July 1996 Smith Barney was the first Wall Street broker to sell no-load funds. In the end, the move proved to have been a smart one.


pages: 505 words: 142,118

A Man for All Markets by Edward O. Thorp

3Com Palm IPO, Albert Einstein, asset allocation, beat the dealer, Bernie Madoff, Black Swan, Black-Scholes formula, Brownian motion, buy and hold, buy low sell high, carried interest, Chuck Templeton: OpenTable:, Claude Shannon: information theory, cognitive dissonance, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Edward Thorp, Erdős number, Eugene Fama: efficient market hypothesis, financial innovation, George Santayana, German hyperinflation, Henri Poincaré, high net worth, High speed trading, index arbitrage, index fund, interest rate swap, invisible hand, Jarndyce and Jarndyce, Jeff Bezos, John Meriwether, John Nash: game theory, Kenneth Arrow, Livingstone, I presume, Long Term Capital Management, Louis Bachelier, margin call, Mason jar, merger arbitrage, Murray Gell-Mann, Myron Scholes, NetJets, Norbert Wiener, passive investing, Paul Erdős, Paul Samuelson, Pluto: dwarf planet, Ponzi scheme, price anchoring, publish or perish, quantitative trading / quantitative finance, race to the bottom, random walk, Renaissance Technologies, RFID, Richard Feynman, risk-adjusted returns, Robert Shiller, Robert Shiller, rolodex, Sharpe ratio, short selling, Silicon Valley, Stanford marshmallow experiment, statistical arbitrage, stem cell, stocks for the long run, survivorship bias, The Myth of the Rational Market, The Predators' Ball, the rule of 72, The Wisdom of Crowds, too big to fail, Upton Sinclair, value at risk, Vanguard fund, Vilfredo Pareto, Works Progress Administration

Some households consist of only one person and most of the rest have a single economically dominant individual, so counting wealthy households probably gives a good estimate for the number of wealthy individuals. The number of households worth at least $1 million was thought to be about ten million in 2015. With so many millionaire households, the goal of becoming one of them looks within reach. To see what might be done, imagine you’re an eighteen-year-old blue-collar worker with no savings and no prospects. What if, somehow, you could save $6 a day and buy shares in the Vanguard S&P 500 Index Fund at the end of each month? If that investment grows in a tax-deferred retirement plan at the long-term average for large stocks of about 10 percent, then after forty-seven years you can retire at age sixty-five with $2.4 million. But where do you find an extra $6 a day? The pack-and-a-half-a-day smoker who kicks his drug habit saves $6 each day. If the construction worker who drinks two $5 six-packs of beer or Coke each day switches to tap water he can save $10 a day, $6 of which he puts in an index fund and $4 of which he spends on healthy food to replace the junk calories from the beer or Coke.


pages: 504 words: 139,137

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined by Lasse Heje Pedersen

activist fund / activist shareholder / activist investor, algorithmic trading, Andrei Shleifer, asset allocation, backtesting, bank run, banking crisis, barriers to entry, Black-Scholes formula, Brownian motion, business cycle, buy and hold, buy low sell high, capital asset pricing model, commodity trading advisor, conceptual framework, corporate governance, credit crunch, Credit Default Swap, currency peg, David Ricardo: comparative advantage, declining real wages, discounted cash flows, diversification, diversified portfolio, Emanuel Derman, equity premium, Eugene Fama: efficient market hypothesis, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, Gordon Gekko, implied volatility, index arbitrage, index fund, interest rate swap, late capitalism, law of one price, Long Term Capital Management, margin call, market clearing, market design, market friction, merger arbitrage, money market fund, mortgage debt, Myron Scholes, New Journalism, paper trading, passive investing, price discovery process, price stability, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, selection bias, shareholder value, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stocks for the long run, stocks for the long term, survivorship bias, systematic trading, technology bubble, time value of money, total factor productivity, transaction costs, value at risk, Vanguard fund, yield curve, zero-coupon bond


pages: 514 words: 152,903

pages: 538 words: 145,243

Behemoth: A History of the Factory and the Making of the Modern World by Joshua B. Freeman

anti-communist, British Empire, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, Corn Laws, corporate raider, deindustrialization, Deng Xiaoping, disruptive innovation, en.wikipedia.org, factory automation, Ford paid five dollars a day, Frederick Winslow Taylor, global supply chain, indoor plumbing, interchangeable parts, invisible hand, James Hargreaves, joint-stock company, knowledge worker, mass immigration, means of production, mittelstand, Naomi Klein, new economy, On the Economy of Machinery and Manufactures, Panopticon Jeremy Bentham, Pearl River Delta, post-industrial society, Ralph Waldo Emerson, rising living standards, Ronald Reagan, Silicon Valley, special economic zone, spinning jenny, Steve Jobs, strikebreaker, technoutopianism, the built environment, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tim Cook: Apple, transaction costs, union organizing, Upton Sinclair, urban planning, Vanguard fund, women in the workforce, working poor, Works Progress Administration, zero-sum game

But for many, the future has already come and gone, perhaps leaving them with sneakers and a smartphone, but with little hope or belief in their ability to create a new world, a post-factory world that builds on the extraordinary advances of the giant factory to forge a new and different kind of modernity, one more democratic and more sustainable, socially, economically, and, perhaps most important, ecologically. We are all in this, all implicated. In 2016, the second-largest holder of stock in Hon Hai Precision Industry, the major owner of Foxconn Technology Company, was The Vanguard Group, Inc., a mutual fund company with a benign image that holds the savings and retirement accounts of more than twenty million people (including this author). Very few of them were aware that they owned a piece of a factory from the roof of which workers jumped to their deaths in despair. (Vanguard also was the third-largest holder of stock in Pegatron Corporation, Foxconn’s biggest rival, and the ninth-largest holder of stock in footwear maker Yue Yuen.)


Investment: A History by Norton Reamer, Jesse Downing

activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Berlin Wall, Bernie Madoff, break the buck, Brownian motion, business cycle, buttonwood tree, buy and hold, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, dogs of the Dow, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, Gordon Gekko, Henri Poincaré, high net worth, index fund, information asymmetry, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, margin call, means of production, Menlo Park, merger arbitrage, money market fund, moral hazard, mortgage debt, Myron Scholes, negative equity, Network effects, new economy, Nick Leeson, Own Your Own Home, Paul Samuelson, pension reform, Ponzi scheme, price mechanism, principal–agent problem, profit maximization, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Sand Hill Road, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, survivorship bias, technology bubble, The Wealth of Nations by Adam Smith, time value of money, too big to fail, transaction costs, underbanked, Vanguard fund, working poor, yield curve

The very purpose of passive management through index funds, he contended, was to allow the investor to have inexpensive exposure to an asset class and to forego the high fees associated with active management. And indeed, other early index funds with exceptionally high fees did not enjoy sustained success. Colonial Index Trust, for instance, generally involved a sales load of 4.75 percent and a running expense ratio of 1.5 percent. This fund lasted only 7 years, closing in 1993.57 It was not until the early 1990s that Vanguard started to see any meaningful competition. Vanguard had eleven different index funds by the end of 1992. That same year, thirty-five new index funds were formed by competitors, bringing the total number of index mutual funds in the investment market to just under eighty. The universe of product offerings also expanded. In 1993, Vanguard and some of its competitors offered the first bond index funds. With these, investors could get exposure to a wider array of investments than just equities.