passive investing

The Power of Passive Investing: More Wealth With Less Work
by Richard A. Ferri
Published 4 Nov 2010

The procrastinators can become fully committed with a little push from reading another book or listening to a motivation speech by an indexing expert or by watching a video. This adds conviction and encouragement. Passive investing works. Discover it; learn more about it; grow to believe in it; implement it; follow it; then tell others about it. You’ll be in better financial shape for making the transition and so will those who follow you. Once you make the commitment to passive investing you’re there for life. You won’t go back to active management. PART III THE CASE FOR PASSIVE INVESTING CHAPTER 10 The Passive Management Process Passive investing is power investing. It’s the winning solution for investors today. A few years ago it wasn’t possible to build a passive portfolio of index funds and ETFs that covered all asset classes because most funds didn’t exist.

…

It’s the book on how to effectively harness the power of passive investing. Whether you are an individual investor or are responsible for billion-dollar portfolios, this book is critical to your success.” —Allan Roth, author, How a Second Grader Beats Wall Street “Rick Ferri has written yet another terrific book. The numerous studies he reviews provide powerful support for passive investing and guide trustees and other fiduciaries toward this ideal solution.” —W. Scott Simon, principal, Prudent Investor Advisors, LLC “Passive investments deserve a place in almost all investors’ portfolios, but the range of choices has never been so complex or treacherous.

…

If you want to navigate this new terrain successfully, you’ll find Rick Ferri’s The Power of Passive Investing an essential text.” —Don Phillips, Managing Director, Morningstar, Inc. “Powerful! The extensive research behind this book makes a compelling case for a passive investing strategy. Ignore the information in this book at your own peril.” —Mel Lindauer, Forbes columnist and co-author of The Bogleheads’ Guide to Investing and The Bogleheads’ Guide to Retirement Planning “The Power of Passive Investing is as much an enlightening history lesson as a compelling argument for building a portfolio on a foundation of index funds.

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever
by Robin Wigglesworth
Published 11 Oct 2021

Green is now chief strategist at Simplify Asset Management—ironically a provider of active, options-based ETFs—but has made alerting people to what he thinks are the dangerous vagaries of passive investing his mission.3 Green reckons that Wallace’s “This Is Water” parable is the perfect metaphor to describe passive investing’s now all-encompassing effect on markets and his industry. “Indices were designed as measures, but once you begin investing in them you actually distort them,” Green argues. “The moment they became participants and began to grow, they affected markets.” He is far from the only critic of passive investing. But few outdo his fervor and articulacy. And if even some of his thesis is correct, then passive investing has some thorny problems to confront

…

After all, passive funds do buy and sell all the time according to the ebb and flow of investor money, even if it has mostly been flow in the long run. And for the time being, passive investing vehicles still hold only one-seventh of the US stock market, for example, and far less elsewhere. They are not yet as all-pervasive as water is to fish. Nor is passive investing the homogeneous blob that critics often imagine. Trading volumes are also for the most part higher than ever, suggesting that the market’s vibrancy is hardly eroding with the rise of passive investing. It is tempting to dismiss many of these the concerns as the shrill self-serving scaremongering of industry incumbents coming under intensifying pressure from a cheaper, better rival.

…

The founder of Vanguard, one of the biggest index fund managers in the world, and often dubbed “Saint Jack” due to his exhortation for the investment industry to give more people a “fair shake” through cheap passive investment vehicles. LOUIS BACHELIER. An early-twentieth-century French mathematician who died in obscurity, but whose work on the “random walk” of stocks would make him the intellectual godfather of passive investing. ALFRED COWLES III. The wealthy tuberculosis-plagued heir of a newspaper fortune who undertook one of the first rigorous studies of how well investment professionals actually performed versus the broader stock market.

The New Science of Asset Allocation: Risk Management in a Multi-Asset World
by Thomas Schneeweis , Garry B. Crowder and Hossein Kazemi
Published 8 Mar 2010

As shown in Exhibit 6.2, while the underlying strategic asset allocation may be based on noninvestable benchmarks, an investor’s core portfolio should contain investable passive investments which capture the underlying returns of the noninvestable benchmarks. If an investor desires to increase their potential return without dramatically changing one’s asset class exposure, then, as shown in Exhibit 6.2, adding additional manager based investments (Satellite I and Satellite II) which track the passive investable assets but also may contain potential manager alpha should be considered. 114 THE NEW SCIENCE OF ASSET ALLOCATION Satellite II: Less Liquid Alpha Alternative to Satellite I Investments (Private Equity, Long-Term Lock Up) Satellite I: Investable Alternatives to Core Investables (Mutual Funds, Manager Based Alternatives) Core Investables (ETFs, Replication Products) Strategic Asset Allocation Benchmark Determined EXHIBIT 6.2 Strategic Benchmark, Core, and Satellite Groupings In Exhibit 6.3, the core investment classes have been broken down into equity, fixed income, traditional alternatives, and modern alternatives.

…

Moreover, global and domestic regulatory forces as well as market forces have created a new list of investable products (exchange traded and over the counter). These products include more liquid and readily available forms of traditional stock and bond investment (e.g., ETFs, OTC forward and options contracts) as well as more liquid and readily investable alternative investment forms (e.g., passive investable benchmark products). The addition of new investment forms has permitted individuals to more readily access previously illiquid or less transparent asset classes (e.g., private equity or real estate) and has increased the number of assets that provide the potential for risk diversification in various states of the world.

…

To the extent that returns to those risk factors can be predicted, then that knowledge can be used to determine asset weighting between various asset classes.2 Unfortunately, academic research has generally concluded that it is not possible to obtain accurate estimates of future returns to macroeconomic factors such that, as a result, future expected returns are often based on subjective estimates related to long term historical returns to risk factors. In the investment area one of the primary, if not the essential, questions is the value of active management relative to manager based or security/ market factor passive investable indices. Most investors are aware of the number of articles as well as books that attempt to address the value of active versus passive management. For years, this discussion was primarily limited to the traditional stock and bond area as informational and trading costs limited its use in the traditional alternative investments (commodities and private equity) area as well as in the area of modern alternatives (hedge funds and CTAs).

The Behavioral Investor
by Daniel Crosby
Published 15 Feb 2018

It has been said that “what gets measured gets done,” but it is equally true that “what gets measured gets dumb.” Passive management, which makes the yardstick the investment vehicle, falls prey to some of the shortcomings of the Cobra Effect as a result. But before I render a nuanced behavioral critique of passive investing (and anger an army of Bogleheads with pitchforks), let me speak to some of its considerable strengths. To be as direct as possible, passive investing should be the de facto choice of those uninterested in the art and science of investment management. By buying a diversified basket of index funds that covers a variety of asset classes, know nothing investors (who often know a great deal) are likely to beat more than 90% of active managers and have time to focus on pursuits more meaningful than compounding wealth.

…

The rise of passive investing also means that stocks included in large indices tend to be less informationally efficient than those not in such company. Michael Mauboussin and company report that, “in mid-2016, passive index funds and ETFs owned 10 percent or more of 458 of the 500 companies in the S&P 500. In 2005, that was true for only 2 of the 500.” Increasingly, large swaths of a corporation are being bought and sold out of habit and not conviction, meaning that prices are less and less reflective of true value. Speaking to this phenomenon Jesse Felder has said, “‘passive investing’ will ultimately become a victim of its own success.

…

As is so often the case, the usefulness of these beliefs in an investment context is directly proportional to their behavioral difficulty. Acceptance of uncertainty and a belief in personal fallibility are remunerative precisely because they come so hard to humankind. It is strange to consider that many of the most effective tactics in investing have “I don’t know” at their core. Passive investing is the embodiment of “I don’t know” investing; if you’re not sure what’s good and what’s not, just buy the market. In large part due to this attitude of humility, passive vehicles have spanked active funds over just about any timeframe you’d care to consider. Just look at the results of the SPIVA Scorecard, a comparison of how active managers have done relative to their passive counterparts.

The Permanent Portfolio
by Craig Rowland and J. M. Lawson
Published 27 Aug 2012

Since long-term investment success is related to the ability to stay the course and not try to outguess the markets, a stable portfolio will help you emotionally to stick with the plan. Making the Most of Your Investments A portfolio that is simple, safe, and stable can be achieved by doing the following: Using passive investing only. Keep costs low. Use volatile individual assets to reduce overall portfolio volatility. Expect the unexpected and embrace the idea of market uncertainty. Passive Investing Passive investing is the opposite of the active asset management that is typically offered on Wall Street. The Permanent Portfolio is a passive strategy, which means that it does not engage in market timing, actively trading stocks, moving in or out of the market on chart signals, or other similar tactics.

…

I believe that most investors are better off putting their money into low-cost index funds. (An index fund is a mutual fund that tracks the broad movements of a stock-market index, such as the S&P 500.) Over the long term, this passive investing approach has been shown to produce above-average returns for patient investors. Why? There are many reasons, but primarily because investing in index funds costs much less than nearly any other method. In fact, Stanford University professor William Sharpe famously demonstrated that passive investing with low-cost index funds must produce better results than traditional investing. The average return of both methods is the average return of the market.

…

But because traditional investing costs so much, investors taking that path necessarily see smaller returns on their investments. (To read more, see http://tinyurl.com/sharpe-rocks.) But there are other ways to explore passive investing besides index funds. Three years ago, I read a book called Fail-Safe Investing by Harry Browne. This tiny volume, first published in 1999, champions a method of passive investing that Browne called the Permanent Portfolio. And while it's a little more complicated than simply investing in index funds, the ideas are still fairly simple. According to Browne, the Permanent Portfolio should provide three key features: safety, stability, and simplicity.

Investing Amid Low Expected Returns: Making the Most When Markets Offer the Least
by Antti Ilmanen
Published 24 Feb 2022

(It implies low turnover, no deviations from the average investor, and little discretion.)1 Overall, the active/passive distinction is not binary but involves many shades of grey.2 The distinction is not even a continuum in one dimension (say, the tracking error to measure the magnitude of active risk). Other relevant dimensions include strategic versus tactical, diversified versus concentrated, low versus high turnover, and transparent versus proprietary. Investors have increasingly shifted from active to passive investing. The market share of passive investing is somewhere between 20% and 50% in the late 2010s, depending on the asset class, region, and manager universe, as well as on definitional questions (e.g. how to treat increasingly popular and increasingly active ETFs or the large group of non-delegated active investors).

…

Investors should recall that we all are prone to such neglect, even if they can overlay their specific information or views on top of base-rate information provided here. This book serves carrots and broccoli as the main items on the investment menu, not much of the sweet stuff. Many investors count on manager-specific “alpha,” but empirical evidence argues against confident predictions of positive alpha. Chapter 7 reviews evidence on active versus passive investing and methods for demystifying active manager returns. I then summarize risk-based and behavioral forces that may explain various asset class and style premia, before asking questions like “Who is on the other side of these premia strategies?” or “How does one sustain conviction and patience in a chosen approach through its bad times?”

…

Active versus passive: For decades, most equity portfolios applied traditional active management (mainly discretionary stock picking), even if academic research argued that active managers may not be worth their fees. Performance measurement became possible from the 1960s onwards with benchmark indices and peer comparisons. Passive investing became a feasible option to active management in the 1970s, when the first index funds were launched. They were not an instant hit. The big shift from active to passive began only in the 2000s but has been inexorable since then (see Figure 3.6). The past 15–20 years have seen traditional active managers lose market share to index funds and ETFs, but also to even more active alternative managers (hedge funds and private equity).

The Smartest Investment Book You'll Ever Read: The Simple, Stress-Free Way to Reach Your Investment Goals
by Daniel R. Solin
Published 7 Nov 2006

The current terminology is a snore; it makes our readers' and our clients' eyes glaze over. 18 8eaJme a Smart Investor The current terminology fo r investi ng for market returns is "passive investing." What could be more boring? Do you want to be an active investor or a passive investor? No one wantS to be passive; it implies you have no abi li ty to have any influence on an outcome. Anomer term historically used for market~return investment is "index-based investing"-anomer less-than-scintiUating bit of verbiage. Over the years. index-based or passive investing has come to be equated with being "average." And no one wants ( 0 be average. We al1 want to believe in the utopian Shangri-La described in James Hi lton's novel Lost Horizon, where everything is perfec t and no one is average.

…

Chapter40 Where Are the Pension Plans for Smart Investors? [A}ctive investment management is a source ofpension fund losses, not profits. Individual fonds can have profitable strategies, but aggregate profits are negative because of manager foes and transactions costs. The recent growth in passive investment products and increased interest in performance-linked fees are evidence that Canada's pension community recognizes how difficult it is to earn above-market returns. -John I1kiw, "Pension Fund Financing: A Plan Sponsor's Guide to Fiduciary D uty.'" Reponed at: http://www.benefits canada.com/conrcnt/lcgacy/Content/1997103-97/fl. html For many Canadian investors, their registered pension plans (RPPs) and their Registered Reti rement Savi ngs Plans (RRSPs) represent an important part of thei r retirement plann ing.

…

If you find that there are no (or few) ETFs or index fund investments in your pension plan, complain to the person responsible for selecting the investment managers of the plan. If there are enough complaints, you will start to see investment options for these plans that will permit the beneficiaries to become Smarr Investors. Chapter 41 Have the Inmates Taken Over the Asylum? Of course. I favour passive investing for most investors, buause markets are amazingly sucussful devices for incorporating information into stock prices. I beliroe. along with Friedrich Hayek fa Nobel laureate, and a contemporary ofJohn Maynard KeymsJ and others, that information is not some big thing that's locked in a iafo somewhere.

The Investopedia Guide to Wall Speak: The Terms You Need to Know to Talk Like Cramer, Think Like Soros, and Buy Like Buffett
by Jack (edited By) Guinan
Published 27 Jul 2009

Related Terms: • Bond • Market Maker • Stock Market • Broker-Dealer • Par Value The Investopedia Guide to Wall Speak 221 Passive Investing What Does Passive Investing Mean? An investment strategy that does not include active buying and selling of securities. Passive investors purchase investments with the intention of long-term appreciation and thus have limited portfolio turnover. Index fund investing, in which shares in the fund simply mirror an index, is a form of passive investing. Investopedia explains Passive Investing Also known as a buy-and-hold or couch potato strategy, passive investing requires good initial research, patience, and a well-diversified portfolio.

…

The most popular index funds track the S&P 500, but a number of other indexes, including the Russell 2000 (small companies), the DJ Wilshire 5000 (total stock market), the MSCI EAFE (foreign stocks in Europe, Australasia, and the Far East), and the Lehman Aggregate Bond Index (total bond market), are followed widely by investors. Investing in an index fund is a form of passive investing. The primary advantage is the lower management expense ratio. Many actively managed mutual funds fail to beat broad market indexes because their returns are reduced by higher expense ratios. The Investopedia Guide to Wall Speak 137 Related Terms: • Benchmark • Expense Ratio • MSCI—Emerging Markets Index • Mutual Fund • Standard & Poor’s 500 Index—S&P 500 Index Futures What Does Index Futures Mean?

…

SPDRs trade like stocks, are liquid, can be sold short and bought on margin, and are a good source for dividend income. As with a stock, investors pay a brokerage commission when trading SPDRs. Investors buy SPDRs to replicate the performance of the overall stock market. SPDRs are not actively managed and are thus passive investments (index investing). Related Terms: • American Stock Exchange—AMEX • Benchmark • Diversification • Exchange-Traded Fund—ETF • Standard & Poor’s 500 Index—S&P 500 Spinoff What Does Spinoff Mean? The creation of an independent company through the sale or distribution of new shares of an existing business or a division of a parent company.

Adaptive Markets: Financial Evolution at the Speed of Thought
by Andrew W. Lo
Published 3 Apr 2017

THE DEMOCRATIZATION OF INVESTING Passive investing—the idea that you can’t beat the market and should invest in index funds—is now such an important part of the traditional investment paradigm, it’s hard to appreciate just how revolutionary the idea of an index fund once was. These days, however, there seem to be nearly as many indexes as there are stocks. Where did the idea of the index come from, and where is it going? The Adaptive Markets Hypothesis can also explain the evolving nature of passive investing and indexation. As with many financial innovations, the genealogy of passive investing can be traced to academic research, in this case two different programs.

…

This is particularly straightforward for passive strategies that are dedicated to achieving the returns of an index. Existing technology can easily integrate active risk management with passive investing through algorithmic trading, derivatives, securities exchange design, telecommunications, and back-office infrastructure. Thanks to these new technologies, the existing link between active risk management and active investing, and passive risk management and passive investing, can now be severed. DISBANDING THE ALPHA BETA SIGMA FRATERNITY Here’s one concrete example of how to sever this link. Imagine a dynamic index fund, one that contains no alpha, but is a diversified equity portfolio that’s actively risk-managed to a target level of volatility.

…

The CAPM and related linear factor models are useful inputs for portfolio management, but they rely on several key economic and statistical assumptions that may be poor approximations in certain market environments. Knowing the environment and population dynamics of market participants may be more important than any single factor model. Principle 3A: Portfolio Optimization and Passive Investing. Portfolio optimization tools are only useful if the assumptions of stationarity and rationality are good approximations to reality. The notion of passive investing is changing due to technological advances, and risk management should be a higher priority, even for passive index funds. Principle 4A: Asset Allocation. The boundaries between asset classes are becoming blurred, as macro factors and new financial institutions create links and contagion across previously unrelated assets.

Portfolio Design: A Modern Approach to Asset Allocation
by R. Marston
Published 29 Mar 2011

Gorton and Rouwenhorst compared passive investment in commodity future contracts with the stocks of commodity firms producing the same commodities. They found that the correlation between the two investments was only 0.40. At the same time, the correlation between the stocks of these firms and the S&P 500 was 0.57. So the stocks of the commodity producers were more highly correlated with stocks than the commodities that they produced. Commodity futures provide a pure play on commodity investment. But passive investment is very different from active investment. Passive investment involves buying a futures contract at the beginning of the period, then closing the position automatically at the end of the period.

…

That expertise will guide the manager on when to be long or short in the commodity, whether to overweight one commodity relative to another, or whether to take positions more aggressively in currencies rather than commodities. Passive investments in commodity futures represent a much purer play on the commodities themselves. For this reason, most of the chapter will be devoted to passive investment. SOURCES OF RETURN ON COMMODITY FUTURES Before considering actual returns on commodity contracts, it’s important to understand the sources of return on commodity futures. There are two main sources of return, risk premiums and forecast errors.

…

P1: a/b c12 P2: c/d QC: e/f JWBT412-Marston T1: g December 10, 2010 15:49 Printer: Courier Westford 249 Real Assets—Commodities Thus in the recent period, in particular, there is only a weak case for diversifying a portfolio with a passive investment in commodities. Despite having a very low beta, it’s not a miracle drug for the portfolio. DOES GOLD BELONG IN THE PORTFOLIO? For millennia, gold has been considered the ultimate store of value. So does it deserve a place in a modern portfolio? To answer that question, consider the return on the GSCI Gold index, a sub-component of the Goldman Sachs commodity futures index. Like the overall GSCI index, the return on the GSCI Gold index is derived from passive investment in futures contracts, in this case the futures contract tied to the London gold price (which is quoted in dollars).10 This gold index is available beginning in 1979.

The Myth of Capitalism: Monopolies and the Death of Competition
by Jonathan Tepper
Published 20 Nov 2018

One of the major reasons for the enormous swelling of these institutional holdings is the history-making transition into “passive investing.” In previous years, financial managers would actively direct investments. They felt that they could beat the market by researching, employing smart mathematicians and economists, and by spending a lot of time noodling about market trends. This is known as active investing – and in recent years it has come under fire for being ineffective and expensive. Warren Buffett claims that investors have “wasted” upwards of $100 billion paying useless wealth managers high management fees.14 He is a proponent of what's known as passive investing, or investing in index funds.

…

They do not have to be managed, so they are much less expensive than active funds, and they help investors lessen risk through diversification. Passive investing has brought great benefits for average, middle-class investors. It has been somewhat of a Robin Hood story in finance. Small investors who had been paying absurdly high fees to Wall Street investment managers suddenly got access to a low-cost product that democratized investing. For the last decade, passive investing has outperformed active management, and it has involved a lot less effort or skill. The index does all the work. The highest paid investment managers in the world lost out to a simple index in which anyone could invest.

…

Paul, 158 McKesson, price-fixing allegations, 131 McLaughlin, Patrick A., 179 McNamee, Rogert, 113 Measure of America report, 114 Meat industry, oligopolies, 132–133 Meat processing firms, ownership timeline (changes), 134f Media, oligopolies, 133, 135 Medical care, oligopolies, 129 Mega merger waves, 163f Mellon, Carnegie, 139 Mergers changes, 9f enforcement, death, 163 impact, 43–44 mega waves, 163f merger-induced price increases, evidence, 42 prices, increase, 44 rejection, standard/basis, 243 reversal, 243 solutions/remedies, 242–245 studies, 60 waves, 145f, 154 Mergers and acquisitions (M&As) impact, 12 proportion, 164f Mergers, Merger Control, and Remedies, (Kwoka), 42 Metcalfe's Law, 98 Michaely, Roni, 8, 13 Microprocessors, monopolies/local monopolies, 121 Microsoft monopoly, 93 operating system market share, 117 “Middle America,” revolt, 58 Miliband, Ed, 215 Milk, monopolies/local monopolies, 118–119 MillerCoors, creation, 123 Mill, John Stuart, 22 Minimax theory, 27 Mnuchin, Steven, 189 Moeran, Shivaun, 87–88 Mogridge, Martin, 18–19 Molson Coors beer market dominance, 188 SABMiller, duopoly, 123 Money, spending, 247 Monocultures, danger, 59 Monopolies, 15 competition, impact, 179 condemnation (Truman), 146 defining, 37–38 factors, 16 impact, 116–122 King Kong, comparison, 35 Monopolists, barrier entry, 245 Monopoly Machine, 15–16 usage, 51 Monopoly Rules, 5–6 Monopsonies, 37–38, 71 meaning, 74 power, 85 ranking, 73f Monsanto Bayer purchase, proposal, 119, 121 federal government, revolving door, 193f lobbying spending, 192 Moody's, return on invested capital (ROIC), 183 Moore, Gordon E., 66 Morganizing (Morganization), 195, 196, 209, 240 Morgan, John Pierpont, 143, 195 Buffett, comparison, 198 failing company finance, 196 inheritance, 208 Mueller, Holger M., 39 Mukherjee, Siddhartha, 167 Munger, Charlie, 2 Murdoch, Rupert, 133 “My Fellow Zillionaires” (Hanauer), 231–232 N Nakaji, Peter, 35–36 Nash, John, 26 National Dairy Holdings, price fixing, 119 Nationally Recognized Statistcal Rating Organization (NRSRO), 183–184 Navalny, Alexei, 92 Nazis, trusts (commonality), 137 NBCUniversal, Comcast purchase, 6–7 NBC Universal, market dominance, 133 Net investment (nonfinancial businesses), 205f Netscape, Microsoft (impact), 93 Net wealth shares (United States), 230f Network Effects, 15, 98 self-reinforcement, 103–104 Nevins, Allan, 156 New Deal, 78 “New Poor,” 230–231 News Corporation, market dominance, 133 News Feed (Facebook), impact, 99–100 Nixon, Richard, 157 Noesser, Gary, 28 Noncompete agreements (noncompetes) spread, 84 state enforcement, absence, 70f worker percentage, 69f Nonfinancial businesses, net investment, 205f Northern Rock, panic, 17–18 Northern Securities Company, formation, 196 Noyce, Robert, 66–67 NSC, antitrust case, 196 O Obama, Barack, 95–96, 161, 165, 190 reverse revolvers, 191–192 Occupational licensing, excess (impact), 83 Occupy Wall Street movement, 211–212 Ogden, Aaron, 137 Ohlhausen, Maureen K., 83 Old Republic, market dominance, 135 Oligopolies, 15, 125–136 Buffett perspective, 201 court decision, 30 ownership, 201 reputation, problem, 5 Olney, Richard, 191 “On Being the Right Size” (Haldane), 49 Online advertising, duopolies, 123–124 Operating systems, Microsoft market share, 117 Optimism, essence, 229 OptumRx, market dominance, 130 Ordoliberalism, 153, 238 Organisation for Economic Co-operation and Development (OECD), study, 23 Organisms, growth phases, 52f Orphan Drug Act (1983), 175 Orwell, George, 113 Ownership, concentration, 199 P Page, Larry, 68 Panic of 1907, 195–196, 208–209 Pasquale, Frank, 123 Passive investing, 201 Passive investments, contest, 203 Passively managed assets, share, 202f Patents, 171–172, 246 annual issuance (US), 173f problems, 172–173 protection, congressional removal, 246 Walt Disney, impact, 173–174 Paulson, Henry, 190 Payment systems, duopolies, 122 PayPal eBay release, 56 founding, 4 value, 118 Pearson, Michael, 168–169 Peltzman, Sam, 224 Perfect markets, belief, 155 Perkins, Charles E., 191 Personal information, Facebook control, 117 Pharmaceutical Research and Manufacturers of America, drug lobbying, 187 Pharmacy benefit managers (PBMs) market, 115–116 oligopolies, 130–131 Philippon, Thomas, 56 Phone companies, oligopolies, 126–127 Phone operating systems, duopolies, 123 Pierce, Justin, 40–41 Pike, Chris, 226 Piketty, Thomas, 214–217 diagnosis, 228 income chart, 224 Pipes, basis, 122 “Pitchforks Are Coming…for Us Plutocrats” (Hanauer), 232 Planck, Max, 165 “Planning Outline for the Construction of a Social Credit System” (China), 111–112 Platform companies, 97–98 Political activity, 248 Political freedom, 143–144, 233 Porter, Michael, 14 Posner, Richard, 156 Potsdam Treaty, 150–151 Poultry industry, oligopolies, 132–133 Power balance, 217 concentration, 141 imbalance, 74 Predatory pricing, punishment (laws), 244 Premier, market dominance, 130 Price-fixing, allegations, 131 Price leadership, 43–44 Prices, increase, 40–45 mergers, impact, 44 Prisoner's Dilemma, The, 27–28 Privacy, importance, 247–248 Productivity companies, impact, 54 growth, reduction, 53f low level, impact, 48–49 reduction, 47–56 wages, contrast, 222 Profitability increase, 51 investment, contrast, 57f Profits, lobbying/regulation (relationship), 188 ProPublica study, 104 Protestant Ethic and the Spirit of Capitalism, The, (Weber), 76 Q Queen, Edward, 14 R Raff, Adam, 87–88, 94 Railroads control, farmer resentment, 140 mergers, 120f monopolies/local monopolies, 119 Randall, James, 21 RCA, innovation, 55 Reagan, Nancy, 159 Reagan, Ronald, 46, 158–161 antitrust revolution, 224–225 Reback, Gary, 94 Reed's Law, 98 Reflections on the Revolution in France (Burke), 239 RegData, usage, 180, 188 Regulation lobbying/profits, correlation, 188 profits, correlation, 181 usage, 167, 245–246 Regulatory capture, avoidance, 245 Reich, Robert, 197 Republic Services Group, 3 Return-free filing system, IRS implementation, 126 Returns, company lobbying (comparison), 187f Reverse revolvers, 191–192 Revolt of the Elites, The, (Lasch), 58 Revolutions, appearance, 230–231 Revolving door, 190f, 193f avoidance, 245 Reynolds, Glenn, 183 Rhodes, Cecil, 24 Ricardo, David, 58 Richards, Tyler, 179 Robber barons impact, 111 term, usage, 139 Rock, Edward, 209 Rockefeller, John D., 111, 126, 139–143, 208, 240 Roosevelt, Franklin Delano, 146, 224 New Deal, 78 Roosevelt, Theodore, 141–143, 193, 234 trust fighting, 239–240 Royal Bank of Scotland, rate rigging, 25 Rural areas, lag, 72f S Salop, Steven, 39, 225 Sandberg, Sheryl, 114 Sanders, Bernie, 212, 231 Sarnoff's Law, 98 Saving Capitalism (Reich), 197 Saxenian, AnnaLee, 67 Scale (West), 51 Schäuble, Wolfgang, 17 Schiantarelli, Fabio, 181 Schmalensee, Richard, 106 Schmalz, Marin, 199 Schmidt, Eric, 68, 96, 114 Schumpeter, Joseph, 4–5 Schweitzer, Arthur, 148 Search engine, building, 118 Searches, monopolies/local monopolies, 118 Secular stagnation, 56 Seeds, monopolies/local monopolies, 119, 121 Servan-Schreiber, Jean-Jacques, 4 Service Corporation International (SCI), market dominance, 121–122 Share buybacks, 206 limitation, 247 Shareholders, 246–247 manager representation, 79 Sherman Act of 1890, 7, 140–144, 157, 160, 237 Sherman, John, 140, 195 Shockley, William, 65–67 Signaling, 30 Silicon Valley, disparagement, 87 Simon, Hermann, 29–30 Singer, Paul, 203–204 Skilling, Jeffrey, 14 SkyChefs, wage laws fines, 78 Small banks, disappearance, 181–182 Small firms, disappearance, 47 Small-scale businesses, job creation, 50 Smith, Adam, 7, 22, 35, 38, 63, 191 invisible hand, 38 Smith, Brad, 94 Smith, William French, 158 Snap, Initial Public Offerings, 107 Snowden, Edward, 112 Social networks, monopolies/local monopolies, 117–118 Society, regulations (service), 245 Soros, George, 113 Sprint, phone market dominance, 126–127 Square-cube law, 49–50 Staggers Rail Act (1980), 119 Staltz, André, 102 Standard Oil market control, 90–91 Supreme Court dissolution, 142 Standard & Poor's 500(S&P500), Big 3 ownership, 203f Startups advertising, 107 dynamics, 106–107 reduction, 45–47 Stationers Company, The, 235 Statute of Monopolies (England), 172 Steele, Helena, 102 Steinbaum, Marshall, 38, 72 Sterling Jewelers, claims (filing), 80 Stewart, market dominance, 135 Stigler, George, 155 Stiles, T.J., 138–139 Stock markets, success, 218 Stock ownership income, impact, 197 US percentage, 201 Stocks company retirement, 207 options, manager purchase, 247 Stoppelman, Jeremy, 108 Strikes, wage growth (association), 80f Strouse, Jean, 208 Structure of Scientific Revolutions, The, (Kuhn), 165 Summers, Larry, 56 Superstar firms, rise, 40 Suslow, Valerie Y., 25 Sustainable prosperity, 208 Sweetland, Kyle, 83 Swipe fees, dispute, 122 Switching costs (reduction), rules (creation), 246 T Tabakovic, Haris, 192 Taibbi, Matt, 102 Takedown notices, filing, 99 Tap Dancing to Work (Buffett), 1 Tax preparation, oligopolies, 125–126 Technology companies market capitalization, 90–91 monopolies, profits, 114 Tecu, Isabel, 199 Teles, Steven M., 174, 188 Temporary work, empowerment, 75 Temporary workers, poverty l ine, 75 Tesla, Nikola, 67, 195 TEVA Pharmaceuticals, generic drug release, 176 Thiel, Peter, 4–5 Third-party services, sale, 245 Thomas, Diana, 180 Time Warner Cable, Comcast purchase (FTC prevention), 165 Time Warner, market dominance, 133 Tit for Tat, 28–29 Title insurance, oligopolies, 135–136 T-Mobile, phone market dominance, 126–127 “Tobacco Trust,” 142 Toll roads, impact, 111 Trademarks, theft, 102 Trade, restraints, 68 “Traitorous Eight,” 66, 84 TransDigm, company acquisition/price increases, 184–186 Trickle-down monetary policies, 219 Trotsky, Leon (rehabilitation), 212 True Believer (Hoffer), 230 Truman, Harry (monopoly condemnation), 146 Trump, Donald (election), 212 Trusts antitrust enforcement budget, 160f challenges, 141 creation, 142 Nazis, commonality, 137 Turf wars, 21 U Unionization, collapse, 83 Unions decrease, 84f membership, income distribution (contrast), 79f restrengthening, 78 United States banking mergers, 128f banks, owners (ranking), 200f economy, entrepreneurialship (reduction), 46f federal government, relationship/revolving door, 190f, 193f grocery market, competitiveness, 32 healthcare, monopolies/oligopolies (prevalence), 131–132 income inequality, 214f, 225f job markets, examination, 38 markets, passively managed assets (share), 202f Morganizing, 195 net wealth shares, 230f optimism, essence, 229 patents, annual issuance, 173f public companies, collapse (number), 10f wages leading indicator, perception (variation), 64f United States v.

In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest
by Andrew W. Lo and Stephen R. Foerster
Published 16 Aug 2021

But I said [they] didn’t have any inputs to put into the model. I also I thought that [it] was somewhat of a dead end. And since we were trying to do something new, that maybe [they] should go the opposite way and study how to use passive investments as part of the investment milieu as opposed to active investment.”24 Six months later McQuown contacted Scholes, indicating that Wells Fargo liked his ideas about passive investment and wanted to sponsor further research. Scholes recalled McQuown reasoning out loud that “no one had ever talked about passive management before.”25 What did he think of such a project? “Passive meant, to me … just thinking about, at the time, replicating, or being close to replicating an index.

…

In addition, investment managers and advisers should concentrate on what he refers to as “value discovery,” guiding their clients through important questions, the answers of which will determine an appropriate investment strategy for their particular long term, despite the inevitable ups and downs of the market. The Revolution Ellis is a strong advocate of passive investing in the low-cost, broad-based, market capitalization–weighted index fund. Index investing “eliminates or reduces all the ‘little things’ that, like termites, eat away at returns: high fees, taxes, errors in selection of managers and more.”66 In his recent book, The Index Revolution,67 he begins with nine silly “reasons” not to index: Indexing is for losers. Passive investing is like giving up trying. Indexing forces investors to buy overpriced stocks. With indexing, some unknown administrators are selecting your stocks.

…

This result was a critical milestone in both academia and industry. Once Sharpe deduced that in a CAPM world everyone would hold the market portfolio, he was able to derive the expected return for each stock that was part of that portfolio. It’s no exaggeration that the CAPM provided the intellectual foundations for passive investing and the multitrillion-dollar index mutual fund business. By taking portfolio management out of the hands of the “gunslinger” stock picker of the 1960s and placing it into the hands of passive index funds, Sharpe narrowed the focus of Markowitz’s portfolio idea and did more than any other financial economist to make the investment process more accessible for all of us.

Investing to Save the Planet: How Your Money Can Make a Difference
by Alice Ross
Published 19 Nov 2020

It failed to reach its target after some investors called the idea ‘oxymoronic’. Ideally, a bond fund manager would be able to see through greenwashing cases, though you should always check yourself that you’re happy with what a bond fund is investing in. Explore passive investing The debate between active and passive investing has been hotly contested this century. In recent years, the allure of so-called ‘star’ fund managers has faded amid various scandals. One noteworthy case is UK fund manager Neil Woodford’s fall from grace. At one time the best-known fund manager in the country, he was forced to close his flagship fund in 2019 after investors rushed for the exit following a period of poor performance.

…

Yet because they have so many holdings across so many companies and don’t have the time to vote themselves, research on how to vote is often ‘outsourced’ to third parties such as proxy voting agencies. This has drawn criticism, as voting is deemed to be an important part of shareholder responsibilities. However, passive investment is no longer seen as an excuse for ignoring climate change inaction. LGIM in the UK is, at the risk of sounding oxymoronic, one of the more active passive fund managers out there. It achieved something of a coup when it attracted tens of billions in 2019 from Japan’s government pension fund, which was widely seen as approval of its tendency to engage more with the companies it holds.

…

Nutmeg probably don’t come from a place that I’m coming from – they might have a fund doing their bit for the planet, but realistically it’s not enough, and I don’t know whether that’s Nutmeg’s fault; it’s probably the fault of the financial system.’ When I investigated further to find out why Will had been confused, I discovered that Nutmeg’s portfolios are mainly made up of exchange-traded funds: passive investments that track an index of companies. One of these mentioned on its website is the UBS MSCI United Kingdom IMI Socially Responsible UCITS ETF – a veritable nightmare of acronyms. Its holdings include BP, as well as mining company Rio Tinto. While UBS, the Swiss wealth manager, has put its name on the fund, it is MSCI, the index provider, that created it and decided what companies should be in it.

The End of Indexing: Six Structural Mega-Trends That Threaten Passive Investing
by Niels Jensen
Published 25 Mar 2018

The End of Indexing Six structural mega-trends that will threaten passive investing Niels Jensen Harriman house HARRIMAN HOUSE LTD 18 College Street Petersfield Hampshire GU31 4AD GREAT BRITAIN Tel: +44 (0)1730 233870 Email: enquiries@harriman-house.com Website: www.harriman-house.com First published in Great Britain in 2018 Copyright © Niels Jensen The right of Niels Jensen to be identified as the author has been asserted in accordance with the Copyright, Design and Patents Act 1988. Hardback ISBN: 978-0-85719-549-4 eBook ISBN: 978-0-85719-550-0 British Library Cataloguing in Publication Data A CIP catalogue record for this book can be obtained from the British Library.

…

Returns from taking beta risk are primarily a function of how you choose to allocate your capital across different asset classes and countries, but the cost factor is also significant – particularly in a low return environment. As most active investors underperform passive investors once costs are taken into consideration, the most cost efficient way of getting exposure to beta risk is through passive investment vehicles such as ETFs. All the structural trends that I have identified will significantly affect your beta return. For example, take demographics. We know that older consumers spend less than their younger peers do; hence ageing affects corporate profitability and therefore also equity returns.

…

That said, when the history books about the post-crisis environment are eventually written, one of the main topics will undoubtedly be the transformation of the lending market from commercial banks to alternative providers of credit. A few final words If I haven’t made myself clear by now, I will spell it out so even my dog understands it. It is time to step away from passive investing! Investing has been oh so simple for the better part of the last 35 years. All you had to do was to benchmark your portfolio, and everything would take care of itself, but not anymore. For many years to come, only those who are prepared to think outside-the-box and pursue idiosyncratic investment opportunities are likely to go to bed every night with a smile on their face.

Rigged Money: Beating Wall Street at Its Own Game
by Lee Munson
Published 6 Dec 2011

Losers include most active mutual fund managers. passive investing An investing strategy that buys and holds low-cost index funds to closely match the market returns. By admitting you don’t want to go for the gold, a passive investor wins by choosing to be mediocre. Most American passive investors fail, though, by not being able to stick with the strategy during exceptionally good or bad periods in market performance due to the inherent manifest destiny gene. Notable winners include active investors that write books on the virtues of passive investing. What are the assumptions? 1. That asset classes will not move in tandem with each other. 2.

…

Now they are quickly becoming a staple in many portfolios because they are cheap, tax-efficient, and tradable during market hours. However, just because something is an ETF doesn’t mean it will have those attributes. Now they are sold to the public as a cure-all, ranging from the ultimate in long-term passive investing to high-octane leveraged bets on specific commodities like gold and oil, creating access to markets not previously open to most individual investors. Breaking down boundaries can have unintended consequences. You can expand your mind to the point of losing it. There has been an explosion of ETFs that short the market with double or triple leverage.

…

In 2000 all of this began to change when Barclays started to move the ETF revolution into the hands of the individual investor. None of this was wrong, but up until that time everyday people didn’t own ETFs, nor understand them in general. What was about to happen was a resurgence in indexing, or passive investing. ETFs were supposed to allow long-term investors a cheap and easy way to grow their money with less expense than mutual funds and more diversification than buying a few stocks. The plan worked too well, and then the baskets kept increasing. You see, Wall Street will lure people in with ideas of a better mousetrap, which ETFs were to a large extent.

How Boards Work: And How They Can Work Better in a Chaotic World
by Dambisa Moyo
Published 3 May 2021

Americans for Carbon Dividends. “The Solution.” www.afcd.org/the-solution/. Anadu, Kenechukwu E., Mathias Kruttli, Patrick McCabe, Emilio Osambela, and Chae Hee Shin. “The Shift from Active to Passive Investing: Potential Risks to Financial Stability?” Supervisory Research and Analysis Working Paper, Federal Reserve Bank of Boston, 2018. www.bostonfed.org/publications/risk-and-policy-analysis/2018/the-shift-from-active-to-passive-investing.aspx. Analysis: Diversity and Inclusion in the Media Industry. New York: ISS, 2019. www.issgovernance.com/library/analysis-diversity-and-inclusion-in-the-media-industry/. Andilotti, Eillie.

…

New York: Goldman Sachs, 2014. www.goldmansachs.com/insights/pages/macroeconomic-insights-folder/womenomics4-folder/womenomics4-time-to-walk-the-talk.pdf. McCabe, Patrick. “The Shift from Active to Passive Investing: Potential Risks to Financial Stability?” Harvard Law School Forum on Corporate Governance, November 29, 2018. https://corpgov.law.harvard.edu/2018/11/29/the-shift-from-active-to-passive-investing-potential-risks-to-financial-stability/. McCarthy, Niall. “The Best and Worst Countries for Democracy [Infographic].” Forbes, February 1, 2018. www.forbes.com/sites/niallmccarthy/2018/02/01/the-best-and-worst-countries-for-democracy-infographic/#605a21ac3fff.

…

If this happens, investment flows will likely be redirected into active funds. In active funds, portfolio managers use their experience and judgment to regularly buy and sell the company shares in their multibillion-dollar portfolios. Although these funds have become less attractive as cheaper passive investments have been introduced, boards know that these stock-picking investors have the ultimate sanction available: they can sell a company’s stock if it is underperforming or if it does not fit their view of the world. The third type of investor, the activist, campaigns to change the direction of the companies they invest in.

Two and Twenty: How the Masters of Private Equity Always Win
by Sachin Khajuria
Published 13 Jun 2022

The order book is an early indicator of the likely revenues for the company or business, and can serve as an early-warning system if demand is collapsing. Passive investing (as in passive vs. active asset management): Passive investing involves a relatively low amount of buying and selling within the investment portfolio. In contrast, active investing requires a hands-on approach, typically by an asset management firm such as a private equity firm. Passive investing often involves buying index funds, mutual funds, or ETFs with a buy-and-hold mentality. Investors who adopt this passive approach look to participate in the upward trajectory of corporate profits and cash flow over time, accepting that sharp corrections can occur in the financial markets but aiming to ride them out.

…

In contrast, active investing relies on the judgment of the people hired to make the investment decisions, such as when to buy and sell, and the quality and depth of their analysis. Passive investing is much cheaper for investors than active investing because there are no investment professionals selecting individual companies or businesses to invest in, and oversight of the investments is much more limited. If passive investing produces a superior investment return than a given active investor over a similar time horizon, despite being cheaper for investors, there is a strong reason to suggest that the active asset manager in question is underperforming.

…

This world is driven by people with a mindset to take a personal interest, to make investments, and to help run them until refinancing and exit. Complexity invites choice, and in making the right choices you gain an edge. You do not need to be a finance expert to understand how this contrasts starkly from picking stocks or spreading bets in a mutual fund or making passive investments—however large—only to leave management to work alone. The attraction to complexity is one of the most important mental frameworks and identifiers in private equity. The investment committee has little appetite for “low-hanging fruit,” deals where there is less to do and only through financial engineering will there be any hope of making an acceptable return for their investors.

The Dark Cloud: How the Digital World Is Costing the Earth
by Guillaume Pitron
Published 14 Jun 2023

American stock exchanges were far more advantageous in terms of market capitalisation compared to their Canadian counterparts, Suttles said, as Encana would have access to a broader panel of investors. But not to just any investors: passive funds. ‘When we compare ourselves to our US peers, we’re about 10 per cent passively held, and they’re more than 30’, the CEO said. ‘So, you can imagine how important that [an increase in passive investing] could be. And, of course, you also know how significant the growth is in passive investment.’30 Despite some internal resistance, Encana’s move (and subsequent renaming to Ovintiv) was sanctioned by the group’s shareholders in 2020.31 But there is another, more shameful, reason for Encana’s relocation. Too bad for its deplorable environmental footprint and the reticence of its investors to take the Carbon Underground 200 seriously.

…

This trend is not specific to the United States: passive management has long been at the origin of half of investments on the Asian markets, and a third of investments on the European markets. Read ‘Environment program request for proposal: aligning passive investment with Paris climate goals’, William and Flora Hewlett Foundation, 28 January 2020. 29 The list can be consulted upon request on the Fossil Free Fonds website. In 2021, Encana was ranked number 30 on the list (35 in 2014). 30 ‘Encana needed to tap into passive investing, CEO Suttles says’, Bloomberg Markets and Finance, 31 October 2019. 31 ‘Encana receives securityholder approval for reorganization’, Encana Corporation, 14 January 2020. 32 Encana did not reply to my request for interview. 33 ‘Who owns the world of fossil fuels.

…

‘Once all the infrastructure works, it doesn’t take a lot of imagination to then say: “Perhaps the computer can make [investment] decisions on its own”’, postulates Michael Kearns, a professor of computer and information science.27 This was the case of funds such as Two Sigma at Renaissance Technologies, which has already taken automation a step further with tools so powerful that they are often associated with the somewhat catch-all term ‘artificial intelligence’ (AI). A multinational on a quest for passive investments And so alongside ‘active’ funds, where investment decisions are made mostly by humans, are a growing number of ‘passive’ funds, whereby financial transactions are increasingly put on autopilot. These are often index funds that track market indices — such as the S&P 500, based on the 500 biggest companies listed on the US stock exchanges — and long-term investment in these companies.

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
Published 17 Aug 2018

Now the 89-year-old is having the last laugh with that fund alone having $403bn[360] in assets and passive, index-tracking funds accounting for 29% of the entire US market[361]. In summary, a MIT professor’s peer-reviewed research then a huge step into the unknown by one of the world’s true visionaries sparked a passive investing snowball that has gathered momentum in the past five years. What did Samuelson make of it all? Way before index investing took off, seven years before Mr. Money Mustache put finger to keyboard, and four years before his death in 2009, he had this to say: “I rank this Bogle invention along with the invention of the wheel, the alphabet, Gutenberg printing, and wine and cheese: a mutual fund that never made Bogle rich but elevated the long-term returns of the mutual-fund owners.

…

Both have good fund choice for the suggested RESET portfolio. Fidelity shades it here with its access to funds from other providers whereas with Vanguard you can only buy Vanguard funds. Both have an excellent ethos. One is a co-operative[374], owned by its members (you), and set up by Jack Bogle; one a family firm that has embraced passive investing[375]. At time of going to press (late August 2018), if you’re in the UK and using the RESET portfolio, choose Fidelity for your Sipps and Vanguard for your Isas. Here’s why: Vanguard doesn’t yet offer Sipps. Vanguard does offer Isas and is 0.16% cheaper under the suggested RESET portfolio[376].

…

A difference of 0.16% a year in charges may be small beer when investing £10k in an Isa, but if we’re talking ten or 20 or 30 times that amount in a Sipp, the difference in charges and lost compounding will soon add up. Vanguard is a co-operative. Owned by its members it has no incentive to, and cannot, turn a profit. Safe in that knowledge, you don’t need to keep an eye on costs; you can set and forget. I feel I owe it to the mellifluous tones of Jack Bogle, founder of Vanguard, whose passive investing ethos runs through Vanguard like tree rings. Action As a UK investor, if you want a simple home for your money now, pick Fidelity[378]. Then transfer it over to Vanguard when Vanguard starts doing Sipps. It’s easy to sign up to either provider, and transferring your existing investments is a mere online form, telephone conversation and two-to-three-week Fidelity-or-Vanguard-managed process away.

Smarter Investing
by Tim Hale
Published 2 Sep 2014

I know it is tempting to get swayed by the supposed evidence of short-term performance of markets and managers but you will not be being rational if you are. Play the highest probability game. The rationale for adopting a passive approach to investing is made succinctly by Professor Keane (2000): ‘The significance of the empirical evidence is not that passive investment will always outperform active investment, but that, at the time of decision-making, the balance of probabilities is always in favour of passive investment.’ Active fund management employees invest in passive funds In a recent survery by Ignites1, it interviewed 1,001 active management employees in the UK and discovered that two thirds of them have sizeable amounts invested in passive funds and 45 per cent who hold a ‘significant’ amount in them. 4.8 Your investment philosophy rules 1 Set an appropriate investment policy mix of assets and stick to it at all times. 2 Remember at all times the wise words of Charles Ellis: ‘The ultimate outcome is determined by who can lose the fewest points not win them.’ 3 A penny saved is a penny earned.

…

No more gullible than those professionals who ‘approved’ and invested in Madoff’s $50 billion Ponzi scheme, uncovered at the back end of 2008 – that list is long and undistinguished. The time has come for transparency, value for money and the fulfilment of the fiduciary responsibility of all in the industry including fund managers, product development and marketing teams, and advisers. The outlook for impartial fee-based advice and evidence-based, transparent passive investing has never been so promising, or important to us. DIY investing The ability to buy, and in many cases trade, funds and other securities online has grown dramatically in the past decade. A growing band of DIY investors are seeking to use the information and technology to manage their own investments.

…

Passive index fund providers For UK investors the choice of passive providers and they product ranges that they offer have risen rapidly since the second edition of this book. The most notable new entrant into the market has been Vanguard (www.vanguard.co.uk) who are the pioneers of low-cost, passive investing. They immediately forced a step change in the pricing of passive funds offering a UK FTSE All-Share Index fund at 0.15% (15 basis points) per annum. They are also highly skilled at capturing market returns. Take a look at Table 9.3 on page 172. Their highly efficient trading and low cost approach is highly beneficial to investors.

Boom: Bubbles and the End of Stagnation
by Byrne Hobart and Tobias Huber
Published 29 Oct 2024

Another manifestation of higher time preferences is the rise of passive investing and indexing, which have radically altered financial markets. Passive investing strategies replicate the performance of financial indices, such as the S&P 500 or the VIX volatility index. In other words, the $26 trillion or so invested passively does nothing more than slavishly imitate an underlying financial index. These trillions ride on the premise of market efficiency, a fundamental tenet of modern finance theory that holds that prices incorporate all available information, so outperforming the market is essentially impossible. Yet passive investing destroys the price discovery process.

…

As a result, financial markets have become homogenized, dominated by a few passive strategies that trigger self-reflexive and self-perpetuating feedback dynamics. Volatility, for example, which is itself driven and therefore distorted by passive investing, becomes an input for various other strategies, such as volatility targeting. Markets dominated by passive investing also reinforce concentrated ownership by the largest megafirms. Perversely, while based on the assumption that markets are highly efficient, the rise of passive investing makes markets less efficient and more sensitive to extreme financial events. 49 Beyond moral hazards and time preferences, zero-risk policies, which are often guided by the illusory belief that spontaneous commercial self-organization can be micromanaged by government decree and macroeconomics, fail to recognize the deeper and more far-reaching social and cultural implications of the widely celebrated Schumpeterian “creative destruction.” 50 While “creative destruction” has become another empty buzzword, Schumpeter’s term refers not to an incrementally upgraded chatbot or social media app, as is commonly assumed, but to the violent destruction of entire industries, infrastructures, occupational categories, and financial systems.

…

Ray et al., “Recent Patterns of Crop Yield Growth and Stagnation,” Nature Communications 3, no. 1 (2012): 1293. 45 Ammous, “Slowdown.” 46 “Government Investment on the Decline,” The FRED Blog, October 18, 2021, https://fredblog.stlouisfed.org/2021/10/government-investment-on-the-decline/. 47 Tim Lee, Jamie Lee, and Kevin Coldiron, The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis (New York: McGraw-Hill, 2019). 48 One of the biggest categories of long-lived assets is housing. Another is long-term government bonds. An investor who believes that rates will drop and stay low would view a SaaS startup as more attractive than, say, a coal mine, but a 30-year treasury would be more attractive still. 49 Passive investing increases market volatility because it removes a key backstop. When prices were set by active investors, mutual funds often kept a buffer of cash on hand in order to “buy the dip” in companies they believed in long term but which had hit a rough patch. Lower interest rates and benchmarks against fully invested indices increase the relative opportunity cost for this behavior.

Deep Value
by Tobias E. Carlisle
Published 19 Aug 2014

Asked another way, does activism create value, generating returns beyond the returns to cheap stocks? Benjamin Solarz at Yale University considered this question in 2009.63 He examined the portfolios of activists and tracked the performance of “activist” campaigns, and “passive” investments—those investments that did not result in activism. Solarz concluded that activist holdings earn 3.8 percent greater returns than comparable passive investments over the first two months, and an astonishing 18.4 percent greater return over two years. Figure 9.2 shows the returns to activist and passive holdings over the short term (a 61-day window). 180 DEEP VALUE 20% Board 15% Active NoBoard 10% 5% Passive 0% –5% 0 –3 s s ay D 5 –2 s ay D 0 –2 s ay D 5 –1 s s ay D 0 –1 ay D –5 ay D 13 Fi s g lin D 5 ay D s 10 ay D s 15 ay D s 20 ay D s 25 ay D s 30 ay D FIGURE 9.2â•… In the Short Run, Activist Investments Outperform Passive Investments Source: Benjamin S.

…

There are two considerations when valuing a business—the quantitative and the qualitative—and each informs the other. The quantitative leg of a theoretical valuation employing Buffett’s insight is relatively simple:37 The economic case justifying equity investment is that, in aggregate, additional earnings above passive investment returns—interest on fixed-income securities—will be derived through the employment of managerial and entrepreneurial skills in conjunction with that equity capital. Furthermore, the case says that since the equity capital position is associated with greater risk than passive forms of investment, it is “entitled” to higher returns.

…

By September 1983 Mesa had spent $350 million buying 8.5 million shares, representing 4.9 percent of Gulf Oil, and just below the 5 percent threshold that would require it to file with the SEC and disclose its holding to the market.20 By the time Mesa filed with the SEC in October, it held 14.5 million shares, representing almost 9 percent of Gulf, acquired at a cost of $638 million. Mesa filed a 13G notice indicating a passive investment, but its reputation as a hostile bidder caused Gulf’s management to panic. The board announced a special shareholders’ meeting for December. Their plan was to have Gulf change its charter and bylaws to remove several shareholder rights and to move the state of incorporation from Pennsylvania to Delaware, which The Art of the Corporate Raid 159 was friendlier to incumbent management teams.

Beyond Diversification: What Every Investor Needs to Know About Asset Allocation
by Sebastien Page
Published 4 Nov 2020

But again, not every active manager is average. Like almost everything in investment management, the active versus passive decision boils down to a risk versus return decision. Investors who want to take active risk can be rewarded for it. In the end, though, financial markets have room for both active and passive investment management. Investors who prefer to minimize fees, even at the cost of possibly higher after-fee returns, should choose passive strategies. The Revenge of the Stock Pickers A recent trend popular with asset owners globally has been to invest in blend strategies, which optimize the asset mix between passive and active building blocks.

…

They show that an increase in ETF arbitrage activity signals nonfundamental demand shocks (perhaps because of sentiment, or “thematic,” trading). In turn, these shocks appear to predict subsequent return reversals at the one-month horizon for both ETFs and their constituents. This wide body of research all points to the same conclusion: index/passive investing may cause mispricings and abnormal correlations (or “correlation bubbles”).4 Surprisingly, Madhavan and Morillo (2018) arrive at the opposite conclusion. They use a factor model to analyze what drives correlations over time and find that macro factors are more important than the increase in ETF assets in driving cross-stock correlations higher.

…

Ultimately, a lot more can be done when the strategy incorporates fundamental analysis. Hence, our goal is to indicate the potential size of the opportunity, not to design a purely systematic approach. Takeaways Are ETF investors increasingly at risk of getting “picked off”? Because of the growing popularity—as well as the liquidity and tax benefits—of passive investing, the percentage of trading volume on US exchanges from ETFs has increased significantly. Some ETF investors focus on top-down market views or themes, whereas others believe that markets are efficient and simply want broad index exposures. In all cases, when they trade, most ETF investors—and index investors in general—ignore security-level fundamentals.

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan
by Ben Carlson
Published 14 May 2015

Degrees of Active and Passive Management Many investors try to define themselves as having either an active or a passive investment philosophy. Active funds try to beat the market through superior security or industry selection, different factor weights—taking different risks than a market index—or timing the market. Passive funds are usually thought of as index funds and ETFs that mimic a specific market, less a small fee. There are now hundreds of different index funds or ETFs to choose from and they are so easy to buy and sell that based upon how some investors use them, you can hardly call it passive investing. There's an index for everything, so many of these strategies are active, in some respects, because they're much different than the overall markets.

…

The lines are becoming increasingly blurred between the two approaches and it's going to matter less and less in the future as the industry evolves and ETFs continue to take market share from the current crop of overpriced and overhyped active mutual funds. To help sort out all of the clutter, here are the five degrees of active and passive investing: Total market index funds. The classic three-fund portfolio from Vanguard (or any low-cost index fund provider) consists of some combination of the Total U.S. Stock Market Index Fund, the Total International Stock Market Index Fund, and the Total U.S. Bond Market Index Fund. These three funds are very broadly diversified and include nearly 18,000 securities across a wide range of sectors, geographies, and companies.

…

You know exactly what you're getting. Actively managed funds can do all of these things, even if they can't exactly match the cost structure of an index fund. Instead of worrying about passive versus active, think in terms of disciplined strategies versus undisciplined strategies. Also, there's no such thing as passive investing anyways. Indexed investing doesn't mean you can't be active, just like investing in active funds doesn't mean you can't invest passively. Even those investors that rarely, if ever, make any changes and completely put their portfolio on autopilot have to make some decisions up front. There's the target asset allocation, the fund types, asset location (tax sheltered or not), rebalancing intervals, and so on.

How I Invest My Money: Finance Experts Reveal How They Save, Spend, and Invest
by Brian Portnoy and Joshua Brown
Published 17 Nov 2020

I have enough invested in Vanguard or iShares indexes already. The Wall Street Journal once did a story on the personal investments of Jack Bogle. Bogle’s son had managed hedge funds and currently manages active small cap funds, which charge a hell of a lot more than the index funds at Vanguard. Jack, the godfather of passive investing, invested in his son’s active funds. I admired his explanation for these investments: But Jack Bogle, a relentless advocate for low fees, does poke fun at his son’s prosperity. “I often tease him,” Jack Bogle says. His son’s firm manages about $1.1 billion and its small-cap mutual fund charges annual fees of 1.35%, much higher than the 0.24% annual fee for a Vanguard index fund that tracks similar stocks, but about average for active managers offering similar services.

…

Seed stage investments of mine whose products and brands you might have heard of include Robinhood, eToro, Ycharts, Koyfin, and Rally Rd. I am also the co-founder of StockTwits, so it will not surprise you that I love individual stocks and not index investing. I do not believe there is such a thing as passive investing. If you allocate even monthly to index funds you are an active investor. You have just turned over the active investing part to Vanguard or Blackrock, etc. Most of my liquid net worth is dedicated to my investing in our Social Leverage funds. I also have made investments in other venture capital funds.

…

I don’t buy into the argument that you have to choose between active or passive management. Depending on what you are looking to do, you can use either investment option or both. As of now, I have utilized individual stocks and ETFs for the equity allocation in my portfolios and mutual funds for the fixed income portion. Passive investments like ETFs and index funds are my preference in my retirement accounts. It can help keep the costs low and more importantly stop me from wanting to try and trade in these accounts that are for the long term. In my non-retirement accounts, I prefer holding individual stocks and actively managed funds.

Capital Allocators: How the World’s Elite Money Managers Lead and Invest
by Ted Seides
Published 23 Mar 2021

How to Use This Book Capital Allocators is a distillation of lessons shared by guests on the first 150 episodes of the Capital Allocators podcast. It is presented in three distinct parts, each of which can best be digested in its own way. The introduction tells the story of how the podcast came about and shares my thoughts on the active/passive debate. If you wholeheartedly believe that passive investing is the way to go, my apologies for having increased your investment spending by a few bucks. This book is intended for the rest of us. Part 1 of the book is a toolkit. The chapters cover five necessary functional tools employed by allocators: interviewing, decision-making, negotiations, leadership, and management.

…

This book is decidedly about the active management process – how the holders of the keys to the kingdom allocate their time and their capital to meet the needs of their institutions. Make no bones about it: investment success going forward will require making outstanding decisions about asset allocation, manager selection, and security selection. Passive investing is poorly positioned to meet spending needs, and active management is increasingly competitive. We need to take this craft as seriously as ever. Attempting to do so without the requisite skill set at your disposal is a recipe for underperformance. If you agree, let’s turn to the set of tools that capital allocators need to maximize their chance of success

…

The team carefully measures the resulting risks and sets aggregate limits to maintain sufficient diversification.41 Matt Whineray deploys New Zealand’s assets through the lens of risk factors. He begins with the creation of a Reference Portfolio, which is a shadow portfolio of easily replicable, low-cost passive investments. The Reference Portfolio moves away from asset classes, emphasizing underlying economic drivers of growth, inflation, liquidity, and agency. It allows the governance board, the Guardians, to estimate expected returns and measure the value of active deviations from the benchmark. Matt’s strategic portfolio is composed of a series of risk budgets that ensure diversification and consistent implementation of active risk.

Stocks for the Long Run 5/E: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies
by Jeremy Siegel
Published 7 Jan 2014

Every extra percentage point of annual costs requires investors aged 25 to retire 2 years later than they would have in the absence of such costs. THE INCREASED POPULARITY OF PASSIVE INVESTING Many investors have realized that the poor performance of actively managed funds relative to benchmark indexes strongly implies that they would do very well to just equal the market return of one of the broad-based indexes. 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.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.

…

Chapter 22 Behavioral Finance and the Psychology of Investing The Technology Bubble, 1999 to 2001 Behavioral Finance Fads, Social Dynamics, and Stock Bubbles Excessive Trading, Overconfidence, and the Representative Bias Prospect Theory, Loss Aversion, and the Decision to Hold on to Losing Trades Rules for Avoiding Behavioral Traps Myopic Loss Aversion, Portfolio Monitoring, and the Equity Risk Premium Contrarian Investing and Investor Sentiment: Strategies to Enhance Portfolio Returns Out-of-Favor Stocks and the Dow 10 Strategy PART V BUILDING WEALTH THROUGH STOCKS Chapter 23 Fund Performance, Indexing, and Beating the Market The Performance of Equity Mutual Funds Finding Skilled Money Managers Persistence of Superior Returns Reasons for Underperformance of Managed Money A Little Learning Is a Dangerous Thing Profiting from Informed Trading How Costs Affect Returns The Increased Popularity of Passive Investing The Pitfalls of Capitalization-Weighted Indexing Fundamentally Weighted Versus Capitalization-Weighted Indexation The History of Fundamentally Weighted Indexation Conclusion Chapter 24 Structuring a Portfolio for Long-Term Growth Practical Aspects of Investing Guides to Successful Investing Implementing the Plan and the Role of an Investment Advisor Concluding Comment Notes Index FOREWORD In July 1997 I called Peter Bernstein and said I was going to be in New York and would love to lunch with him.

…

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.

Vulture Capitalism: Corporate Crimes, Backdoor Bailouts, and the Death of Freedom
by Grace Blakeley
Published 11 Mar 2024

“How to Think about the Unstoppable Rise of Index Funds,” The Economist, October 16, 2021, https://www.economist.com/finance-and-economics/2021/10/16/how-to-think-about-the-unstoppable-rise-of-index-funds. 123. As one Forbes contributor argued in 2017, “Passive investing substitutes diligence with diversification and can create a ‘rising tide lifts all boats’ effect on the valuation of both high and low quality stocks within an index.” David Trainer, “Hidden Trigger For Another (Flash) Crash: Passive Investing,” Forbes, July 20, 2017, https://www.forbes.com/sites/greatspeculations/2017/07/20/hidden-trigger-for-another-flash-crash-passive-investing/?sh=3e5ef7b577a2. 124. “The Rise of BlackRock,” The Economist, December 5, 2013, https://www.economist.com/leaders/2013/12/05/the-rise-of-blackrock. 125.

…

BlackRock benefited from this trend and overtook its competitors by pioneering the use of low-cost passive investment strategies.121 Rather than providing its clients with specialized advice, many of the products BlackRock offers simply track indices like the S&P 500 or the FTSE 100. This automated process allows BlackRock to outsource its advisory work to an algorithm, which is far cheaper than employing staff to consult with and invest on behalf of clients directly. While many investors were initially skeptical about the value of passive investment strategies, these algorithms have proved highly successful at beating even the most talented fund managers.122 But there’s a problem with passive investment funds.

…

While many investors were initially skeptical about the value of passive investment strategies, these algorithms have proved highly successful at beating even the most talented fund managers.122 But there’s a problem with passive investment funds. By pushing investment into a preselected group of corporations, without much regard for what those firms are doing, passive funds undermine the operation of the “market” for investment. Investors are supposed to pay attention to decisions being made by senior managers and invest accordingly. Good managers are rewarded while bad ones are punished. This is the foundation of modern corporate governance. But BlackRock can’t punish managers, because it can’t sell its shares. The firm’s stakes in companies like Walmart and Amazon are too large to off-load, and, in any case, BlackRock’s market-tracking funds are always going to be heavily invested in the largest corporations.

DIY Investor: How to Take Control of Your Investments & Plan for a Financially Secure Future
by Andy Bell
Published 12 Sep 2013

There have been loads of surveys that have ‘proved’ this point, though I still believe that certain managers will deliver the goods more often than not. Central to the theory of passive investing is the efficient market hypothesis, which is essentially the effect of what we all know as ‘market forces’ – namely that stock prices always settle at their true value, so there is nothing that can be done to find extra value. The real trick in passive investing is choosing the right index to track. Once you have done this, if you stick with a mainstream tracker fund provider you won’t go far wrong. The decision as to which index to track is all about asset allocation, as covered in the previous chapter.

…

The introduction of ETFs has not only seen cost pressure on active fund managers, but also on the early entrants to passive fund management. A 10 basis points annual management charge for a mainstream index is, if not the average, where the market seems to be heading. The UK was relatively late to the party with ETFs, but with investors on the other side of the Atlantic getting access to passive investments so much more cheaply it was only a matter of time before they hit these shores. The first launch on the LSE did not happen until April 2000, when iShares brought its FTSE 100 ETF to market. ETFs soon picked up momentum in the UK and 2002 saw the creation of a dedicated ETF trading segment on the LSE, while Chinese, Japanese and European ETFs were launched in London in 2004 and energy, metals and agricultural sectors were added the following year.

…

In the main, though, directors buying or selling shares in their own companies is a good indicator, and one that many investors will follow. Two websites that allow you to follow directors’ share purchases and sales are www.directorsholdings.com and www.directorsdeals.com. The long-term buy and hold investor This self-explanatory way of investing, combined with passive investing, explained below, is arguably the strategy that gives the DIY investor the best chance of good returns over a long period of time. Buy and hold investing is founded on the idea that markets will give a good rate of return in the long term, in the way that they have done over long periods for most of the last 100 or so years.

Heads I Win, Tails I Win
by Spencer Jakab
Published 21 Jun 2016

In 2006, a great year for the stock market, only 437 funds vanished, or 56 percent fewer than the number opened. How did those closed funds do? Fund management firms and their industry body, which produces a huge statistical yearbook, had no clue. Mark Hebner, founder of a firm championing passive investing called Index Fund Advisors, paid $1,000 to the one group that keeps track of such things, the University of Chicago’s Center for Research in Security Prices, to find out over five decades, from 1962 through 2012, that there were thirty-nine thousand mutual funds in existence at any time, but a third, or thirteen thousand, no longer existed by the end.

…

It’s also—and I speak from personal experience—akin to nonprescription Ambien. A far more worthwhile and entertaining book for the layperson, and arguably even more valuable if you count money saved rather than earned, is Burton Malkiel’s A Random Walk Down Wall Street, first published in 1973 and now in its eleventh edition. It’s a powerful argument in favor of passive investing and still the best take on the academic idea that more knowledge doesn’t equal better results. It’s hard to predict the future, but costs are something anyone can control. As Bogle put it, “The case for indexing isn’t based on the efficient market hypothesis. It’s based on the simple arithmetic of the cost matters hypothesis.”

…

Doom,” 128 Facebook, 88, 134, 184, 195 FactSet, 138–39 Fama, Eugene, 113–14, 146, 149 fears, 14, 21, 32, 64, 69, 80, 184, 200, 237, 239–43, 246, 249, 256–57 Federal Reserve, 5, 119, 165, 167 Fidelity Freedom 2035 fund, 79–80 Fidelity Investments, 79–80 Fidelity Magellan, 148, 158–59, 193 financial advisors, 250–52, 254, 257 crises, 49, 84, 109, 116, 200, 205, 232, 239 institutions, 3, 8, 15, 32–33, 81–83, 126 pundits, 24, 92, 116–19, 125–28, 141, 180, 234 services, 3, 15, 23, 79–84, 162, 207 Financial Industry Regulatory Authority (FINRA), 251 Financial Times, 117, 193, 201–2, 232 Fisher, Irving, 53 fixed annuity, 70 Forbes, 225 Fortune, 98, 138, 191, 237 Foundry Networks, 179 401(k), 3, 47, 79–80, 117, 120, 189 Franklin, Benjamin, 29 Franklin Templeton, 242 Freddie Mac, 101 French, Kenneth, 113–14 FrontierMicroCap Fund, 115 Fulghum, Robert, 150 fund managers, 13, 157, 254 best, 138, 173, 232–37 choose top analysts, 130–31, 134 failures/losses of, 26, 34, 105–6, 109–12, 115–16, 138, 149 fees of, 26, 108, 111, 114, 116, 147, 158, 161–62, 168–73, 200, 214–15 formulas of, 166, 169, 173, 220–25, 233, 240 and luck vs. skill, 34–35, 98–107, 110, 112–14, 172–73, 256 and monkeys, 106–9, 112 and stock purchases/sales, 137–38 successes of, 34, 97–101, 102–5, 108–11, 113–14, 153 See also expert advice; specific names fundamental indexing, 223–24, 227–28 funds best, 30, 78, 80, 175, 256 blue chip/popular, 191–97 cheapest, 78, 227, 256 costs of, 26–27, 96 definition of, 37–38 life-cycle, 217, 249–50 passive, 256 “sin” businesses, 188–90 with snazzy names, 193–94 socially responsible, 186–90 target-date, 78–81 “vulture,” 202 See also specific types; stocks FutureAdvisor, 78–79 futures market, 145–46, 205–6, 211 gains, 41, 72, 91, 124, 206, 213, 221, 228–29 expectations of, 37–38 with IPOs, 180–82 with less popular companies, 191–92, 194–95 in long-run, 55–57, 61–62, 64, 69, 173, 210 during recessions, 56, 58–59 in “sin” businesses, 188–89 streaks of, 34–38, 51, 64, 75, 245 and unemployment, 58–59 Garzarelli, Elaine, 40, 125–26 gas, 100, 104, 119, 188, 201 Gipson, Jim, 105, 116 Glaser, Markus, 12–13, 18 Glassman, James, 69–73, 84 global financial crisis, 54, 90 financial system, 33, 40, 58 Globe.com, 179 gold prices, 124 Goldman Sachs, 122, 181 Google, 183–84 GorillaTrades, 212–13 Graham, Benjamin, 194, 218–19, 232, 235–36 Grant, James, 70–71 Granville, Joseph, 43–44 Great Depression, 50–53, 58, 92–93, 237 greed, 14, 32, 80, 184, 200, 223, 229–30, 233, 237, 246, 249, 256 Greenblatt, Joel, 192, 220–21, 225 Greenspan, Alan, 234 growth earnings forecasts, 86, 89–93, 138–40, 143–44, 146 Guggenheim S&P 500 Equal Weight ETF (RSP), 224–25 Harvard Business Review, 102 Harvard Business School, 168 Harvey, Lou, 14 Hassett, Kevin, 69–73, 84 Hebner, Mark, 115 Hedge Fund Name Generator, 164 hedge funds, 24, 33, 43, 133, 146, 163–74, 181–82, 212, 220, 235, 241, 254 Heebner, Ken, 111 Helios Select International Bond A, 115 HFRX Global Hedge Fund Index, 173 Hillegass, Aaron, 225 Hong, Harrison, 245–46 housing bubble, 53, 101 Hsu, Jason, 112, 221 Hulbert Financial Digest, 43 Hussman, John, 35–36, 38 Index Fund Advisors, 115 index funds, 23, 32, 37, 79–80, 82, 147, 202 compared with hedge funds, 171 compared with mutual funds, 156–57 criticism of, 222 and dividend-paying stocks, 227 earliest, 158–59 explanation of, 222–23 good performance of, 174–75 low-cost, 14, 74, 107, 149, 153, 156, 158, 171, 222, 250 passive investing in, 159–60 inflation, 13, 66, 92, 200, 205 initial public offerings (IPOs), 71, 135, 178–86 Institutional Fund Advisors, 105 Institutional Investor, 130–32, 134, 137 international stocks, 78, 82–83 Internet, 88, 116 financial articles on, 45–47, 118 financial blogs on, 30–31 financial sites on, 92, 121, 126, 135, 220 fund sites on, 35, 220, 225 IPOs, 179, 183–84 stocks, 247–48 Invesco, 38–39 investing according to ranking, 150–53 best time for, 32–33, 39–41, 46–47, 50, 52–56, 58–60, 64, 75, 229, 233, 239–41, 257 buy-and-hold, 94, 112, 210 hot trends in, 224 important rules of, 41–42 “less is more,” 17 and long-term, 6, 8, 168 worst time for, 32–33, 38–41, 239, 257 zero-sum game, 3, 15, 160, 208, 254 investment banks, 4, 11, 25, 47, 99, 113, 130–32, 134–35, 180, 196, 209, 214, 247 Investment Company Institute, 60 investors and sentiment indicators, 239–43 successful, 3, 168–69, 194, 210, 219, 232–37 temperament of, 18, 218, 221, 229, 243, 256 typical assets mix of, 20, 62, 74, 77, 81–82 investors, bad habits of: buying what’s fashionable, 190–97 combine morals/money, 186–90 dip in/out of market, 40–41, 50–51, 73, 111, 151, 157, 159, 221, 249 excessive regret, 21–22, 234, 245–46 herd investing, 103, 223–24, 234, 241 and high-yield risks, 197–203 invest in hot new IPOs, 178–86 irrational exuberance, 69, 234, 239, 250 knee-jerk reactions of, 60, 73, 229 monitor funds too often, 217–18, 228 poor timing, 55, 61–62, 111 trading too frequently, 207–10 use trading “system,” 210–15 use exotic products, 203–7 waste money on managers, 98, 150 investors, good habits of: dividend invest, 226–29 embrace risk, 64, 74, 76–77, 178, 218, 257 fundamental indexing, 223–24, 227–28 ignore the pundits, 62, 92, 145, 218, 236 invest in less popular companies, 191–92, 194–95 monitor investments less, 184, 217–18, 249 pay as little as possible, 18, 26, 147, 218–20, 222, 250 randomly pick stocks, 225–26 rebalance portfolio, 62–64 seven most important, 255–57 sticking with it, 75, 221–22 value investing, 219–22, 227–28 Japan, 113, 167 Jobs, Steve, 226 Johnson, Edward C.

The Bogleheads' Guide to Investing
by Taylor Larimore , Michael Leboeuf and Mel Lindauer
Published 1 Jan 2006

More than one broker has been heard to remark, "We make millionaires-out of multimillionaires." What's that? You say your money guy is making you a fortune? We sincerely hope that's the case. However, with a very simple, no-brainer investment strategy called passive investing you have, at the very least, a 70 percent chance of outperforming any given financial pro over an extended period of time. And over some 20-year periods, passive investing outperforms as many as 90 percent of actively managed funds. The reason is because this system allows you to keep more of your money working for you, which means less money for the brokers, investment houses, mutual fund managers, money managers, and the government.

…

Inasmuch as index funds are designed to replicate a particular segment of the market, such as largecap growth, or small-cap value, there is no possibility of the funds drifting into another category. READ WHAT OTHERS SAY Most of the world's leading investment researchers, scholars, authors, and almost anyone who isn't trying to sell you their investment products, agree that low-cost, passive investing is an excellent strategy for most or all of your portfolio. Following are what many of them have to say on the subject of passive vs. active investing: Frank Armstrong, author of The Informed Investor: "Do the right thing: In every asset class where they are available, index!-Four of five funds will fail to meet or beat an appropriate index."

…

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. Does this mean one should abandon passive investing and opt for low-cost, actively managed funds? Not at all! At the same time Vanguard Health Care was doing phenomenally well, Vanguard U.S. Growth was a disaster, turning in a shameful performance during the great bull market of the 1990s. It's also important to keep in mind that investing in a health care fund is placing a sector bet.

The Revolution That Wasn't: GameStop, Reddit, and the Fleecing of Small Investors
by Spencer Jakab
Published 1 Feb 2022

On his Twitter feed, where he goes by the name Cassandra, the Trojan priestess cursed for always being right but never believed, he was wary of the most popular investing themes. As he wrote shortly after the meme-stock squeeze: Speculative stock #bubbles ultimately see the gamblers take on too much debt. #MarginDebt popularity accelerates at peaks. At this point the market is dancing on a knife’s edge. Passive investing’s IQ drain, and #stonksgoup hype, add to the danger. Ryan Cohen was a lot more fun. The founder of the pet e-commerce site Chewy, he had sold his still-unprofitable company to PetSmart for $3.35 billion three years earlier in what was then the largest e-commerce deal ever. Though he was by then no longer with the company, Chewy’s initial public offering in 2019 was hot stuff, nearly doubling in value on its first day of trading.

…

“Trading Is Hazardous to Your Wealth” “Trading Is Hazardous to Your Wealth,” a classic study of retail-investor returns by Brad Barber of the Graduate School of Management at the University of California, Davis, and Terrance Odean of the Haas School of Business at the University of California, Berkeley, looked at data from more than sixty-six thousand retail brokerage accounts in the 1990s.[1] It showed that, even without the effect of commissions, the more people traded, the less they earned on average compared with just being passively invested in stocks. The most active fifth of investors had a net return 6 percentage points less than the average market return. That is a huge difference. For example, someone saving a set amount each year between the ages of twenty-five and sixty-five would have 80 percent less money by retirement day than someone who just earned the long-run market return in an index fund.

…

A $10,000 investment in a typical equity index fund will cost you about $9 a year compared with $63 a year for the typical actively managed stock fund.[14] The fund research firm Morningstar reported that in 2019 the average US mutual fund’s cost had dropped over a decade by 0.42 percentage points of the amount invested annually largely because so many Americans had bought index funds. That saves investors about $100 billion a year.[15] Naturally, some in the investment business are alarmed. A 2016 report by analysts at Sanford C. Bernstein & Company sounds almost made up: The Silent Road to Serfdom: Why Passive Investing Is Worse Than Marxism.[16] “A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active market led capital management,” wrote the authors. “Showered with Compensation” Don’t fret too much about Wall Street.

Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies
by Jeremy J. Siegel
Published 18 Dec 2007

Ellis, “The Loser’s Game,” Financial Analysts Journal, July/August 1975, p. 19. CHAPTER 20 Fund Performance, Indexing, and Beating the Market 351 THE INCREASED POPULARITY OF PASSIVE INVESTING Many investors have realized that the poor performance of actively managed funds relative to benchmark indexes strongly implies that they would do very well to just equal the market return of one of the broadbased indexes. 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.

…

318 Chapter 19 Behavioral Finance and the Psychology of Investing 319 The Technology Bubble, 1999 to 2001 320 Behavioral Finance 322 Fads, Social Dynamics, and Stock Bubbles 323 Excessive Trading, Overconfidence, and the Representative Bias 325 Prospect Theory, Loss Aversion, and Holding On to Losing Trades 328 Rules for Avoiding Behavioral Traps 331 Myopic Loss Aversion, Portfolio Monitoring, and the Equity Risk Premium 332 Contrarian Investing and Investor Sentiment: Strategies to Enhance Portfolio Returns 333 Out-of-Favor Stocks and the Dow 10 Strategy 335 PART 5 BUILDING WEALTH THROUGH STOCKS Chapter 20 Fund Performance, Indexing, and Beating the Market 341 The Performance of Equity Mutual Funds 342 Finding Skilled Money Managers 346 xiv Persistence of Superior Returns 348 Reasons for Underperformance of Managed Money 348 A Little Learning Is a Dangerous Thing 349 Profiting from Informed Trading 349 How Costs Affect Returns 350 The Increased Popularity of Passive Investing 351 The Pitfalls of Capitalization-Weighted Indexing 351 Fundamentally Weighted versus Capitalization-Weighted Indexation 353 The History of Fundamentally Weighted Indexation 356 Conclusion 357 Chapter 21 Structuring a Portfolio for Long-Term Growth 359 Practical Aspects of Investing 360 Guides to Successful Investing 360 Implementing the Plan and the Role of an Investment Advisor 363 Concluding Comment 364 Index 367 CONTENTS F O R E W O R D Some people find the process of assembling data to be a deadly bore.

…

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.

Nerds on Wall Street: Math, Machines and Wired Markets
by David J. Leinweber
Published 31 Dec 2008

I tried Oettinger’s example again, 50 years later. The retranslation of the Russian back to English this time was “The spirit is of willing of but of the flesh is of weak.” 31. The CIA In-Q-Tel venture capitalists are found here: www.inqtel.org/. Part Two Alpha as Life 90 Nerds on Wall Str eet I ndex funds are passive investments; their goal is to deliver a return that matches a benchmark index. The Old Testament of indexing is Burton Malkiel’s classic A Random Walk Down Wall Street, first published in 1973 by W.W. Norton and now in its ninth edition. For typical individual investors, without special access to information, it offers what is likely the best financial advice they will ever get: It is hard to consistently beat the market, especially after fees.

…

For typical individual investors, without special access to information, it offers what is likely the best financial advice they will ever get: It is hard to consistently beat the market, especially after fees. A passive strategy will do better in the long run. Of course, no one thinks of oneself as a typical individual investor. That might be your brother-in-law or the guy across the hall. And index funds are just not as much fun as picking stocks. It’s called passive investing for a reason. Alpha, outperforming a passive benchmark, is the goal of active investing. Even Malkiel has admitted to actively managing some his own money.* Recent additions to the Forbes 400 list include more than a few people who seem unusually adept at finding alpha, and keeping a piece of it.

…

Simply listing acquisition price and current price ignores the aspect of time, and not comparing it to any well-defined benchmark (like the S&P 500 index) leaves the meaning of even a well-studied report unclear. A.G. Becker was the first firm to compare the total return of a stock portfolio to an index. Since an S&P 500 index fund is just a passive investment consisting of a capitalization-weighted portfolio of the 500 stocks in the index, it will do no better than the index—and if managed effectively, no worse. An index fund can’t just be started up and left alone to run itself forever. The stocks in the index change; dividends need to be reinvested, and most significantly, there are cash flows in and out of the portfolio from new funding or payment requirements.

Optimization Methods in Finance
by Gerard Cornuejols and Reha Tutuncu
Published 2 Jan 2006

(5.8) In this equation, wit quantities represent the sensitivities of Rt to each one of the n fach iT tors, and t represents the non-factor return. We use the notation wt = w1t , . . . , wnt h i and Ft = F1t , . . . , Fnt . The linear factor model (5.8) has the following convenient interpretation when the factor returns Fit correspond to the returns of passive investments, such as those in an index fund for an asset class: One can form a benchmark portfolio of the passive investments (with weights wit ) and the difference between the fund return Rt and the return of the benchmark portfolio Ft wt is the non-factor return contributed by the fund manager using stock selection, market timing, etc. In other words, t represents the additional return resulting from active management of the fund.

What They Do With Your Money: How the Financial System Fails Us, and How to Fix It
by Stephen Davis , Jon Lukomnik and David Pitt-Watson
Published 30 Apr 2016

Instead, they invest through index funds—pools of money that buy shares of many companies listed in an index. The S&P 500 or the FTSE 100 are two such indices, comprising, respectively, the 500 largest companies listed in the United States and the 100 largest in the United Kingdom. Because the investments match an index, this is sometimes called “passive” investing, since it involves no “active” stock picking. But few people stop to think how the indices themselves are determined: how much of stock A is included and how much of stock B. The most common method is to use the market capitalization of the stocks being considered, that is, how much the market values each stock.

…

As we’ve seen, mass adoption of diversification can allow risks to build up in the system, even while decreasing the risk to an investor of something going wrong with any one investment. Thankfully, thought leaders like the Royal Society of the Arts are trying to mitigate those risks and accentuate the positives. We discuss how in chapter 5. 58. “Passive Investing Has Room to Grow,” Financial Times, September 23, 2012. 59. “Investors Shift to Low-Cost ‘Tracker’ Funds,” The Telegraph, February 12, 2013. 60. www.unpri.org, accessed September 21, 2014. 61. “Public Funds Take Control of Assets, Dodging Wall Street,” New York Times, August 19, 2013. 62.

…

See National Employment Savings Trust (NEST) Nestor, Stilpon, 43 Netherlands, 90, 111, 113 collective pension system in, 60, 197, 199, 209, 264n6 fund governance regulation in, 108–9 pension beneficiaries and investment returns, 265n20 New York Stock Exchange: average holding period of traded stock, 63 financial services as percent of, 16 high-frequency trading and, 88 New York Times (newspaper), 77, 88 Nippon, 18 Normal curve, 161–63, 260n18, 261n38 real world phenomena and, 172–73 Northern Rock, 245n31 Nusseibeh, Saker, 140 One-way market for financial assets, 240n31 Ontario Teachers’ Pension Plan, 59, 111 Opportunities, fiduciary duty and, 140 Organisation for Economic Co-operation and Development, 109 Outcomes, measuring success using, 132 Oversight: regulation and, 150–51 trust in government and, 141 Owner, use of term, 235n25 Ownership: agency capitalism and, 74–80 capitalism and, 62, 83–93, 243n2 changing conception of, 62–63 corporate governance and, 22 derivatives and, 80–83, 93 economic attention deficit hyperactivity disorder and loss of, 63–68 election of directors and, 78–79 exercised by financial agents, 230 for long-term investors, 87 individual investor’s use of technology and, 90–92 institutional investors and, 3–4, 249n3 portfolio management function and, 246n36 promoting culture of, in investment, 222–24 tax policy and, 92 Oxford University, 122 Passive investing, 45 Pax World, 77 Pay for performance, institutional investors and, 112–13 Payments system, banks and, 16–17, 20, 22, 211–12 Pension funds: collective, 197, 199, 209, 263n1, 264n3, 264n6, 266n28 commonsense, 194–96, 199–202 fees, 97–98, 195–96, 233n5 governance of, 100–101, 104–6, 107–9 investment strategy, 195, 196 People’s Pension, 202–11 portability of, 196 purpose of, 194 regulation of, 107–9, 251n22 shift from defined benefit to defined contribution plans, 99–100, 104–5 time frame and, 207 Webster and Wallace’s, 14, 199–202, 209.

Other People's Money: Masters of the Universe or Servants of the People?
by John Kay
Published 2 Sep 2015

The strength and ethical integrity of a chain are as strong as its weakest link. The rise of passive investment management has been a response to excessive costs and conflicting objectives in this investment chain. Vanguard – the largest asset management firm after Black-Rock and Allianz – was established in 1975 by Jack Bogle, an evangelical promoter of passive investment.7 Bogle’s thesis was that, since the chances of out-performing a stock market index on a sustained basis were slight, replicating that index was a simple and inexpensive investment strategy. Passive investment has steadily grown in scale, and much of the activity of BlackRock, Vanguard and State Street is in the management of indexed funds, an activity that can now be entrusted to a computer.

…

Passive investment has steadily grown in scale, and much of the activity of BlackRock, Vanguard and State Street is in the management of indexed funds, an activity that can now be entrusted to a computer. There are significant economies of scale in passive investment, and these large incumbents derive competitive advantage from their size. The total costs of intermediation include management fees, administrative, custodial and regulatory costs, the costs of remunerating intermediaries, paying trading commissions and spreads between bid and offer price. If you invest directly in an indexed fund, you might be able to reduce these annual costs to 25–50 basis points (the finance sector describes one-hundredth of 1 per cent as a ‘basis point’).

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined
by Lasse Heje Pedersen
Published 12 Apr 2015

Ainslie III of Maverick Capital 108 Chapter 8 Dedicated Short Bias 115 Interview with James Chanos of Kynikos Associates 127 Chapter 9 Quantitative Equity Investing 133 Interview with Cliff Asness of AQR Capital Management 158 Part III Asset Allocation and Macro Strategies 165 Chapter 10 Introduction to Asset Allocation: The Returns to the Major Asset Classes 167 Chapter 11 Global Macro Investing 184 Interview with George Soros of Soros Fund Management 204 Chapter 12 Managed Futures: Trend-Following Investing 208 Interview with David Harding of Winton Capital Management 225 Part IV Arbitrage Strategies 231 Chapter 13 Introduction to Arbitrage Pricing and Trading 233 Chapter 14 Fixed-Income Arbitrage 241 Interview with Nobel Laureate Myron Scholes 262 Chapter 15 Convertible Bond Arbitrage 269 Interview with Ken Griffin of Citadel 286 Chapter 16 Event-Driven Investments 291 Interview with John A. Paulson of Paulson & Co. 313 References 323 Index 331 The Main Themes in Three Simple Tables OVERVIEW TABLE I. EFFICIENTLY INEFFICIENT MARKETS Market Efficiency Investment Implications Efficient Market Hypothesis: Passive investing: The idea that all prices reflect all relevant information at all times. If prices reflect all information, efforts to beat the market are in vain. Investors paying fees for active management can expect to underperform by the amount of the fee. However, if no one tried to beat the market, who would make the market efficient?

…

The t-statistic of the alpha is shown in parentheses. Source: Hurst, Ooi, and Pedersen (2013). In addition to reporting the expected return, volatility, and Sharpe ratio, table 12.1 also shows the alpha from the following regression: We regress the TSMOM strategies on the returns of a passive investment in the MSCI World stock market index, the Barclays U.S. aggregate government bond index, and the S&P GSCI commodity index. The alpha measures the excess return, controlling for the risk premiums associated with simply being long in these traditional asset classes. The alphas are almost as large as the excess returns since the TSMOM strategies are long–short and therefore have small average loadings on these passive factors.

…

Such struggling firms are sometimes defined as those with a credit spread over comparable-duration Treasuries of more than 1,000 basis points (bps). This credit spread means that the price of the firm’s debt is so low that its yield to maturity is more than 10 percentage points higher than the yield on Treasuries. While this credit spread is large, so is the risk of not getting paid. In fact, a passive investment to distressed debt has historically not been well compensated according to some indices, surprisingly. Hence, distressed managers must be active to add value. Indeed, companies in distress often present significant opportunities and risks as the underlying business is in flux and the various stakeholders may attempt to extract the remaining value.

Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio
by Victor A. Canto
Published 2 Jan 2005

Some time ago, Rex Sinquefield made the case that the efficient market theory—which, in brief, states consistently “beating the market” is improbable because existing stock prices are the result of all current information—is simply an application of Adam Smith’s invisible-hand theory to financial markets. I share this efficient market world view. More, although it is true market inefficiency is a sufficient condition for justifying active management, it is not a necessary condition. In this sense, I again part ways with Sinquefield’s passive-investing-only mandate. A broad market can be defined as a majority of stocks outperforming a benchmark index. This is a good way for an active manager to envision market breadth. To illustrate why, let’s borrow an analogy from the efficient market theory: Assume a number of people are throwing darts at a blackboard containing the names of all the stocks in the S&P 500.

…

The long–short hedge-fund strategy captures the value-added the CAA produces. Chapter 12 Keeping the Wheels on the Hedge-Fund ATV 239 This page intentionally left blank 13 MARKET TIMING OR VALUE TIMING? 241 O ne of the central themes of this book is the size effect and the relative performance between active and passive investing are directly related. As stated, these are two sides of the same coin. The interaction between the indices’ weighting schemes and the size effect tells active investors and managers when to build index-like portfolios and when to pursue an active strategy. The newer, equal-weighted S&P 500 index is tailor-made for empirically testing the desirability of a pure-passive strategy, a pure-active strategy, and a strategic asset allocation (SAA) and tactical asset allocation (TAA) to passive and active strategies.

…

Consumer price indexes (an inflation measurement), or a country’s gross domestic product (GDP) index (an economic growth measurement) can be used to adjust salaries, Treasury bond (T-bond) interest rates, and tax thresholds. Index funds manage their portfolio so their evolution always mirrors a stock-market index’s evolution. A passive investment strategy in which the portfolio is designed to mirror a stock-market index’s performance. 304 UNDERSTANDING ASSET ALLOCATION inflation hedging An investment designed to protect against inflation risk. Such an investment’s value typically increases with inflation. information ratio The expected return-to-risk ratio as measured by standard deviation.

How to Form Your Own California Corporation
by Anthony Mancuso
Published 2 Jan 1977

chapter 1 | choosing the right legal structure for your business | 27 yes partners may use losses to deduct other income on individual tax returns if at risk for loss or debt yes Automatic tax status Tax level when business is sold personal tax level of owner income on individual tax returns (subject to active-passive investment loss rules that apply to all businesses) personal tax level of individual general partners general partners and other employees may set up IRA or Keogh plans; can make corporate tax election to obtain corporate benefits sole proprietor may set up IRA or Keogh retirement plan Tax-deductible fringe benefits available to owners who work in business Deductibility of owner may use losses business losses to deduct other General Partnership Sole Proprietorship follows sole proprietor­ ship, partnership, or corporate tax rules depending on tax status of LLC follows sole proprietor­ ship, partnership or corporate tax rules depending on tax status of LLC shareholders may deduct share of corporate losses on individual tax returns, but must comply with special limitations normally taxed at personal tax levels of individual shareholders, but corporate level tax sometimes due if S corporation was formerly a C corporation corporation may deduct business losses (shareholders may not deduct losses) two levels: shareholders and corporation are subject to tax on liquidation same as general partners­hip, but limited partners may only deduct nonrecourse debts (for which general partners are not specifically liable) personal tax level of individual general and limited partners yes, one-owner LLC treated as sole proprietorship; coowned LLC treated as partnership; one-owner and co-owned LLCs can elect corporate tax treatment no; must meet require­ ments and file tax election form with IRS; revoked or terminated tax status cannot be re-elected for five years same as general partnership yes, upon filing certificate of limited partnership with state filing office can get benefits associated with sole proprietorship, partnership, or corporation, depending on tax treatment of LLC LLC yes, upon filing certificate of limited partnership with state filing office S Corporation employee-shareholders owning 2% or more of stock are restricted to partnership rules C Corporation employee-shareholders eligible for medical reimbursement, term life insurance, and equity-sharing plans Limited Partnership Business Entity Comparison Tables—Legal, Financial, and Tax Characteristics (cont’d.) 28 | how to form your own california corporation ● 2 C H A P T E R How California Corporations Work Types of California Corporations .................................................................................................... 30 The Privately Held California Profit Corporation ............................................................. 30 Nonprofit Corporations ................................................................................................................. 31 Professional Corporations ............................................................................................................. 31 The Close Corporation...................................................................................................................... 32 Corporate Powers .................................................................................................................................... 34 Corporate People ..................................................................................................................................... 35 Incorporators......................................................................................................................................... 35 Directors................................................................................................................................................... 36 Officers...................................................................................................................................................... 40 Shareholders........................................................................................................................................... 41 How Many People May Organize the Corporation?..............................................................

…

A standard note, however, unlike a stock certificate, doesn’t carry with it the attractive possibility of providing the lender with a percentage of the profits or the liquidation assets of a successful enterprise. The situation is altered somewhat for a closely held corporation. The share­holders of the corporation are not normally passively investing in an enterprise but are simply incorporating their own business, which will pay them a salary in return for their efforts and provide them with favorable corporate tax advantages. Nonetheless, if the incorporators lend money to the corporation, they, too, will be able to look to the specific terms of a promissory note in seeking a guaranteed rate of return on their investment, rather than relying solely on the profits of the corporation to pay them money by way of salary.

…

An accredited investor includes persons who come within, or whom the corporation reasonably believes come within, any of chapter 3 | issuing and selling stock | 59 the following categories at the time of the sale of shares to the person (we don’t list categories unlikely to apply to small corporations or those already included in another suitability category under the California limited offering exemption): • a person whose individual net worth, or joint net worth with the person’s spouse, exceeds $1,000,000 at the time of the purchase of shares, or • a person who had an individual income in excess of $200,000 in each of the two most recent years, or joint income with the person’s spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year We won’t dwell on these requirements here. In the unusual event that you do need to use one of these major shareholder tests, it will usually be to qualify an outside shareholder (one who is passively investing in your corporation). Because these shareholders are outsiders and should have financial resources, your best bet is to ask them to check with their lawyer to make sure they meet the technical requirements of this suitability category. Or you can ask them to designate a professional advisor who will protect their interests in connection with their purchase of shares in your corporation (as explained in Category 5, just below).

Reimagining Capitalism in a World on Fire
by Rebecca Henderson
Published 27 Apr 2020

“The Global Gender Gap Report 2013,” World Economic Forum, 236, http://www3.weforum.org/docs/WEF_GenderGap_Report_2013.pdf; “The Global Gender Gap Report 2017,” World Economic Forum, 90, http://www3.weforum.org/docs/WEF_GGGR_2017.pdf. 43. GPIF was allowed to directly invest in bonds and mutual funds; 15 percent of GPIF’s fixed-income assets were managed internally. 44. “The Benefits and Risks of Passive Investing,” Barclays, www.barclays.co.uk/smart-investor/investments-explained/funds-etfs-and-investment-trusts/the-benefits-and-risks-of-passive-investing/. 45. See GPIF’s 2018 Annual Report. 46. The Nikkei Telecon Database, accessed December 2018. 47. Size is classified based on market capitalization. 48. “2018 Global Sustainable Investment Review,” Global Sustainable Investment Alliance (2018), www.gsi-alliance.org/wp-content/uploads/2017/03/GSIR_Review2016.F.pdf. 49.

…

Nearly two-thirds of this money is in pension funds, while the remaining third is in sovereign wealth funds.69 The fifteen largest asset managers collectively handle nearly half of the world’s invested capital. They include BlackRock, which currently manages just under $7.0 trillion; the Vanguard Group, which controls $4.5 trillion; and State Street, which has $2.5 trillion under management.70 A very high proportion of this money, as we saw earlier in the chapter on rewiring finance, is in passive investments. In the United States, for example, 65–70 percent of all equities are held by index and quasi-index funds.71 These investments are completely exposed to system-wide risk. Their owners cannot diversify away from the risks that accelerating rates of environmental degradation and inequality present to the entire economy.

The People's Republic of Walmart: How the World's Biggest Corporations Are Laying the Foundation for Socialism
by Leigh Phillips and Michal Rozworski
Published 5 Mar 2019

Passive management is increasingly dominant, not just within equity markets, but among other investment types, and it is displacing the historic but more expensive norm of active management strategies, which use fund managers and brokers to buy and sell stocks and other investment vehicles, deploying their research and knowledge to attempt to outperform the market. This shift in recent years from active to passive investing is not news. But the implications are systemic and profound for the very notion of a competitive market. An investor who has holdings in one airline or telecom wants it to outperform the others: to increase its profits, even if only temporarily, at others’ expense. But an investor who owns a piece of every airline or telecom, as occurs in a passively managed index fund, has drastically different goals.

…

In principle, capitalist competition should unremittingly steer the total profits across a sector down, ultimately to zero. This is because even though every firm individually aims for the highest possible profit, doing so means finding ways to undercut competitors and thus reduce profit opportunities sector-wide. Big institutional investors and passive investment funds, on the other hand, move entire sectors toward concentration that looks much more like monopoly—with handy profits, as firms have less reason to undercut one another. The result is a very capitalist sort of planning. This unseemly situation led Bloomberg business columnist Matt Levine to ask, in the title of a remarkable 2016 article, “Are Index Funds Communist?”

Retire Before Mom and Dad
by Rob Berger
Published 10 Aug 2019

If they did, some funds would actually improve their performance, but I’m getting ahead of myself. Index Mutual Funds No, some funds don’t hire anybody to pick stocks and bonds. They simply track what is called an index. Perhaps the best known index is the S&P 500 Index, which we discussed just a moment ago. Index funds are also described as Passive Investing because a team of professionals isn’t actively picking and choosing investments. They passively follow an index. There are many indexes that track both stocks and bonds. Here are a few of the more popular ones: Russell 3000: Tracks 3,000 of the largest companies incorporated in the U.S..

…

Index 403(B) 61, 97, 168 401(K) 18-19, 27, 61, 64, 67, 80-81, 85-86, 97, 107, 143, 145, 161, 167-170, 172, 174-179, 181, 183-187, 189-191, 195-196, 200, 202, 213-214, 229, 235-238, 241, 243, 245 3-Fund Portfolio 162, 165, 184-187, 191, 246 7 Levels Of Financial Freedom 44, 48, 50-52, 57 4% Rule 50, 59, 63-65, 69, 160 Actively Managed Mutual Funds 140-142 Asset Allocation 190, 195, 201, 246 Asset Classes 136, 157 Backdoor Roth IRA 172-173, 177 Bad Debt 219 Basis Points (bips) 152, 154, 159, 185-186, 191-192, 195-196, 207 Betterment 192, 207, 243 Blend 146, 186 Bogleheads 162 Bond(s) 20, 33, 38, 65, 129-141, 143, 147-150, 152, 157-163, 184-186, 195-196, 201-202 Charles Duhigg 104 Commissions 205 Commodities 144, 147 Credit Cards 4, 39, 96, 105, 202, 217, 226, 235 Credit Risk 133, 147-148 Debt 4-7, 12, 18, 49, 80, 82, 84, 90-92, 107, 135, 138, 202-203, 215-231, 233-241, 243, 246 Debt Avalanche 225, 228-231 Debt Snowball 225, 228-231 Dividend 19, 134-135, 200 Dividends 134-135, 200 Duration 149 Emerging Markets 131, 145, 163 Equity 6, 132, 135, 140, 216, 225, 227 ETF 207 Expense Ratio 152-154, 159, 184, 186, 190-191, 195 Fee-Only 205-206, 208 Fees 123, 140, 142-143, 151-156, 159, 161, 178, 184-186, 191, 196, 205-206 Fidelity 154, 164, 180, 183-184, 186, 192, 195 Financial Freedom 2-3, 5, 7, 9-13, 17, 19, 23, 28, 35, 41, 43-52, 57, 59, 61, 63, 65-69, 71-76, 93-94, 98-99, 115-116, 142, 153, 156-157, 167, 195-196, 202-203, 211, 215, 222, 224, 227-228, 231, 234, 239, 244, 246-247, 249-250 Fixed Income 135 Freedom Fund 10, 39, 45-51, 59, 63-67, 69, 72, 74, 76, 88, 93, 96-97, 117, 119, 184-185, 206 Good Debt 219 Growth 144, 146, 159, 186 Health Savings Account (HSA) 173-175, 177, 179, 182, 189 Hedonic Treadmill 5-6 I Bonds 149 Index Mutual Fund 80, 140 Interest Rate Risk 131, 133, 147-149 IRA 18, 64, 167, 170-173, 175, 177-181, 189, 191-193, 195-196, 200, 238, 245 Jeff Rose 119 Junk Bonds 148 Level 7 45, 47-52, 59-60, 63, 65-69, 71-76, 93, 96, 98, 115-116, 123, 125, 142, 153, 156-157, 168, 176, 182, 185, 202, 204, 206, 211, 213, 215, 222, 249, 251 Load Fees 153, 155, 159, 184, 186 Market Cap 141, 144-145 Market Capitalization 144 Mark Zoril 207 Maturity 136 Money Audit 11, 87, 89-91, 94, 99, 101, 167 Money Multiplier 9-11, 17, 19-23, 26, 28, 31-32, 38-39, 45-46, 50-52, 63, 71, 105, 153, 167, 195 Morningstar 151, 159, 184-187, 190, 195-196, 200 Mr. Money Mustache 32 Mutual Fund 19-20, 38, 80, 139-140, 143, 145-147, 149, 151-155, 157-159, 161-162, 164, 183-185, 187, 190-191, 195-196, 200, 205, 207, 246 Passive Investing 141 Paul Merriman 161 Progress Principle 48, 211-214, 229 Reit 147 Rick Ferri 164 Roth 401(K) 64, 169-170, 172, 174-177, 179, 183, 238 Roth IRA 170-173, 175, 177, 179-181, 189 Rule Of 72 37-38, 40 Rule Of 752 32-33 Rule Of 857 33, 50, 73, 89 Rule Of 36,036 33 Saving Rate 53-55, 57-61, 63, 66-69, 71-76, 85-86, 98, 115, 154, 176, 195, 211, 213, 215, 222, 224 Schwab 164, 180, 192 Slingshot Effect 58-59, 61, 67, 72, 74, 76, 97, 222 S&P 500 136-137, 140-142, 146, 186, 196-197, 199-200 Spending Rate 55, 57-59, 61, 66, 71-72, 74, 98, 154, 176, 222 Stock 4, 20, 33, 38, 64-65, 101, 129-132, 134-141, 143, 145-147, 150-152, 157-160, 162-163, 184-186, 191-192, 195-203, 207, 233, 246 Target Date Retirement Funds 158-161, 165, 184 Taxes 1, 57, 63-64, 66, 143, 169, 172, 174, 178-179 TDR 158, 160-163, 185, 187, 190-192 Ticker 146, 159, 184, 186, 190, 195 Tips 48, 54, 149 Transaction Costs 152 Value 17, 64, 122, 133-135, 137, 144, 146-148, 158-161, 163, 172, 186, 197, 200-202, 220-221, 226 Vanguard 20, 38, 85, 87, 146, 151, 154, 158-159, 161-164, 191-192, 200, 207, 244 Acknowledgments My wife, Victoria, has managed to survive this life with me by her side for nearly 31 years and counting.

Early Retirement Guide: 40 is the new 65
by Manish Thakur
Published 20 Dec 2015

There's no hard and fast answer for this since some individuals are very entrepreneurial and want to actively manage where their dollars are put to work, and some individuals are already booked solid and want a more passive approach. The key to this is to simply get started. This section will give you 90% of the knowledge and resources to get started investing today. Invest in an adequately diversified portfolio of low cost passive investments and hold for the long term. That sentence holds all the secrets and techniques needed to invest and thrive. Don't spend a dime on finance gurus and conferences that will teach you "the 5 key techniques to earning millions on stocks" or "the secret to how I made $65,000 in a month." When first starting out in investing, it's understandable to look for a secret to consistently making money with investments.

Quantitative Value: A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors
by Wesley R. Gray and Tobias E. Carlisle
Published 29 Nov 2012

S&P 500 TR Standard & Poor's 500 Total Return Index, the free-float, market capitalization–weighted index including the effects of dividend reinvestment. MW Index A total-return, market capitalization–weighted index that we construct from the universe of stocks included in the analysis. The MW Index's returns represent a passive investment in the universe of all stocks we analyze. CAGR Compound annual growth rate. Standard Deviation Sample standard deviation (annualized by square root of 12). Downside Deviation Sample standard deviation of all negative observations (annualized by square root of 12). Sharpe Ratio Monthly return minus risk-free rate divided by standard deviation (annualized by square root of 12).

…

S&P 500 TR Standard & Poor's 500 Total Return Index, the free-float, market capitalization–weighted index including the effects of dividend reinvestment. MW Index A total-return, market capitalization–weighted index that we construct from the universe of stocks included in our analysis. The index's returns represent a passive investment in the universe of all stocks we analyze. CAGR Compound annual growth rate. Standard Deviation Sample standard deviation (annualized by square root of 12). Downside Deviation Sample standard deviation of all negative observations (annualized by square root of 12). Sharpe Ratio Monthly return minus risk free rate divided by standard deviation (annualized by square root of 12).

Home: Why Public Housing Is the Answer
by Eoin Ó Broin
Published 5 May 2019

Almost 80 percent of the 172,820 landlords operating in the State own just one property. Many of these are people who availed of Celtic Tiger lending to buy a second home primarily as a passive investment. Others took advantage of generous Section 23 tax reliefs when purchasing buy-to-let mortgages. However, a lack of appreciation that being a landlord is an active investment requiring a significant allocation of time rather than passive investment, had meant that many landlords did not fully understand the scale of the undertaking they were engaging in. In addition to the large number of semi-professional landlords there are those for whom renting emerged from necessity as negative equity prevented them from selling their initial family home when up-sizing.

A Man for All Markets
by Edward O. Thorp
Published 15 Nov 2016

Partners would get a payout consisting of at least 56 percent cash, possibly some scraps of stock in assorted companies, and an estimated 30 to 35 percent, for those who chose not to have them sold for cash, in two companies—Diversified Retailing and a New England textile company called Berkshire Hathaway. He added the discouraging, “For the first time in my investment lifetime, I now believe there is little choice for the average investor between professionally managed money in stocks and passive investment in bonds.” As I reread Buffett’s letter today I see no clue now, nor did I then, that Berkshire Hathaway would become the successor to Warren’s partnership. Ralph Gerard, a longtime investor with Buffett and the man who introduced us, never did, either. Of the $100 million distributed to partners, about $25 million was Buffett’s.

…

As the $65 billion Ponzi scheme perpetrated by Bernard Madoff showed, thirteen thousand investors and their advisers didn’t do elementary due diligence because they thought the other investors must have done it. The issue here is the same as for those buying stocks, bonds, or mutual funds. You need to know enough to make a convincing, reasoned case for why your proposed investment is better than standard passive investments such as stock or bond index funds. Using this test, it is likely you will rarely find investments that qualify as superior to the indexes. Another issue is taxes. US domestic hedge funds, like most active investment programs, are tax-inefficient. Their high turnover tends to produce short-term capital gains and losses taxed at a higher rate than securities owned for more than one year.

…

A mutual fund like this that replicates the composition and investment results of a specified pool of securities is called an index fund, and investors who buy such funds are known as indexers. Call any investment that mimics the whole market of listed US securities “passive” and notice that since each of these passive investments acts just like the market, so does a pool of all of them. If these passive investors together own, say, 15 percent of every stock, then “everybody else” owns 85 percent and, taken as a group, their investments also are like one giant index fund. But “everybody else” means all the active investors, each of whom has his own recipe for how much to own of each stock and none of whom has indexed.

Finding Alphas: A Quantitative Approach to Building Trading Strategies
by Igor Tulchinsky
Published 30 Sep 2019

Intraday alphas can be of different types, varying from pure intraday alphas that hold no overnight positions to hybrid daily-­intraday alphas that hold overnight positions but boost returns with an intraday overlay. 28 Finding an Index Alpha By Glenn DeSouza Alpha discovery is not limited to single-company equity instruments. With the dramatic rise of passive investing in the past two decades, exchange-traded funds (ETFs) and related index products have fostered the growth of various index-based alpha strategies. Historically based in large investment banks because of their reliance on technology investment, balance sheet usage, and cheap funding, these strategies have become more popular among buy-side firms in recent years, including large quant- and arbitrage-focused hedge funds and market-­ making firms.

…

CONCLUSION The rise of index products has created not only a new benefit for the average investor in the form of inexpensive portfolio management, but also new inefficiencies and arbitrage opportunities for many active managers. An extended period of low interest rates has allowed the proliferation of cheaply financed strategies, while the rise of passive investing has created market microstructure distortions, in part as a result of rising ownership concentration. Fortunately, new index constructions (and associated funds) also have proliferated in recent years, allowing investors to slice and dice passive portfolios in myriad ways that avoid several index drawbacks, including market impact and valuation distortions.

How Asia Works
by Joe Studwell
Published 1 Jul 2013

In the final years of his premiership, before he resigned in 2003, Mahathir lavished Syed Mokhtar with electricity generation deals and state financing to build a new container port at Tanjung Pelepas. But once again it was without any export or manufacturing quid pro quo. In time-honoured fashion, the grateful billionaire took the cash flow and poured it into relatively passive investments in mining, plantations, hotels and real estate – a small part of which I am looking at now from my car window.168 A little further north, on the west side of the Jalan P. Ramlee intersection, is Menara Hap Seng, formerly MUI Plaza, which for decades was the headquarters of fallen billionaire Khoo Kay Peng.

…

Banks were therefore kept under close control. International inflows and outflows of capital were also strictly limited so that domestic capital remained under state control and unregulated flows of foreign funds did not disrupt developmental planning. And the returns that citizens could earn on bank deposits and other passive investments were frequently crimped, increasing the surplus left at the financial system’s disposal, which could then be used to pay for development policy and infrastructure. This amounted to a hidden taxation, which was tolerated by people in these societies because they could see the economic transformation taking place all around them.

…

The trading house Mitsui, then managed in Malaysia by Mahathir’s long-time confidant Kazumasa Suzuki, handles much of Daihatsu’s international trading activity. 200. In 1982, long after the original MMC technology transfer deal had been agreed, Hyundai did sell a 10 per cent stake to the Japanese to raise cash; this subsequently rose to 12.6 per cent, but remained a purely passive investment. 201. Written response to questions put to Mahathir, 7 March 2011. 202. For Mahathir’s personal forays into businesses in real estate, taxis and trading, and his home workshop where – among other things – he invented a new Islamic toilet, see Wain, Malaysian Maverick, pp. 15–16 and p. 55 respectively. 203.

Python for Algorithmic Trading: From Idea to Cloud Deployment
by Yves Hilpisch
Published 8 Dec 2020

The driving factor in this regard is the relatively high frequency of trades that the strategy requires: In [90]: import MomVectorBacktester as Mom In [91]: mombt = Mom.MomVectorBacktester('XAU=', '2010-1-1', '2019-12-31', 10000, 0.0) In [92]: mombt.run_strategy(momentum=3) Out[92]: (20797.87, 7395.53) In [93]: mombt.plot_results() In [94]: mombt = Mom.MomVectorBacktester('XAU=', '2010-1-1', '2019-12-31', 10000, 0.001) In [95]: mombt.run_strategy(momentum=3) Out[95]: (10749.4, -2652.93) In [96]: mombt.plot_results() Imports the module as Mom Instantiates an object of the backtesting class defining the starting capital to be 10,000 USD and the proportional transaction costs to be zero. Backtests the momentum strategy based on a time window of three days: the strategy outperforms the benchmark passive investment. This time, proportional transaction costs of 0.1% are assumed per trade. In that case, the strategy basically loses all the outperformance. Figure 4-12. Gross performance of the gold price (USD) and the momentum strategy (last three returns, no transaction costs) Figure 4-13.

…

The results shown here illustrate that there is even a “third side”: the number of trades triggered by a strategy. A strategy that demands a higher frequency of trades has to bear higher transaction costs that easily eat up an alleged outperformance over another strategy with no or low transaction costs. Among other things, this often makes the case for low-cost passive investment strategies based, for example, on exchange-traded funds (ETFs). Long-Short Backtesting Class “Long-Short Backtesting Class” presents the BacktestLongShort class, which also inherits from the BacktestBase class. In addition to implementing the respective methods for the backtesting of the different strategies, it implements two additional methods to go long and short, respectively.

Uncharted: How to Map the Future
by Margaret Heffernan
Published 20 Feb 2020

The analysts conclude: ‘Because there is scant evidence that Cramer has skill in selecting under-priced stocks, it is puzzling why viewers act on the recommendations at all.’12 The chief beneficiary of Cramer’s drama is Cramer. In reality, without inside information, it is impossible to beat the market consistently.13 This is one reason why the market is increasingly dominated by passive investment funds that promise only to match market indexes, not beat them. But when we fall for exuberant forecasters, we collude in their fiction. Our desire for certainty leaves us susceptible to other people’s agendas and business imperatives. This is never truer than in competitive and turbulent times, when the difference between winning and losing is so marked.

…

Archibald, 53 Moorcraft, Penny, 289–90, 291 morality, 14, 20, 26, 62, 95, 139, 159, 177, 222, 223, 265, 280, 286, 312, 317 Morning Star, 200 Morrison, Toni, 42, 194 motivation, 36, 41, 118, 126, 164, 216–18, 252, 255 Moyes, Richard, 308–9 Mozart, Amadeus, 71 MRI scanning, 43, 136, 210 Mulally, Alan, 253 Mullis, Kay, 83 multiple schlerosis (MS), 82, 89 Munch, Edvard, 15, 274 Munich Agreement (1938), 53 MUSE, 70, 72–3 Mussolini, Benito, 71 Myers–Briggs Type Indicator (MBTI), 73–5, 80, 97 Myers, Isabel, 73, 74 Narragansett Pier, 13 narrative, fallacy of, 47 National Assembly of Wales, 309 National Economic Council (US), 28 National Health Service (NHS), 259 National Institute for Allergy and Infectious Diseases (US), 260 National Rifle Association (NRA), 268 National Union of Miners (NUM), 270 natural disasters, 4, 15 Natural History Unit (NHU), 109 NBC, 111 neighbourhood care, 125 neighbourhood schools, 133 neighbours/neighbourhood, 2, 5, 6, 41, 94–5, 125, 133, 279, 312 Neruda, Pablo, 151 Nessi, Marzio, 213–17, 227 neuroticism, 92 neutrino detectors, 204 New Hampshire University, 114 New Lens scenarios, 156–7 New York Stock Exchange, 260 New York Times (NYT), 208 newgenics, 98 Newton, Isaac, 19 Next, 117 Ngo Dinh Diem, 54 NGOs, 56, 166 NHS, 259 Nine West, 117 Nipah, 298, 302 N95, 246 Nobel Prize, 24, 69, 70, 89, 98, 207, 216, 219 Nokia, 246–7, 249–51 nomenklatura, 121 Nordmarka, 190 normal line, 19, 23 Norris, Peter, 254 not-knowing, 62, 67, 100, 102, 108, 172, 177, 191, 193, 201, 205, 242, 268, 295, 314 noucentisme, 225 novel methodology, 30 NRA, 268 nuclear warfare, 205–6, 299, 308 nursery history, 59 Obama, Barack, 56 Obamacare, 128 Obrador, Andrés Manuel López, 173 OECD, 30 oil industry, 154–8 Old Vic Theatre, 276 ‘Olivia’ anecdote, 271–4, 295 Olympic Games, 227 O’Mahony, Yulia, 118–19, 120–1 O’Neil, Cathy, 5, 78 OPEC, 155 openness, 92 operating systems, 246–7 optimism, 8–9, 22, 161, 187, 229, 264, 286, 317 oracles, 2, 28 organic agriculture, 113 Organisation for Economic Co-operation and Development (OECD), see OECD Organizational Health Index (OHI), 247 Orwell, George, 226 Ostrich, 166 OurLivesOurVote, 268 outcome, 62–3 overload, 44 overreach, 234 Oxford Martin School, 29, 30 Oxford University, 95, 215 OXXO, 151 pandemics, 57–9, 298, 300 (see also epidemic) paradox, 156–7 parenting, 70–3 Paris Accord, 116, 159 Parkinson’s disease, 82 Parks, Rosa, 56 passive investment funds, 27, 29 passive observation, 26, 40, 103, 269, 314 passivity, 96, 102 Patagonia, 200 Patau’s syndrome, 89 patented machine learning, 70 Paterson, Katie, 180, 185–6, 190, 191–2, 194 pathogens, 297 Patrick, Peter, 144, 147 PayLess, 117 Peace Prize, 219 penicillin, 84 Pentland, Alex, 101 Pentland’s well-ordered moor, 103 perfectionism, 9, 80, 100, 126, 138, 285, 318 personality, 65, 73–6, 80, 91–2 personality tests, 76 Persons, Warren, 16, 20–1, 23, 26, 31, 41 PET scanning, 210 Petretti, Silvia, 263, 267, 321 philosophers, 177 photovoltaics, 160 Picasso, Pablo, 15, 178, 197, 226 Pinnington, Elizabeth, 169 ‘Pits and Perverts’ benefit ball, 264 ‘plastic straw’ moments, 315 Plomin, Robert, 91–3, 94–6 Plummer, Daryl, 34–6 poetry, 151, 190, 194, 196, 278 Pol Pot, 287 Polaroid, 248 political discontent, 4 polling, 75 pollution, 2, 14, 111, 282 polymerase chain reaction (PCR), 83 Popper, Karl, 51, 61, 232 Porter, Michael, 115 Post Office Tower, London, 226 Pound, Ezra, 194 Power Rangers, 68 Prague Spring, 55 precision education, 96 predetermination, 7, 46, 50, 153, 174, 178 prediction, 4, 6, 13–103, 120, 166, 183, 199, 219, 258, 280, 298, 301, 313, 321 pro-creation tickets, 97 probability, 37–41, 87, 89, 93, 155–6, 161, 247 procreative benevolence, 98 Profectus, 304 profiling, 5, 20, 33, 69, 73–89, 100–2, 297 progress, 2–3, 8, 15, 51, 70, 83–4, 98, 114, 175, 182, 269, 274, 280, 303, 309, 317 propaganda, 1, 9, 26, 31, 32, 40–1, 62, 100, 286 prophets, 5, 39, 285 prospection, 1–2 Prosperity Paradox, 156 protease inhibitors, 265–7 protest, history of, 59 protoDUNE, 204, 216 Proust, Marcel, 176 pseudo-science, 21, 195 psychographic profiling, 76, 84 psychological profiling, 5 public trust, 221, 234 punditry, 5, 7, 16, 18, 20, 27–30, 35–6 Pygmalion effect, 76 Rabbit, Peter, 15 RadioShack, 117 Rand Corporation, 152 Rand Kardex Company, 18 Ranney, Ambrose, 14 rationing, 93, 96 Reader, Sally, 291 Reagan, Ronald, 28, 260 Rees, Martin, 317–18 referenda, 39, 140–7 Reid, Richard, 85 rejection, 7, 26, 37, 78, 102, 132, 144, 155–6, 196, 223, 226, 277, 313 religion, 2, 4, 20, 139, 224, 238, 239, 278, 285, 295, 307 religious strife, 4 Rembrandt, 277 Renner, Michael J., 94 Reos Partners, 167, 322 Repository for Germinal Choice, 98 revolution, 15, 55, 60, 91, 122, 125, 163, 184, 193 Rift Valley fever, 302–3 Rilke, René, 185 Ring, David, 128, 130–1, 133–5, 137 Roche, 79 Rockport, 117 Rohe, Mies van der, 226 Rosenzweig, Mark R., 94 ‘Rosina’ anecdote, 173 RTÉ, 145 Rubbia, Carlo, 207, 216 rules-bound games, 107–8 Rumi, 296 Russell, Bertrand, 97 Russia Today (RT), 111 Sagrada Família, 224–8, 232 St Margaret’s Hospice, 289–94, 321 St Patrick’s Cathedral, 260 Samaritans, 119 same-sex marriage, 140 Sanford Underground Research Facility, 204 Sanger Centre, 219–21, 224, 231, 232 Santayana, George, 51 Saquinavir, 266 Sargent, Singer, 15 SARS, 298 Saunders, Cicely, 289 scenario planning, 155–75 Schatz, Albert, 15 schizophrenia, 92, 93, 96 Schoenberg, Arnold, 197 Schrödinger, Erwin, 206 Schubert, Franz, 277 scientific management, 120, 199 Scotland, independence sort by, 39 Seagram Building, 226 Sears, 117 Second World War, 54, 73, 80, 99, 147, 152, 162, 164, 273–4, 279 seedbanks, 306, 316 segregation, 33, 97, 129 self-discipline, 19, 230 self-interest, 23, 29, 36, 174 Sencer, David, 58–9 sensitive humility, 192 Shafak, Elif, 191 Shakespeare, William, 31, 108–9, 184, 195, 198, 275–6 shamanism, 2 Sharper Image, 247 Sheffield Health Geeks, 118 Shell Oil Corporation, 154–66 passim short-termism, 78, 308 sickle-cell anaemia, 89 Siilasmaa, Risto, 248–50 ‘Silence = Death’ campaign, 265 Silicon Valley, 33, 129, 246, 285 Skidelsky, Robert, 25 Sky, 111 ‘sleeping beauties’, 82 sleight of hand, 3 Sloane Kettering Cancer Center, 296 social connection, 103 social efficiency, 101 ‘social rubbish’, 97 social turmoil, 4 soft data, 156, 159, 168 ‘something for everyone’, 76 soothsaying, 2 Sophocles, 177 Spence, Basil, 226 Spiritual Association of the Devotees of Saint Joseph, 224 SSC, 209 stability, 17–18, 22, 56, 113, 154, 158, 282 Standard Life (SL), 251 Stanford, 273 statistics, 16, 20, 23, 40, 74, 82, 92, 136, 139, 178 stereotyping, 79–80, 93, 95, 151 sterilisation, 97 Stonyfield, 113–14, 115 Strauss, Levi, 274 Stravinsky, Igor, 15 streptomycin, 15 Suez Crisis, 53 Sugrañes, Domènec, 225 Suharto, Tommy, 254 Sulston, John, 219 Sumpter, Donald, 195 super-collider projects, 185, 204–32 super-forecasting, 37, 38, 41, 63 SUperSYmmetry (SUSY), 216 surrender, 7, 36, 96, 102, 103, 202, 242, 319 Sustainable Development Goals (SDGs), 309 SUSY, 216 Svalbard, 306–7, 316 swine flu, 57, 58 Symbian, 247 Syngenta, 160 Szabłowski, Witold, 121 Tambo, Oliver, 258 Tate, 186 taxation, 28 taxi drivers/driving, 42–6, 63, 181, 314 TB, 14–15, 19, 41 Terrence Higgins Trust (THT), 257–8, 268 terrorism, 15, 36, 85–6, 173, 305 test-tube baby, first-ever, 222 Tetlock, Philip, 5, 27–8, 36–7, 40 Texas University, 129, 163 Thamotheram, Raj, 279, 294 Thatcher, Margaret, 209 Thiel, Peter, 286 Third Law of Motion, 19 THT, 257–8, 268 Thunberg, Greta, 269, 317 Tóibín, Colm, 179 Toys “R” Us, 248 track record, 5, 28, 41 trade wars, 4 Transcend, 283 transformation programmes, 116, 166, 199 transhumanism, 280, 283–7 Trump, Donald, 4, 28, 39, 40, 170, 176 trust, 2, 9, 17, 19, 28, 41, 54, 70, 103, 108, 112, 140, 151, 163–5, 172, 182–7, 201, 211, 221–2, 234, 244, 249, 252, 255, 266, 270, 302, 304–7, 316, 318 tuberculosis, see TB 21/7, 85 23andMe, 95 Twitter, 4 tyranny, 7, 63, 121–2 Umbert, Esteve, 229–30 Unified Planning Machine, 154 United Arab Emirates (UAE), 312 United Nations (UN), 309, 313 unknowns, density of, 17 urban crowding, 14 US Congress, 1, 24, 58, 264 utopia, 6, 103, 312, 313 vaccines, 14, 57–8, 297–304, 298–304 Venter, Craig, 219 Vera Drake, 185, 192 Vidal, Francesc de Paula Quintana i, 227 Vietnam War, 53–4 Vision for Slovenia, 162–5 volatility, 3, 4, 17–18, 147, 155, 157, 224, 237 W boson, 207, 216 Wack, Pierre, 154, 155–6, 159, 168 Waksman, Selman, 15 Wall Street, 20 Walmart, 151 war on cancer, 82 Warnock Commission, 222, 223, 234 Warnock, Mary, 222–3, 316 Washington Mutual, 248 wasteful exuberance, 20 Webb, Beatrice and Sidney, 97 wellbeing, 118, 156, 164, 309, 312 Wellbeing of Future Generations Act (2015) (Wales), 309, 310, 311, 313 Wellcome Sanger Institute, 219, 224, 231 Wellcome Trust, 85 Wells, H.

Radical Markets: Uprooting Capitalism and Democracy for a Just Society
by Eric Posner and E. Weyl
Published 14 May 2018

But the statute includes an exception: This section shall not apply to persons purchasing such stock solely for investment and not using the same by voting or otherwise to bring about, or in attempting to bring about, the substantial lessening of competition.44 This provision came to be known as the passive investment defense. Thus, a corporation cannot obtain shares when doing so reduces competition; but it may obtain shares for “investment purposes.” How are these provisions reconciled? In United States v. E.I. du Pont de Nemours & Co., the US Supreme Court ruled that du Pont’s purchase of a substantial stake in General Motors could violate Section 7.45 “Even when the purchase is solely for investment, the plain language of Section 7 contemplates an action at any time the stock is used to bring about, or in attempting to bring about, a substantial lessening of competition.”46 So, in the end, the only question is whether the acquisition of stock does or does not reduce competition.

…

Yet as the legal scholar Elhauge notes, the legal argument for applying Section 7 to institutional investors seems clear.47 As in the case of merger-related antitrust enforcement, the plaintiff need not prove that the defendant “intended” to reduce competition; effects are what matter.48 Moreover, the so-called passive investment defense in the statute does not apply to institutional investors because, regardless of how they choose stocks, they vote and communicate with corporations in an effort to influence their behavior, and are likely to be liable even if they only have the capacity to influence a corporation, whether or not they use it.49 Regulators and private antitrust plaintiffs could sue the institutional investors whenever investors’ stock purchases tend to lessen competition in particular industries.

Practical Doomsday: A User's Guide to the End of the World
by Michal Zalewski
Published 11 Jan 2022

“Cash Payment Limitations,” European Consumer Centre, December 15, 2020, https://www.europe-consommateurs.eu/en/shopping-internet/cash-payment-limitations.html. 18. “Swiss Narrowly Vote to Drop Gold Standard,” New York Times, April 19, 1999, https://www.nytimes.com/1999/04/19/world/swiss-narrowly-vote-to-drop-gold-standard.html. 19. Jeff Cox, “Passive Investing Automatically Tracking Indexes Now Controls Nearly Half the US Stock Market,” CNBC, March 19, 2019, https://www.cnbc.com/2019/03/19/passive-investing-now-controls-nearly-half-the-us-stock-market.html. 20. Annie Lowrey, “Could Index Funds Be ‘Worse Than Marxism’?,” The Atlantic, April 5, 2021, https://www.theatlantic.com/ideas/archive/2021/04/the-autopilot-economy/618497/. 21.

Fred Schwed's Where Are the Customers' Yachts?: A Modern-Day Interpretation of an Investment Classic
by Leo Gough
Published 22 Aug 2010

L. 44 mergers and acquisitions (M&As) 88–9 middle age 99 Milken, Michael 73 millionaires, behaviour of 46 Minogue, Kenneth 24 misinformation 72–3, 90, 91 Modern Portfolio Theory 49 modernity and globalisation 78–9 momentum 38–9 mutual funds 86 average returns 105 N Nabisco 89 ‘Names’ 45 new issues 56–7 newsletters 96–7 O Ogilvy, David 88 online brokers 71 ‘open-end’ funds 86 optimism 42–3 ‘options’ 32 OTC (Over The Counter) market 70 overseas markets and diversification 49 P passive investment 111 patterns, identifying 40–1 Patton, George 80 pension schemes 99 Pope, John 104 popular investments 30–1 positive news about companies 42–3 predicting by analysts 97 the market 40–1 returns 80–1 small changes 38–9 ‘present value’ 94 price/book ratio 92 price/earnings (P/E) ratio 55 price/equity to growth (PEG) ratio 93 price/sales ratio 93 probability 26–7 professional stock-pickers 20–1 professionals 96, 98 commissions 72 and investment skills 47, 54–5 risk aversion 58 profit and company size 105 hiding 91 prospectuses 35, 56–7, 87 public overspending 28–9 R Random Walk theory 27 ratio price/book 92 price/earnings (P/E) 55 price/equity to growth (PEG) 93 price/sales 93 reading about stock markets 112–13 ‘regression to the mean’ 105 regulators 84–5 retirement 99 planning for 60–1 returns and diversification 49 estimating 80–1 inflation-adjusted 103 on investments 58–9 long term 64–5 risk adjustment 80–1 and hedge funds 100–1 in large investments 44–5 perception of 108 relative 50–2 in short selling 82–3 in speculation 12–13 and variance 81 Rogers, Jim 36, 77 Rogers, Will 58 Rowe, David 38 Royal Mail 66–7 ‘rule of 72’ 103 rumours, affecting the market 83 Russia, government bonds 51 S Sarbanes-Oxley Act (2002) 85 Schwed, Fred, background 8–9 SEC (Securities and Exchange Commission) 14, 84 Seneca 46 Seven (bank) 41 Shakespeare, William 86 share analysts 37 shares popular 30–1 prices 14–15 releasing 25 short sellers 82–3 short-term fluctuations in share prices 38–9 short-term investing 63 size of company and profit 105 Soros, George 77, 101 South Sea Bubble 56, 109 speculation 12–13 spread betting companies 83 stages of life, planning for 98–9 start-up businesses 106–7 Steinherr, Alfred 20, 33 stock indices 34–5 stock markets share prices 14–15 speculation in 12–13 stock-picking 20–1 stockbrokers 71 T Taiwan 87 takeovers 88–9 tax on trust funds 58–9 technical analysis (TA) 40–1, 112 telecoms companies 108 Thinc Group 84 timing of investments 64–5 tracker funds 21, 62–3 tracking error 63 ‘traction’ 38–9 traders, investment skills 47 see also professionals transaction costs 70–1 trusts 35, 48–9 low returns 58–9 turnarounds 66–7 Twain, Mark 12, 14 U ‘unit trusts’ 86 US, government bonds 80 V Vanderbilt family 16 variance 81 volatility in the Far East 76–7 and risk 51–2, 58 W Wall Street crash 82, 104 Walsh, David 73 wealth passing down through generations 16–17 and relative risk 44–5 and skill in investment 46–7 Wells, H.

Stock Market Wizards: Interviews With America's Top Stock Traders
by Jack D. Schwager
Published 1 Jan 2001

It may become quite uncivil if they all run for the exits at the same time. So you're saying that many individual investors who believe they have placed their money into the most conservative stock funds are unwittingly holding high-risk investments. Absolutely. What started out as a conservative, passive investment strategy has metamorphosed into a "greater fool" investment pyramid. When this situation begins to unravel, the losses will be horrific. People talk in terms of a bear market being a 20 percent or 30 percent decline. I can make a case why a stock such as Microsoft—which is by far the largest component of the S&P 500, and not surprisingly the biggest holding in Magellan (and most other mutual funds)—could decline by as much as 80 or 90 percent.

…

Most, if not all, of Galante's investors use her fund to balance their long stock investments. Apparently, enough investors have recognized the value of Galante's relative performance so that her fund, Miramar Asset Management, is closed to new investment. Most people don't realize that a short-selling strategy that earns more than borrowing costs can be combined with a passive investment, such as an index fund or long index futures, to create a net investment that has both a higher return than the index and much lower risk. This is true even if the returns of the short-selling strategy are much lower than the returns of the index alone. For example, an investor who balanced a Nasdaq index-based investment with an equal commitment in Galante's fund (borrowing the extra money required tor the dual investment) would have both beaten the index return (after deducting borrowing costs) and cut risk dramatically.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Eleventh Edition)
by Burton G. Malkiel
Published 5 Jan 2015

The chapter concludes that “smart beta” is not a smart way to go for the individual investor, and it argues that the tried-and-true approach—investing in low-cost, broad-based, capitalization-weighted index funds—is still the best way to build an investment portfolio. WHAT IS “SMART BETA”? There is no universally accepted definition of “smart beta” investment strategies. What most people who use the term have in mind is that it may be possible to gain excess (greater than market) returns by using a variety of relatively passive investment strategies that involve no more risk than would be assumed by investing in a low-cost Total Stock Market index fund. I have argued in earlier chapters that the core of every investment portfolio should consist of low-cost, tax-efficient, broad-based index funds. Indeed, from the first edition of this book in 1973—even before index funds existed—I urged that they be created because such funds would serve investors far better than expensive, tax-inefficient, actively managed funds.

…

A Broader Definition of Indexing The indexing strategy is one that I have recommended since the first edition in 1973—even before index funds existed. It was clearly an idea whose time had come. By far the most popular index used is the Standard & Poor’s 500-Stock Index, an index that well represents the major corporations in the U.S. market. But now, although I still recommend indexing, or so-called passive investing, there are valid criticisms of too narrow a definition of indexing. Many people incorrectly equate indexing with a strategy of simply buying the S&P 500 Index. That is no longer the only game in town. The S&P 500 omits the thousands of small companies that are among the most dynamic in the economy.

Makers and Takers: The Rise of Finance and the Fall of American Business
by Rana Foroohar
Published 16 May 2016

One report released by Reagan’s Commission on Industrial Competitiveness in 1985 sounds, amazingly enough, like something that could have been written by President Obama’s Council on Jobs and Competitiveness today: “In the 1960s, the real rates of return earned by manufacturing assets were substantially above those available on financial assets. Today, the situation is reversed. Passive investment in financial assets has pretax returns higher than the rates of return on manufacturing assets….As a result, the relative attractiveness of investing in our vital manufacturing core has been compromised.” 39 A little-known and truly stupefying fact is that Reagan was so worried about the financialization of the US economy and its impact on competitiveness that he actually launched a secret project to develop a US industrial policy—a term that is still so strongly associated in the public consciousness with Soviet Russia that it has become (wrongly) a third-rail topic even among most American liberals, not to mention conservatives.

…

Not surprisingly, the notion met with a chilly reception amongst Scudder principals, who could see the handwriting on the wall—index funds, and passively managed products in general, might eventually put them out of business. Sedgwick didn’t get rich, never made partner, and died a rather frustrated man, upholding his ideas about passive investing to the end.16 His article about how the “20 largest” had beaten all actively managed funds between 1948 and 1972, published in the Financial Analysts Journal in 1973, three years before his death, had the plaintive title “The Record of Conventional Investment Management: Is There Not a Better Way?”

The End of Jobs: Money, Meaning and Freedom Without the 9-To-5
by Taylor Pearson
Published 27 Jun 2015

Entrepreneurship: The Fast Lane The alternative to jobs, entrepreneurship, is based on Fast Lane math. At its core is a focus on rapidly building assets that grow without perpetually requiring direct intervention. According to research and marketing firm The Harrison Group (HarrisonGroupInc.com), only 10% of penta-millionaires (net worth $5 million) report that their wealth came from passive investments.49 They accumulated their wealth actively through building businesses, assets that grew without them. I spoke with a business owner who had a similar experience to MJ. He’d always loved cars and spent time at the race track growing up. He had a moment of realization when he saw that the only way he could ever race consistently was if he became an entrepreneur.

The Dhandho Investor: The Low-Risk Value Method to High Returns
by Mohnish Pabrai
Published 17 May 2009

It is also no wonder that fewer than 1 in 200 mutual funds delivers long-term annualized performance that beats the S&P 500 by three percent or more. 13 Dhandho is all about placing few bets, big bets, infrequent bets; and the Kelly Formula supports this hypothesis. This approach works exceedingly well in making passive investments in the stock market. Finally, as Charlie Munger frequently says, “Invert, Always Invert!” As we examine the investing record of those who place many bets, small bets, and frequent bets, the results are predictably pathetic. Here are some salient observations about the Kelly Formula. Because the formula suggests the maximum bet we ought to make, it optimizes the time it takes a bettor to reach our wealth goals.

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns
by John C. Bogle
Published 1 Jan 2007

The Bogle Model Outperforms the Top University Endowments Returns through June 30, 2016 The Bogle Model Average Endowment Top-Quartile Endowment Top-Decile Endowment 3 Years 6.4% 5.2% 6.3% 6.6% 5 Years 6.5 5.4 6.2 6.6 10 Years 6.0 5.0 5.3 5.4 Source: NACUBO-Commonfund Study of Endowments. Mr. Carlson concludes, “This has nothing to do with active vs. passive investing. This is all about simple vs. complex, operationally efficient investment programs vs. operationally inefficient investment programs, and high-probability portfolios vs. low-probability portfolios. Investing is hard enough as it is before introducing a complex, inefficient, low-probability investment style.

MONEY Master the Game: 7 Simple Steps to Financial Freedom
by Tony Robbins
Published 18 Nov 2014

In section 4, we will sit down and you’ll hear from Burt but for now what you need to know is that he was the first guy to come up with the rationale of an index fund, which, again, does not to try to beat the market but simply “mimics,” or matches, the market. Among investors, this strategy is called indexing or passive investing. This style is contrary to active investing, in which you pay a mutual fund manger to actively make choices about which stocks to buy or sell. The manager is trading stocks—“actively” working with hopes of beating the market. Jack Bogle, founder of the behemoth Vanguard, subsequently bet the future direction of his company on this idea by creating the first index fund.

…

Dietitian, 127–28, 180 and commissions, 447 criteria for, 132–33, 135–36, 480 finding, 126–27, 132 independent, 336 and structured notes, 177–78 fiduciary responsibility, 470 50 Cent, 54 fight-or-flight response, 570 financial advisors, 126–27 financial blueprint, 233–34 financial crashes, 46–47, 350, 440–41, 488–89, 493, 514–15, 524; see also financial meltdown financial dreams, 203–29 absolute financial freedom, 211, 223–25, 257–58 Dream Bucket, 207, 340–47 exact, realization of, 199, 212–15 figuring the price of, 224 financial freedom, 211, 217, 220–22, 292 financial independence, 211, 217, 218–20, 292 financial security, 211, 212–17, 292 financial vitality, 211, 217–18 levels of, 203 lifestyle, 209–10 magic of, 206 and millionaires vs. billionaires, 208–10 questions about, 206–8 real price of, 209–10 Three to Thrive, 211–12, 225–26 and your subconscious, 206 financial freedom, 5–6, 30, 70, 83, 211, 217, 220–22, 249, 263, 292, 364, 600 absolute financial freedom, 211, 223–25, 257–58 financial independence, 211, 217, 218–20, 292 financial meltdown (2008–2009), 15, 16–17, 18, 47, 71, 88, 98, 175, 264, 298, 299, 309, 313–14, 330, 349, 378, 384, 397 financial myths, 83–91, 364, 609 annuities, 165–71 brokers, 121–37 fees, 105–15 401(k)s, 138–56 lies we tell ourselves, 183–99, 249 mutual funds, 92–104 returns, 116–20 risk/rewards, 172–82 target-date funds, 157–64 financial security, 211, 212–17, 292 emergency/protection fund, 216–17, 302 income for, 215–16, 407–8 financial vitality, 211, 217–18 Fink, Laurence D., 480 first trust deeds, 286, 312–13 Fitzgerald, Peter, 105 fixed indexed annuities (FIAs), 170, 179, 423, 427–31, 435–37 Flash Boys (Lewis), 7 focus, 227, 262, 266, 578–80, 581, 582, 583–84 food stamps, 27, 597 food technologies, 566 Forbes, Malcolm, 340 Forbes, Steve, 427, 454 Ford, Henry, 19 foreign currencies, 324, 328, 353 foreign government bonds, 317, 319 foreign stocks, 328, 473, 535 Foster, Cody, 431–37 4% rule, 411, 413 401(k) systems, 138–56 America’s Best 401k, 68, 143, 144–45, 146–48, 181, 404 and asset allocation, 163 benchmarked plans, 146–47 business owners responsible for, 146–48, 181 class-action lawsuits about, 146 contribution limits, 156 as failed experiment, 86, 110, 138–39 fees, 111, 114, 141, 142, 143–46, 148, 151–52, 181 frequently asked questions about, 152–55 in-service distribution of, 148 investment in mutual funds, 93, 110, 114, 139, 141, 144 opting out of, 148 with past employers, 154–55 pay to play, 157 plan administrator, 111, 114 rolling over into IRAs, 154–55 Roth 401(k), 150–51, 152–53, 154, 235 Solo 401(k), 153 and target-date funds, 161 and taxes, 149–50, 152, 235, 472 403(b), 472 Fournier, Alan, 516, 517 Frank, Anne, 602 Frank, Barney, 122 Frankl, Viktor, 19, 569, 582 Franklin, Benjamin, 51, 63, 476 Freedom Fund, 56–57, 60, 68, 70, 184, 218, 230, 237, 364 Friedman, Thomas, 34 frontier markets, 100 future, 549–72, 615 futures contract, 374 Gates, Bill, 377, 392, 491–92, 512, 595–96 Gates Foundation, 486, 596 Gaye, Marvin, 52 genome project, 565 Ghilarducci, Teresa, 86, 140 giving back, 73–74, 77–78, 79–80, 262, 341–43, 457, 494, 538, 585–86, 589–90, 594–96, 601–2, 605–6 Giving Pledge, 392, 466, 512, 595 Godfrey, Arthur, 276 God’s hand, 228–29, 343 gold, 324, 371, 396, 527–28 GoPro, 270 Gospel of Wealth, The (Carnegie), 595 grace, 228–29, 343 Graham, Benjamin, 172, 355, 358, 486 gratitude, 79, 229, 347, 544–45, 577, 579, 585, 592 Great Depression, 31, 310, 350, 369, 378 Great Recession, 264 Greece, economy of, 518–20 Green Day, 15 Gretzky, Wayne, 15 growth: as human need, 77, 585 possibility vs. probability of, 334 Guber, Peter, 244–45 Guns N’ Roses, 20 Gupta, Ajay, 130–31, 178–79, 285, 405 Hammer, M.C., 52 Hand, Learned, 276 Hannah, Jim, 260 happiness, 233, 269, 343, 570, 574–75, 585, 588–91, 615 Happy Money (Dunn and Norton), 589, 601 Harris, Dan, 600 Hart, Mark, 456 Hastings, Reed, 465 Heath, Dan and Chip, 95 hedge funds, 21, 95, 99, 101, 180, 306, 375 Hemingway, Ernest, 17 Highbridge Capital Management, 599 high-frequency trading (HFT), 7, 123, 173, 175, 351–52 HighTower, 25–26, 128 high-yield bonds, 318, 323 Hill, Napoleon, 19, 567 Hillary, Edmund, 406 Hiltonsmith, Robert, 108–9 history, 350, 481 Holmes, Oliver Wendell Sr., 14 home: average price of, 252 hedge against inflation, 308 investment in, 237, 249, 307 mortgage payments on, 249–51, 385 in Security/Peace of Mind Bucket, 306–8 tax advantage in, 308 housing crash (2008), 514–15, 516–18 How the Economic Machine Works (Dalio), 380 How to Lie with Statistics (Huff), 116 Huff, Darrell, 116 Huffington, Arianna, 594 Hulbert, Mark, 400–401 human needs, 74–78 certainty/comfort, 75, 206 contribution, 77–78, 266–67, 585 growth, 77, 585 love and connection, 77 significance, 76–77, 204 uncertainty/variety, 75 Hunt, Bunker, 490 Icahn, Carl, 10, 47, 360, 454, 458–67, 458 Icahn Enterprises (IEP), 461, 465–67 ignorance, 85 immediate gratification, 66 impulse purchases, 255 income: access to, 332 actual, 274–75 consistent, 407 for financial security, 215–16, 407–8 lifetime income plan, 46, 613–14 minimum wage, 263 as outcome, 407, 419 spendable, 444–45 stagnant, 263 income insurance, 407–8, 415–16, 427, 437–38, 613–14 index funds, 93–95, 103, 279, 486–87 bond, 305, 319, 320 diversification in, 49, 357, 473, 483 fees, 112, 165, 278 low-cost, 92, 94, 101, 106, 112, 113, 163, 180, 274, 326, 472 passively managed, 97, 472, 533 replacing mutual funds with, 113, 165 indexing (passive investing), 97 indexing plan, 104 inertia, 40 inflation, 329, 386, 413, 474, 525–26 information overload, 41 in-service distribution, 148 Inside Job (documentary), 17 inspiration, 245 insurance guaranty associations, 408n, 424 interest rates, 235n, 264, 310, 353, 411 and All Seasons, 398–99 and bonds, 158, 304, 315 and CDs, 178 long (duration) rates, 398 International Basket Brigades, 74 internet bubble, 349 internet expansion, 560–61 investment advisor, registered, 112 investment portfolio, see portfolio investments: accumulation phase, 89, 90 automated system of, 358–59, 364 with brokers, 86–87 capital gains on, 278 core concept of, 90 critical mass of, 33 decumulation phase, 89, 90 earnings and, 259–72 environment for, 385–88 and fees, 87, 105–15, 534 fixed-income (bonds), 304 goal of, 98 long-term, 93, 104, 329–30, 351, 474, 504 lump-sum, 365–66 mistakes in, 297 offer, 84 passive (indexing), 97 patterns of, 359, 404 purpose of, 70, 338, 406–7 in real estate, 283–86, 308, 323 rebalancing, 359–62, 363, 393n, 402, 613 return on, 116–20, 238, 278, 281–86 savings and, 58, 90, 247–58, 292 secure, 301 surprises in, 387 time horizon for, 283 what goes up will come down, 298–99 in yourself, 260–66 Investopedia, 84n investors: accredited, 286, 447 becoming, 6–7, 230, 292 expectations of, 387 individual, 380 women as, 334 IRAs, 93, 110, 148 and annuities, 439 401(k)s rolled over into, 154–55 Roth IRA, 150, 153–54, 236, 278, 442 and taxes, 235, 236 irrational exuberance, 334–35 It’s Your Money, 234 Jackman, Hugh, 15 jackpots, 343 Jackson, Michael, 53 Jagger, Mick, 34 Japan, economy of, 520–21 Jhoon Rhee, 42–43 Jobs, Steve, 287, 594 Johnson, Theodore, 60, 62, 67, 192 John Templeton Foundation, 62 Jones, Paul Tudor, 15–16, 30, 99, 455, 488 on asset allocation, 296, 493–94 on asymmetric risk/reward, 173, 281–82, 493 author’s interview with, 46–47, 456, 488–95 and Black Monday, 15, 46–47, 350, 488, 493 on diversification, 490–91 market forecasting, 352, 353, 354, 489, 492 and Robin Hood Foundation, 16, 489 J.P.

…

Rebates, 256 multitasking, 267–69 municipal bonds, 319–20 Munnell, Alicia, 139–40, 308, 427 Murdoch, Rupert, 83 mutual funds, 92–104 account fee, 115 actively managed, 93, 95, 100, 110, 124, 165, 479–80, 502 and annuities, 168, 424–25 associated costs of, 112 average returns, 116–18 bond, 158 cash drag, 115 cost calculator, 111 deferred sales charge, 115 dollar-weighted return on, 118–19 exchange fee, 115 expense ratio, 108, 113 failure to beat the market, 93–94, 96, 101, 106 fees of, 105–15, 119, 121, 141, 180, 273, 278, 479 and 401(k)s, 93, 110, 114, 139, 141, 144 high-cost, 85, 105, 112 index funds, 94 money market funds, 303 no load, 108 offer, 84 options, 163 pay to play, 144, 157 promise of protection in, 98 purchase fee, 115 ratings of, 92, 102–3 redemption fee, 115 retirement accounts in, 93, 110, 114, 141 returns on investment, 116–19, 400 sales charge (load), 115 soft-dollar costs, 114–15 as stacked deck, 88 stock-picking, 119, 180 and survivorship bias, 470 tax costs, 111, 114, 119, 279, 472 as $13 trillion lie, 93, 97 time-weighted returns, 118–19 transaction costs, 114 turnover in, 279–80 Namale Resort and Spa, 207, 341 nanotechnology, 562, 567 Napoléon III, 555 NASA, 557, 561 Nash, Ogden, 65 National Association of Personal Financial Advisors (NAPFA), 132 national debt, 149 natural resources, 556 Necker Island, 208 Nelson, Willie, 52, 61, 341 nest egg, 58, 257 Netflix, 465–66 Nixon, Richard M., 370–71 Nixon rally, 371–72 Norton, Michael, 589, 601 Notes from a Friend (Robbins), 597–98 numbers: off base, 240–41 “real,” 238, 364 Obama, Barack, 208, 560 Oduyoye, Darin, 499–500 O’Higgins, Michael, 398 oil, 506, 509, 510–11, 556–57 online rewards programs, 255–56 OPEC, 506, 511 opportunity, 269 optical illusions, 38–39 organ donation, 39–40 O’Rielly, William, 115 Orman, Suze, 254 Page, Larry, 377 Palm Beach, Florida, 289–90 passion, 573–87 passive investing (indexing), 97 paycheck, automatic deductions from, 64 pay to play, 144, 157 penny wisdom, 63 pensions, 34–35, 409 cash-balance plans, 155, 156 defined benefit plans, 155 do-it-yourself, 86 hidden fees in, 86 in Security/Peace of Mind Bucket, 308 Personal Fund, 111 Personal Power (Robbins), xxvi Peter, Irene, 297 philanthropy, 392, 457, 466, 486, 489, 494, 538, 595–96, 601; see also giving back photography, 269–70 physical mastery, 42 physiology, changing, 196–99 Pickens, T.

Be Your Own Financial Adviser: The Comprehensive Guide to Wealth and Financial Planning
by Jonquil Lowe
Published 14 Jul 2010

If you want to adjust the risk–return balance, then you can split your money between the market and a risk-free or nearly risk-free asset such as cash. So to reduce risk you hold the market and cash; to increase risk you borrow extra cash to buy more of the market. This strategy is called ‘passive’ investing. The main tools of passive investing are tracker funds. A tracker fund is constructed to reproduce the performance of a selected stock market index. Some funds do actually hold every single stock in the market. But an alternative technique – there are others – is ‘representative sampling’. A reduced number of shares held are those that account for the majority 5 Fama, E., 1970, ‘Efficient capital markets: a review of theory and empirical works’ in Journal of Finance, May.

100 Baggers: Stocks That Return 100-To-1 and How to Find Them
by Christopher W Mayer
Published 21 May 2018

Buffett uses the analogy of a bond. Let’s say you had a tax-exempt bond issued in prior years that paid you 7 percent. Such a bond would be worth 50 percent of its par value in an environment where tax-exempt bonds pay 14 percent. And so it is with stocks. “Thus,” Buffett wrote, “with interest rates on passive investments at late 1981 levels, a typical American business is no longer worth one hundred cents on the dollar to owners who are individuals.” (italics in the original) The year 1982 was the last year of that kind of inflation, which diminished thereafter. No wonder it proved to be such a great bottom in the stock market.

Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School
by Andrew Hallam
Published 1 Nov 2011

It’s just not going to happen.4 David Kahneman, 2002 Nobel Prize in Economics, when asked about investors’ long-term chances of beating a broad-based index fund Kahneman won the Nobel Prize for his work on how natural human behaviors negatively affect investment decisions. Too many people, in his view, think they can find fund managers who can beat the market index over the long haul. Any pension fund manager who doesn’t have the vast majority—and I mean 70% or 80% of his or her portfolio—in passive investments [index funds] is guilty of malfeasance, nonfeasance, or some other kind of bad feasance! There’s just no sense for most of them to have anything but a passive [indexed] investment policy.5 Merton Miller, 1990 Nobel Prize in Economics Pension fund managers are trusted to invest billions of dollars for governments and corporations.

A Mathematician Plays the Stock Market
by John Allen Paulos
Published 1 Jan 2003

It was probably this last, rather ludicrous version of the hypothesis that prompted the joke about the two efficient market theorists walking down the street: They spot a hundred dollar bill on the sidewalk and pass by it, reasoning that if it were real, it would have been picked up already. And of course there is the obligatory light-bulb joke. Question: How many efficient market theorists does it take to change a light bulb? Answer: None. 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.

The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk
by William J. Bernstein
Published 12 Oct 2000

By definition, such bonds have yields higher than less risky investment grade bonds. Index fund: A mutual fund designed to mimic the returns of a given stock market index, such as the S&P 500. Indexing: The strategy of exactly matching the performance of a given stock index, such as the S&P 500. See also passive investing strategy. Initial public offering (IPO): The initial, or primary, public security sale of a corporation. After the IPO, the security thus issued trades in the secondary market. Institutional investors: Large investment organizations, including insurance companies, depositary institutions, pension funds, and philanthropies.

Empires of the Weak: The Real Story of European Expansion and the Creation of the New World Order
by Jason Sharman
Published 5 Feb 2019

“Fortifications and the Imagination of Colonial Control: The Dutch East India Company in Malabar 1663–1795.” Paper presented at the Urban History Conference, September 3–7, 2014, Lisbon. Oman, C.M.C. 1885 [1953]. The Art of War in the Middle Ages, AD 378–1515. Ithaca, NY: Cornell University Press. Pace, Desmond, Jana Hili, and Simon Grima. 2016. “Active versus Passive Investing: An Empirical Study on the US and European Mutual Funds and ETFs.” In Contemporary Issues in Bank Financial Market, edited by Simon Grima and Frank Bezzina, 1–35. Bingley, UK: Emerald Group. Padden, Robert Charles. 1957. “Cultural Change and Military Resistance in Araucanian Chile, 1550–1730.”

Cashing Out: Win the Wealth Game by Walking Away
by Julien Saunders and Kiersten Saunders
Published 13 Jun 2022

In some ways, it may feel as if you were leaving an entire community behind. You’ll begin to feel as if people see you differently, and in some cases it’s because they do. In our case, we’d fallen into the trap of virtue signaling. When we shared how much we saved in a year, our net-worth gains, or our point of view on passive investing, it made people feel as if we weren’t just better off but better than them. Our open displays of financial responsibility had somehow come across as moral superiority. And as tempting as it is to double down on those beliefs, doing so would serve only to create an even greater gap between us and the people we love.

Trading and Exchanges: Market Microstructure for Practitioners
by Larry Harris
Published 2 Jan 2003

If you cannot predict which managers will be successful, you should not employ active investment managers. The most important decision investment sponsors make is whether to employ active managers. Investors who believe that they cannot speculate successfully often invest their money with passive investment managers. Passive investment managers use buy and hold strategies. They simply buy and hold securities. Passive managers therefore rarely trade. The most common buy and hold strategy is the index replication strategy. Index replicators buy and hold portfolios that they design to replicate the returns to a broad market index.

…

Even the best traders often lose because of events that they could not anticipate. Successful traders win more often than they lose, however. Those who do not are futile traders. * * * ▶ A Trading Oxymoron Investment managers help people manage their funds. They may help people invest, as their name implies, or they may help people speculate. Passive investment managers pursue buy and hold strategies. Managers who buy and hold rarely trade. Indexing is the most common buy and hold strategy. Indexers try to replicate the returns to an index. Such strategies are often appropriate for investors. Active investment managers are speculators who try to beat the market.

Investing Demystified: How to Invest Without Speculation and Sleepless Nights
by Lars Kroijer
Published 5 Sep 2013

Owing to its simple construction with a strong bias towards minimum turnover and very long-term holding periods, the rational portfolio is very tax-efficient for most people. Below are some of the most obvious tax benefits most people would realise from holding a rational portfolio: Low turnover = less capital gains and transaction tax A passive investment product will have fewer trades than an active fund. This will typically lead to lower capital gains (including short-term ones often taxed at higher rates), but also fewer payments of transaction taxes such as stamp duty. In addition to tax, there are other obvious advantages such as trading costs associated with the low turnover.

Company of One: Why Staying Small Is the Next Big Thing for Business
by Paul Jarvis
Published 1 Jan 2019

A family member falling ill or passing away can require you to take time off that you hadn’t planned for. In this event a recurring income stream and runway buffer can be a great help at a difficult time. Savings Alongside a salary and a runway buffer, I truly think companies of one should invest as much money as they can save up in passive investments like index funds. If inflation is approximately 3 percent per year, then you’re losing money on any assets you’ve got that aren’t making at least 3 percent per year in returns. This applies, by the way, to all the money in your bank account, since checking and savings accounts pay barely any interest.

The Essays of Warren Buffett: Lessons for Corporate America
by Warren E. Buffett and Lawrence A. Cunningham
Published 2 Jan 1997

In doing that, we always mentally 41 [Divided by hash lines: 1995; 1991 (the latter with similar versions beginning in 1982 and continuting thereafter).] 152 CARDOZO LAW REVIEW [Vol. 19:1 compare any move we are contemplating with dozens of other opportunities open to us, including the purchase of small pieces of the best businesses in the world via the stock market. Our practice of making this comparison-acquisitions against passive investments-is a discipline that managers focused simply on expansion seldom use. Talking to Time Magazine a few years back, Peter Drucker got to the heart of things: "I will tell you a secret: Dealmaking beats working. Dealmaking is exciting and fun, and working is grubby. Running anything is primarily an enormous amount of grubby detail work ... dealmaking is romantic, sexy.

Big Business: A Love Letter to an American Anti-Hero
by Tyler Cowen
Published 8 Apr 2019

You can take that as praise for Vanguard, or an indictment of the previous state of affairs, or perhaps a bit of both. Nonetheless, these figures, even though they are rough estimates, show good progress in lowering fees. But do note the fees are still high: one estimate from 2004 measures various kinds of mutual fund broker fees at $23.8 billion. Since that time indexing and passive investing have grown, but the core problem of excess fees has by no means vanished.27 Keep in mind also that mutual fund growth, as it represents a growing part of financial service fees, stems from a fundamental change in the nature of retirement. In the supposed “good old days” (which were in fact not always so wonderful), workers relied more frequently on defined benefit pensions from corporations.

Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity
by Douglas Rushkoff
Published 1 Mar 2016

“It’s good for a market economy to have income inequality but to extremes, it can actually damage growth long term and make it less sustainable.”19 Bovino showed that it’s not just the extreme of inequality that’s to blame but the decline of labor and business income in the face of rising capital gains. Simply stated, it’s harder to make money by working or creating value when the scales tip too far in favor of investors and shareholders. In a sense, though, the aim of the original corporate program has been achieved: those who create value have been utterly subsumed by those who passively invest. But as Bovino is trying to warn us, corporate shareholders can’t take this much money out of circulation without killing the goose. Those who run real businesses or, worse, work for a living end up like the musicians on the bad end of the long tail. Meanwhile, passive investors who depend on economic growth end up sitting on their bags of money, unable to find new productive investments.

Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America
by Matt Taibbi
Published 15 Feb 2010

At least that’s what Goldman Sachs told its institutional investors back in 2005, in a pamphlet entitled Investing and Trading in the Goldman Sachs Commodities Index, given out mainly to pension funds and the like. Commodities like oil and gas, Goldman argued, would provide investors with “equity-like returns” while diversifying portfolios and therefore reducing risk. These investors were encouraged to make a “broadly-diversified, long-only, passive investment” in commodity indices. But there were several major problems with this kind of thinking—i.e., the notion that the prices of oil and gas and wheat and soybeans were something worth investing in for the long term, the same way one might invest in stock. For one thing, the whole concept of taking money from pension funds and dumping it long-term into the commodities market went completely against the spirit of the delicate physical hedger/speculator balance as envisioned by the 1936 law.

Expected Returns: An Investor's Guide to Harvesting Market Rewards
by Antti Ilmanen
Published 4 Apr 2011

Empirical analyses unequivocally confirm that most managers underperform passive indices after fees and leave open the possibility that winners have just been lucky. People’s innate optimism and the financial industry’s marketing machines have been able to muddle these messages, thereby slowing the lure of passive investing. In its early years, the EMH was often equated with the random walk hypothesis (RWH). The ideas are closely linked. According to the RWH, aggressive competition among market participants to exploit any predictable patterns makes price changes fully random and unpredictable. All news is instantly incorporated into market prices.

…

A counterview is that it is easier to identify skill vs. luck in liquid assets with frequent performance measurement. With illiquid assets, effective sample sizes will be tiny. Moreover, if you reassess a manager’s skill over time, there will be times (say in 2008) when you may want to get out but you have no flexibility to do so. 28.1.4 Cost control Passive investing minimizes trading costs. However, some costs are worth paying. Buying an equity index fund costs more than investing in a bank deposit, but the equity premium should make the extra cost worthwhile in the long run. Value-oriented non-market-cap weighting involves higher turnover and fees than market cap indices, but proponents of fundamental indexation argue that long-run net returns will be better.

The Misbehavior of Markets: A Fractal View of Financial Turbulence
by Benoit Mandelbrot and Richard L. Hudson
Published 7 Mar 2006

Merrill Lynch turned CAPM into an industry in its own right, producing a periodical “Beta Book” for its brokers and customers eager to do the math themselves. Across the world, financial firms started constructing efficient portfolios for their clients. After a few false starts, the index fund, the ultimate in passive investing, was born. It now constitutes more than a fourth of U.S. fund investments. Options took off. The industry was transformed. It discovered economies of scale: If there is just one market portfolio and one size fits all, then the same funds and same analysts can serve all customers. Merge and save.

Present Shock: When Everything Happens Now
by Douglas Rushkoff
Published 21 Mar 2013

This is a presentist economy, at least in comparison with the storage-based economics of the euro and traditional banking. Nothing is spring-loaded or leveraged, which makes it harder for these markets to endure changing seasonal conditions, support multiyear contracts, or provide opportunities for passive investment. But this style of transaction still does offer some long-term benefits to the communities who use it. Human relationships are strengthened, local businesses enjoy advantages over larger foreign corporations, and investment of time and energy is spent on meeting the needs of the community itself.

Mathematics of the Financial Markets: Financial Instruments and Derivatives Modelling, Valuation and Risk Issues
by Alain Ruttiens
Published 24 Apr 2013

Hence the Sharpe ratio: Practically speaking, for a given period of past data leading to r and σ measures, the rf rate must be of a non-defaultable government bill or bond of maturity coinciding with the same period of time as used for r and σ. The data for r and rf being usually expressed on a p.a. basis, σ must also be computed on a p.a. basis. Example. For a fund passively invested in the S&P 500 in 2009, the computed return and risk were 17.96% p.a. and 27.04% p.a. respectively (based on daily closing prices). The corresponding 12-month T-Bill was 2.004%. The Sharpe ratio is Note that in the fund industry, it is hard to achieve a Sharpe ratio above 1, which may be viewed as a reference level.

Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism
by Jeff Gramm
Published 23 Feb 2016

TIMBER I’M FALLING Baker, Fentress & Company traced its roots back to the 1890s, when it was a Chicago investment bank specializing in the timber business. Starting in the early 1940s, it liquidated its ownership interests in dozens of lumber and logging companies and invested the proceeds in public equities.8 By 1995, Baker, Fentress was a closed-end fund managing $500 million in passive investments, and a controlling interest in Consolidated-Tomoka Land Company, one of its legacy timber holdings. But the company was a dinosaur. Its portfolio had drastically underperformed the S&P 500 since 1987, when James Fentress, who had run the company for almost twenty years, passed away.9 Baker, Fentress traded at a steep discount to its assets, so it could not raise capital without diluting existing shareholders.

The Clash of the Cultures
by John C. Bogle
Published 30 Jun 2012

It was a marriage made in heaven, strongly supported by the unequivocal data that I had assembled on fund performance relative to the S&P 500 over the previous three decades. Simple Arithmetic: An Unarguable Conclusion Few commentators have recognized that two distinct intellectual ideas formed the foundation for passive investment strategies. Academics and sophisticated students of the markets—“quants,” as they are known today—rely upon the EMH—the Efficient Market Hypothesis, first articulated by University of Chicago Professor Eugene Fama in the mid-1960s. This theory suggests that by reflecting the informed opinion of the mass of investors, stocks are continuously valued at prices that accurately reflect the totality of investor knowledge, and are thus fairly valued.

Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond: The Innovative Investor's Guide to Bitcoin and Beyond
by Chris Burniske and Jack Tatar
Published 19 Oct 2017

But maybe the hedge fund structure will largely become a relic of the past, with asset management infrastructure decentralized through platforms like Melonport. The potential products and vehicles are endless and provide investors and money managers with great opportunities for profit. Will individual money managers become famous for their expertise and active management of these assets, or will passive investments consisting of rules-based categories of cryptoassets become the vehicle of choice? In the 1980s, Fidelity’s Magellan Fund was where investors wanted to place their money, and it was all because of one person: Peter Lynch. During Lynch’s time, the fund grew from $20 million to $14 billion, and he beat the S&P 500 index 11 out of 13 years.

Capital Ideas Evolving
by Peter L. Bernstein
Published 3 May 2007

But the model’s power has turned out to be astonishing where its use is appropriate. In recent years, CAPM has inspired widespread and radical changes in the way institutional investors allocate assets, and the order in which they sequence their allocation decisions. CAPM also inf luences the way investors arrive at judgments between active and passive investing, select active managers, and confront the risks imbedded in their portfolio decisions. CAPM is indeed alive and well as an effective tool of portfolio management, although in ways that none of its developers would ever have predicted.  What is the Capital Asset Pricing Model all about? The answer to that question depends in part on which of the living originators of this model you ask, Jack Treynor or Bill Sharpe.

The Glass Half-Empty: Debunking the Myth of Progress in the Twenty-First Century
by Rodrigo Aguilera
Published 10 Mar 2020

In the US, around 12% of all stock market wealth is controlled by pension funds and a further 29% by investment funds who get to receive dividends, appoint members to company boards, and all the other perks of holding ownership shares in the firms they invest in.11 As legal scholar (and personal friend) Ewan McGaughey has explained in numerous papers on the subject, this represents “labor’s capital” yet it provides no ownership or voting rights to the very employees whose savings are used by those funds to purchase corporate shares.12 Instead, the asset managers who control these savings wield disproportionate influence over corporate affairs. One study has estimated that the “Big Three” passive investment funds in the US (BlackRock, Vanguard, and State Street) are the largest shareholders in 40% of all listed firms and in nearly 9 out of 10 firms in the S&P 500.13 Figure 9.2: The de-democratization of US corporate stocks Notes: Back in the 1950s, households (i.e. individuals) directly owned over 90% of total corporate stocks.

What's Next?: Unconventional Wisdom on the Future of the World Economy
by David Hale and Lyric Hughes Hale
Published 23 May 2011

The deleveraging that took place in the second half of 2008 reduced this amount to about 1.7 billion barrels. Over-the-counter crude oil contracts exacerbated this speculative spike, adding a full 120 percent to the peak figure as opposed to a fraction (on the order of 80 percent) before and after the spring 2008 episode. Similarly, passive investment into index funds also rose and fell spectacularly, from about $75 billion in 2006 to $280 billion by mid-summer 2008, and back to the 2006 level six months later.40 The Goldman Sachs–fed allure of $200-per-barrel oil has faded, and it is unlikely that the next couple of years will see an episode of exuberant investing comparable to the year 2008 that is still remembered for oil at $147 per barrel.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing
by Burton G. Malkiel
Published 10 Jan 2011

A Broader Definition of Indexing The indexing strategy is one that I have recommended since the first edition in 1973—even before index funds existed. It was clearly an idea whose time had come. By far the most popular index used is the Standard & Poor’s 500-Stock Index, an index that well represents the major corporations in the U.S. market. But now, although I still recommend indexing, or so-called passive investing, there are valid criticisms of too narrow a definition of indexing. Many people incorrectly equate indexing with a strategy of simply buying the S&P 500 Index. That is no longer the only game in town. The S&P 500 omits the thousands of small companies that are among the most dynamic in the economy.

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 and Monique Tilford
Published 31 Aug 1992

At its core, index fund investing means you are using an approach and strategy that seeks to track the investment returns of a specified stock or bond market benchmark or index. One of the most popular index funds today is the S&P 500 Index Fund, which attempts to replicate the investment results of this specific target index. There is no attempt to use traditional “active” money management or to make “bets” on individual stocks. Indexing is a passive investment approach emphasizing broad diversification and low portfolio trading activity. Low cost is a key advantage of index funds, leaving a larger share of the pie for investors, which is why this choice aligns well for your FI investment plan. Low Fees Are Key Fees, by far, are one of the most overlooked areas in terms of investment decisions.

eBoys
by Randall E. Stross
Published 30 Oct 2008

They think they’re playing in the big leagues and we’re in Little League. That’s fine.” More silence. Kagle tried to offer a compromise that both Beirne and the partners could live with. What about relaxing the partnership’s 15 percent ownership minimum? Why not have Benchmark take a smaller piece as a passive investment, that is, one in which Beirne would not serve as a director on the board? Beirne kept his voice low, but the thought of missing the opportunity was too much to bear. “I think if this is what we think it is, if they nail one of the top six carriers, this will be such a massive company. The fact that we’ve sold ourselves into a position of owning 15 percent of it, I think, will be unbelievable.

The Millionaire Fastlane: Crack the Code to Wealth and Live Rich for a Lifetime
by Mj Demarco
Published 8 Nov 2010

I don't say that to be mean-spirited to older generations, but to cast light on the point: Compound interest (401(k)s, mutual funds, the stock market) cannot accelerate wealth fast. According to research and marketing firm The Harrison Group (HarrisonGroupInc.com), only 10% of penta-millionaires (net worth $5 million) report that their wealth came from passive investments. Age data was not provided but you can guess that none of the 10% were under 30. Think about it. Have you ever met a college student who got rich investing in mutual funds or his employer's 401(k)? How about the guy who bought municipal bonds in 2006 and retired in 2009? I wonder if that guy driving a $1.2-million car can because of his well-balanced portfolio of mutual funds?

Your Money: The Missing Manual
by J.D. Roth
Published 18 Mar 2010

That's because the "hot" funds don't stay hot year after year—they cool down. So while index funds are usually in the middle of the pack in any given one-year period, they shine over the long term. During the recent stock market tumble, some folks shouted, "Look! Buy-and-hold investing is dead!" They took the stock market's decline as evidence that passive investing with index funds doesn't work. Well, it doesn't work if you sell after a fall, but if you hold onto your investments, you're fine—you haven't lost anything but time. In fact, many savvy investors viewed the market crash as a chance to buy—and hold onto—even more shares of their index funds. Investing is a game of years and decades, not months.

Unconventional Success: A Fundamental Approach to Personal Investment
by David F. Swensen
Published 8 Aug 2005

After adjusting for the higher level of risk and the greater degree of illiquidity in buyout transactions, publicly traded equity securities gain a clear advantage. Active Management and Buyout Funds In the private equity world, active management success goes hand-in-glove with investment success. In asset classes such as domestic equities and fixed income, which contain passive investment alternatives, investors can buy the market. By owning a marketable-security index fund, investors reap market returns in a cost-efficient, reliable manner. In the inefficient private equity world, investors cannot buy the market, as no investable index exists. Even if a leveraged-buyout index existed, based on past performance, index-like results would fail to satisfy investor desires for superior risk-adjusted returns.

What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences
by Steven G. Mandis
Published 9 Sep 2013

Goldman creates GSCI, a benchmark for investment performance in the commodities markets (T). 1992: Bob Rubin leaves Goldman to become assistant to the president on economic policy (O). The move adds to the Goldman mystique but is unusual in that Rubin’s is one of the shortest tenures as senior partner. A Hawaiian educational trust, the Kamehameha Schools/Bishop Estate, invests $250 million in Goldman and receives a stake of more than 5 percent in the firm. It is a passive investment; the trust has no voting privileges but will participate in Goldman’s profits and losses. In an effort to further link pay to performance, and to create a new source of developmental feedback, Goldman institutes 360-degree performance reviews (meaning that even junior staff reviews senior staff).

Finance and the Good Society
by Robert J. Shiller
Published 1 Jan 2012

There is an element of truth to this academic view: many investment managers have succeeded in creating false impressions as to their superiority as investors. Evidence in the academic nance literature shows that actively managed stock market mutual funds have generally been worse investments in recent decades than funds that follow a passive investment strategy and merely invest in all shares in the stock market. For example, Martin Gruber found in 1996 that mutual funds underperformed a diversi ed investment in the stock market by about 1.5% a year.1 This underperformance re ected the regularly scheduled management fees imposed by the mutual funds on their investors, but not the load fees (large one-time-only fees that are collected when money is invested or taken out), so the actual performance of mutual funds was even worse.

Democracy and Prosperity: Reinventing Capitalism Through a Turbulent Century
by Torben Iversen and David Soskice
Published 5 Feb 2019

Wage restraint presented a time inconsistency problem insofar as companies were not required to reinvest higher profits but could disburse them as dividends or bonuses instead (Eichengreen 1997). But they were encouraged to reinvest by tax, industrial, educational, and regulatory policies that prioritized active over passive investments. Dividend payouts were heavily taxed, and “advanced” sectors of the economy were aided through infrastructure and educational investments, and by targeting subsidies and low-interest loans to sectors where unions displayed wage restraint and where firms were willing to support apprenticeship training and invest in R&D (Katzenstein 1985).

Buy Now, Pay Later: The Extraordinary Story of Afterpay
by Jonathan Shapiro and James Eyers
Published 2 Aug 2021

On 1 September 2017, it was confirmed that Afterpay, along with nine other companies, would be added to the index of the top 300 companies later in the month. The addition typically means that large funds that have been set up to simply track an index and charge a relatively low fee for the passive investment are forced to buy shares in the company being included. The additional demand from the passive funds is assumed to boost the share price. But of equal significance is that investment firms are assessed based on their ability to do better than the index, and their performance fees are tied to doing so.

The Missing Billionaires: A Guide to Better Financial Decisions
by Victor Haghani and James White
Published 27 Aug 2023

He founded Elm Wealth in 2011 to help investors, including his own family, manage their savings in a disciplined, research‐based, cost‐effective manner and to capture the long‐term returns they ought to earn. In his 2013 TEDx talk, Where Are All the Billionaires and Why Should We Care?, Victor shared his perspective on the synthesis of active and passive investing, which forms the basis of the Dynamic Index Investing® approach offered by Elm Wealth. Over the years, Victor became fascinated with the challenge of making good decisions on broader questions about wealth and personal finances, including sound spending policies, tax decisions, and retirement choices.

Money and Power: How Goldman Sachs Came to Rule the World
by William D. Cohan
Published 11 Apr 2011

“Fed officials seem to worry that control is a subtle influence and that, despite the nonvoting agreement, Sumitomo might end up exerting some influence over Goldman’s activities and decisions.” The Fed decided to hold a public hearing on October 10. “We want people to discuss not only the specific terms of the Sumitomo-Goldman deal but the broader issues,” a Fed official explained. “Is this the end of Glass-Steagall, or is this indeed just a passive investment?” At a rare public hearing at the Fed, which was attended by more than two hundred people, Michael Bradfield, the general counsel, seemed particularly focused on whether the investment would “lead to Sumitomo influencing the management decisions of Goldman Sachs” and be a violation both of Glass-Steagall and the Bank Holding Company Act of 1956, which limits to 25 percent the nonvoting stock ownership from another entity.

…

In a statement, the Fed said, “The board was concerned that this combination of significant equity investment and maintenance of extensive business relationships would give the investor both the economic incentive and means to exercise a controlling influence over the management policies” of Goldman. Weinberg seemed happy to make the changes. “This was a passive investment from the first word,” he said, “and there was never a desire on Sumitomo’s part to get control.” The Fed’s approval cleared the way for Goldman to get Sumitomo’s money by December 1. “This will give us additional capital to provide clients with a broad range of investment,” Weinberg said. But the bigger question floating around the halls of 85 Broad Street was whether the Sumitomo capital was enough.

Mastering Private Equity
by Zeisberger, Claudia,Prahl, Michael,White, Bowen , Michael Prahl and Bowen White
Published 15 Jun 2017

Oftentimes, an LP’s diversification strategy and allocation decisions are shaped by views on the macroeconomic environment, preferences for or against specific countries or investment strategies and the overall experience of the investment team. These dynamics mirror in some way the discussion on active and passive investment in public equities. Box 18.1 LP COMMITMENT STRATEGIES Achieving and maintaining a desired allocation to PE is an ongoing process, as an LP’s exposure to the asset class is subject to the unpredictability of capital calls and distributions and the evolution of fund net asset values (NAVs).

Triumph of the Optimists: 101 Years of Global Investment Returns
by Elroy Dimson , Paul Marsh and Mike Staunton
Published 3 Feb 2002

When the premium is assessed as large, many so-called active investors will nevertheless appear to run closet index funds. That can be rational since it optimizes the portfolio’s reward-to-risk ratio. Our assertion in this book, however, is that the equity premium is markedly lower than many people suggest. The reward from passive investing must therefore be lower, in relative terms, than was previously thought. For skilled investors, the size of their portfolio bets should therefore be larger. Our evidence on the small magnitude of the equity risk premium provides encouragement for active investors to deviate more from benchmark, and to take on more active risk.

Oil: Money, Politics, and Power in the 21st Century
by Tom Bower
Published 1 Jan 2009

Unable to afford further exploration from rigs floating 3,000 feet above the seabed, the company sold the rights to Shell. Bookout was convinced that the drill should have been placed just 400 yards away. Soon after Shell’s purchase, Jack Golden, BP’s head of exploration in the Gulf, offered to buy a third of Shell’s investment in return for sharing a proportion of the cost. Passive investment, or “farming in,” by competitors was not unusual in big projects. Even the mighty oil corporations needed to mitigate their risks. Golden had regretted BP’s tardiness in bidding for the US government’s first round of 10-year licenses for deep-water exploration in the Gulf, and his irritation was compounded by Shell’s perfunctory rebuff of his offer.

The Joys of Compounding: The Passionate Pursuit of Lifelong Learning, Revised and Updated
by Gautam Baid
Published 1 Jun 2020

This impatient mind-set of clients and the resultant pressure on fund managers to beat their benchmarks every quarter lead to excessive churning of portfolios and high frictional costs. This, in addition to high expense ratios, causes most active fund managers to fail to beat their respective benchmarks. S&P Dow Jones Indices, the “de facto scorekeeper of the active versus passive investing debate,” in its SPIVA U.S. 2018 Scorecard, highlighted this fact (table 11.1).15 TABLE 11.1 Percentage of U.S. equity funds outperformed by benchmarks, 2018 In other words, over a period of fifteen years, only one in twelve large-cap managers, one in fourteen mid-cap managers, and one in thirty-one small-cap managers were able to outperform their benchmark index.

The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance
by Eswar S. Prasad
Published 27 Sep 2021

Within a week of Charles Schwab’s announcement, other major brokerage firms such as E*TRADE, Interactive Brokers, and TD Ameritrade had also dropped commissions on trades to zero. Another such online advisor, Wealthfront, was set up in 2008 and soon hired Burton Malkiel, a Princeton University finance professor, as its chief investment officer. Malkiel’s influential 1973 book, A Random Walk down Wall Street, launched the passive investing revolution four decades ago. His basic thesis was that the typical investor would be better off buying and holding low-cost index funds rather than trading in individual securities or investing in actively managed index funds. There might be some gains to undertaking a carefully crafted set of investments in other financial assets, but high fees and trading costs would render any gains in returns modest at best.

The Snowball: Warren Buffett and the Business of Life
by Alice Schroeder
Published 1 Sep 2008

In a letter of October 9, 1969, he made a market forecast, which he had previously declined to do. With the market at such heights, “…[f]or the first time in my professional life,” he wrote, “I now believe there is little choice for the average investor between professionally managed money in stocks and passive investment in bonds”5—although he did allow as how the very best money managers might be able to squeeze out a few percentage points over the earnings of bonds. Nonetheless, the departing partners shouldn’t have high hopes for what they could do with the cash. Two months later, on December 5, he gave a prediction about how these two stocks would do, along with telling the partners what he was going to do himself.

…

The more inquisitive partners may have discovered that Berkshire Hathaway owned Sun Newspapers by reading its 1968 annual report. 5. Letter to partners, October 9, 1969. Buffett explained that he expected stocks to yield about 6½% after tax for the next ten years, roughly the same as a “purely passive investment in tax-free bonds.” Even the best managers, he said, were unlikely to do better than 9½% after tax. Compare this to the 17% return he had projected to partners in the early years of the partnership and the 30% average he had actually achieved. 6. Letter to partners, December 5, 1969. 7. According to Buffett, a couple of them never were able to find anyone they trusted to manage their money, and one ended up working as a fortune-teller in San Diego. 8.

Unreal Estate: Money, Ambition, and the Lust for Land in Los Angeles
by Michael Gross
Published 1 Nov 2011

Stewart had the Midas touch when it came to making it—and after moving to Sunset House, he made lots more, unlike so many who moved to the Triangle only to flame out financially and leave again. Stewart bought their first farmland—2,500 acres of citrus trees and a packing plant in Delano, California—in 1978. Lynda would later claim it was a calculated plan to develop businesses that were “good for people.” Stewart, on the other hand, considered it a passive investment. They were more active in Teleflora (a small, profit-making competitor of the huge nonprofit, florist-owned cooperative FTD), which they bought the next year. It was the first example of the teamwork that would build their empire. “Stewart and I together make one perfect person,” Lynda later said.

The Intelligent Investor (Collins Business Essentials)
by Benjamin Graham and Jason Zweig
Published 1 Jan 1949

In 1968 Tom Knapp and Ed Anderson, also a Graham disciple, along with one or two other fellows of similar persuasion, formed Tweedy, Browne Partners, and their investment results appear in Table 2. Tweedy, Browne built that record with very wide diversification. They occasionally bought control of businesses, but the record of the passive investments is equal to the record of the control investments. Table 3 describes the third member of the group who formed Buffett Partnership in 1957. The best thing he did was to quit in 1969. Since then, in a sense, Berkshire Hathaway has been a continuation of the partnership in some respects. There is no single index I can give you that I would feel would be a fair test of investment management at Berkshire.

Money Changes Everything: How Finance Made Civilization Possible
by William N. Goetzmann
Published 11 Apr 2016

In this way, it was possible to economically hedge against the depletion of earnings capacity as the body and mind grow old; it was possible to create a perpetual stream of benefits to endow a charity. It was also a way to pass along an asset that did not have to be managed. Venetian prestiti were attractive particularly because they were passive investment vehicles whose value depended only on the viability and honesty of the state, not on the capabilities of the owner. USURY AND A REVOLUTION IN THOUGHT In institutionalizing government loans, Venice would seem to have directly contradicted the well-known ecclesiastical proscription against usury.

The Enlightened Capitalists
by James O'Toole
Published 29 Dec 2018

Notes Preface: The Good Unearthed 1.James O’Toole, Vanguard Management (New York: Doubleday, 1985). 2.“Business Must Help Fix the Failures of Capitalism,” editorial, Financial Times, October 23, 2017. 3.“A Better Deal between Business and Society,” editorial, Financial Times, January 2, 2018. Report on Davos executives and McNabb quote in Gillian Tett, “Passive Investing Goes Active,” Financial Times, February 2, 2018; Fink quote in Andrew Ross Sorkin, “A Demand for Change Backed Up by $6 Trillion,” New York Times, January 16, 2018, Business Day. 4.Quoted in David Reid, The Brazen Age (New York: Pantheon, 2016), 426. Introduction and Background: Why It Is Hard to Do Good 1.Iris Origo, The Merchant of Prato (London: Penguin, 1963). 2.Charles Handy, “Best Business Books 2002: Management’s Renaissance Man,” Strategy+Business, October 16, 2002. 3.Origo, Merchant of Prato, 10. 4.Origo, 12. 5.Origo, 221. 6.Greg Steinmetz, The Richest Man Who Ever Lived: The Life and Times of Jacob Fugger (New York: Simon & Schuster, 2016). 7.Martha Howell, “The Amazing Career of a Pioneer Capitalist,” New York Review of Books, April 7, 2016, 55–56.

The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor
by David S. Landes
Published 14 Sep 1999

(Mutatis mutandis, one finds similar developments today in western Europe.) So in Holland two centuries ago. The United Provinces pared and trimmed to meet the competition, but the best they could do was run in place. Many businessmen gave up the fight and retired to the country and to a life of passive investment. Incomes polarized between the rich few and the poor many, with a diminishing middle in between. Tax returns show that by the late 1700s, most wealthy Dutch were big landowners, high state officials, or rentiers. Gone the prosperous enterprisers of the “golden age”: employers were now confined to the middle and lower ranks.

Titan: The Life of John D. Rockefeller, Sr.
by Ron Chernow
Published 1 Jan 1997

As Rogers candidly told his chastened boss, “This will seem to you at first as very high but it will be considerable [sic] cheaper than being robbed as you have been and even now you are without exact knowledge as to many of the investments in which you have large sums involved.” 29 Pointing out the perils of passive investment, he suggested that Rockefeller assign deputies to oversee these companies. Beyond the shocking misrepresentation of his investments, Rockefeller had another dispiriting discovery in store: Hoyt and Colby had surreptitiously bailed out of the worthless operations and left him holding the bag, often with a majority stake.