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Weekend reading: ETFs are on the right side of history

Weekend reading: ETFs are on the right side of history post image

What caught my eye this week.

Ben Carlson has no truck with the gathering notion that ETFs will destabilize the markets, swindle active managers out of their dues, damage the economy, and cause kittens and puppies to be sad.

Writing in Bloomberg, Carlson notes:

Those who are concerned that indexing is causing a market bubble don’t realize that active investors have had no trouble doing so in the past when index funds didn’t exist.

There were no index funds during the Roaring 20s that led to the Great Depression nor in the go-go years in the 1960s that led to the Nifty Fifty blow-up.

These funds had nothing to do with the brutal 1973-74 bear market because they weren’t even invented until 1976.

I entirely agree. Most of you don’t watch much financial news. You don’t regularly hear pundits saying when the market has fallen 0.5% in a day that it’s down to “all the algos and robots and passive dumb money mindlessly driving volatility in the market”.

Markets have always gone up and down. Prices of assets with uncertain future returns will always be volatile.

The only threat we can yet be sure of from ETFs and other index funds is to the financial industry’s bottom line.

From Monevator

Low-cost index trackers that will save you money – Monevator

What to do with old pension plans – Monevator

From the archive-ator: Investing for 100-year olds – Monevator


Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1

FCA says ‘intervention’ may be needed after pension freedoms [Search result]FT

Government goes ahead with pension tax relief cut for over-55s – Telegraph

RICS: House price growth slowing, mostly in London – ThisIsMoney

Santander rights issue: Tips for estimated 1.4m UK shareholders – Telegraph

Couple use bargain-minded strategy to live debt-free and retire at 40 – LAD Bible

Wealth inequality may be worse than previously thought – The Economist

Yale’s 367-year old water bond still pays interest – Yale News

Global Map showing global valuation ratios by CAPE

Global stock market valuation ratios at June end [CAPE above, blue is ‘cheaper’]Star Capital

Products and services

Should you invest in Britain’s ideas factory? [Search result, on VCTs]FT

Lloyds shakes up overdraft fees, but still charges some borrowers 52% – Telegraph

Skipton offers 0.99% two-year fixed mortgage, but there’s a £1,995 fee – ThisIsMoney

New Best Buy savings bonds pay just 0.01% more than rivals – Telegraph

Ford Money and RCI lead the way for easy-access savings accounts – ThisIsMoney

Comment and opinion

An interview with passive investing champion William Bernstein [Podcast]Meb Faber

Fund management’s future? Milking cows – Bloomberg

Go where nobody else will – Mullooly Asset Management

Wanna get rich? Think fractally – Of Dollars and Data

It’s the little things that can colour an investor’s outlook – Jason Zweig

Risk, return, and skill in the portfolios of the wealthy [Research]VoxEU

There will always be some market-beating funds. That’s not the point – T.E.B.I.

An expert’s guide to calling the market top [Chortle]Bloomberg

How equities took over asset allocation – Ben Carlson

This review of How to Retire at 40 is unfavourable, like the others I’ve seen. Was the premise too wacky for mainstream TV? – Telegraph

Buffett has his own hedge fund managers working at a discount – Motley Fool US

Think like a supermodel if you want to win from the gig economy [Search result]FT

House prices outside London are fair value – The Value Perspective

It’s a wonderful loaf [Poem about the market]Wonderful Loaf

Was Woodford right to sell GlaxoSmithKline and hold AstraZeneca? [PDF]John Kingham

Get rich with perspective (part two) – The Escape Artist

Off our beat

Dating secrets of a hot hedge fund manager [Forwarded by an ex…]Tatler

Man outwits student loans company by staying poor forever – The Daily Mash


Britain finally concedes in writing it will have to pay an EU exit billBloomberg

Your country needs you: Britain’s patriotic Brexit act [Search result]FT

The OBR makes the point I’ve been trying to make for a year – that the economic hit from Brexit isn’t an upfront catastrophe, it’s the potential slow bleed that (to me, anyway) seems inevitable from less efficient trading: “More important are the implications of whatever agreements are reached with the EU and other trading partners for the long-term growth of the UK economy, which we do not attempt to predict here. If GDP and receipts grew just 0.1 percentage points more slowly than projected over the next 50 years, but spending growth was unchanged, the debt-to-GDP would end up around 50 percentage points higher.”ThisIsMoney

Shoppers “in the dark” about Brexit affect – BBC

Latest reminder of the logic that’s mostly behind our self-inflicted exit [via 3652 Days]:

And finally…

“Near the front of this book there was a copyright notice. It tells you that while this book belongs to you, the words in the book belong to me. What does that even mean? It’s the result of a meta-invention, an invention about inventions – a concept called ‘intellectual property’. Intellectual property has profoundly shaped who makes money in the modern world.”
– Tim Hartford, Fifty Things That Made The Modern Economy

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{ 21 comments… add one }
  • 1 Gregory July 15, 2017, 10:13 am

    I think the markets have become more complicated. In the past there were stock pickers but today there are stock pickers plus fund and ETF pickers. In the past lot of stock pickers bought stocks for the long run but due to the fear, volatility sold in the short run. This will happen with ETFs too. New products for the same human beings.

  • 2 Gaz July 15, 2017, 10:26 am

    I wonder if the EU will let us break down the Brexit bill into simple installments? Say, £350m a week? /s

  • 3 Gaz July 15, 2017, 10:27 am

    That James O’Brien video is just plain scary too. It’s worrying how disillusioned some people are, and it makes me really angry what they’ve done to our future as a country.

  • 4 PC July 15, 2017, 12:08 pm

    Thanks for the James O’Brian clip, it’s just wonderful.

  • 5 The Rhino July 15, 2017, 12:49 pm

    The TV programme was really poor. Very low grade stuff. Makes me think you need to be wary about what you agree to get involved in with the media.

    James o Brien is a guardian readers Jeremy Kyle. He’s a moral indignation button presser. I think it’s unhealthy to consume too much of that sort of media.

    Is the premise of his argument right though? Do you need capital or a job in order to not get deported between EU member state s? I didn’t think that was the case. Doesn’t sound like free movement. If it is true then why are people so worried about immigration? Perplexing..

  • 6 tom_grlla July 15, 2017, 1:06 pm

    The key to Ben Carlson’s point is that the majority of active funds have been, and remain, ‘benchmark-huggers’ i.e. little different from trackers, and so markets will continue to fluctuate as they always have.

    Nick Train makes the point well that if you decide you’re going to pay for an active manager, you’ve got to make sure that you’re actually getting active management.

  • 7 arty July 15, 2017, 1:15 pm

    That video was unbearable – as much for O’Brien’s condescending manner as the ignorance of the caller. Not sure how it can be considered scary though, unless you’ve never come across an uninformed voter before – and it’s hardly a condition exclusive to leavers – there are videos all over the net of remainers, who feel strongly enough to go out and demonstrate, but are utterly, utterly clueless about the issues involved.

    Rhino – it has long been the case that you have a right to stay 3 months in any EU country whilst looking for work. After that you need to either have work, or demonstrate that you can support yourself/are self employed, etc. Of course it’s enforced to a different extent in different countries, and with no border controls, entry/exit stamps or registration, is generally pretty easy to avoid, simply by not registering your presence.
    But I don’t think we can say that it’s just unemployed EU nationals that some people seem to be objecting to – it’s also those taking low wage employment and thus holding down wages at the bottom end. Not an argument that is really clear cut, but it seems O’Brien prefers condescension to trying to address these kind of arguments.

  • 8 Richard July 15, 2017, 2:00 pm

    I seem to remember some drop on the Asian markets due to some computer picking up some bad news and selling or something. So while it doesn’t happen everyday (or even every year) there is still a risk of an algo going rouge. This made me think of the scene in idocracy where the computer decided to fire everyone.

  • 9 Lloyd July 15, 2017, 7:13 pm

    I am sure the video will re-enforce the view held by many Remainers that those who voted Leave were largely the ignorant and narrow minded (although now we know they weren’t all northerners!). There are rational intellectual arguments to made on both sides of the debate to which this video clip adds nothing.

  • 10 ermine July 15, 2017, 9:51 pm

    Wow. You’ve been going out with women rich enough to read Tatler! Take a bow, lothario. I had fun reading more of the Tatler dating scene and more of the tongue-in-cheek take of how the other 5% live. Great frivolous fun, but boy am I glad I got that sort of thing sorted before social media and smartphones took over the world 😉

  • 11 Learner July 16, 2017, 4:11 am

    > House prices outside London are fair value – The Value Perspective

    I suppose this depends how we define “fair”. The author finds data for median price-to-household-income ratio (instead of the more common mean values) and notes ex-London region ratio is in the 6-8x range. While less than London (14!) it’s still very, very high.

  • 12 SemiPassive July 16, 2017, 10:22 am

    The Telegraph have got another article published today on the Retire at 40 programme and how realistic it is(‘nt). Citing the “save 50-75%” guy buying a property in London in 1996 as something unlikely to be repeatable. They then run the numbers on a more realistic working couple on £40k each, assuming they don’t have children ever.

    For me the programme was as useless as most of the case studies on the Sarah Beeny programme on how to be mortgage free, which at one point had a ludicrous scenario of a bloke spending 500 odd quid a month just to rent a space to park his caravan on. Or someone living on a bus.
    But it is still good to get some of these ideas into the mainstream and get people thinking that there are alternatives to being debt slaves all their lives.

  • 13 dearieme July 16, 2017, 3:54 pm

    “The author finds data for median price-to-household-income ratio … ex-London region ratio is in the 6-8x range. While less than London (14!) it’s still very, very high.”

    If I compare the 6-8x with what it was for us (rather than for the median) when we bought long ago, it is higher. But current interest rates are much lower, so that it would be odd if the ratio weren’t higher today.

    Does anyone report the ex-London figure for median mortgage repayment as a fraction of median post-tax household income? To make it fair you’d have to correct the historical repayments for the tax relief that used to be available. And treat “post-tax” as post income tax plus employee national insurance contributions.

  • 14 FI Warrior July 16, 2017, 5:26 pm

    That relatively negative review of the ‘How to Retire at 40’ program (which shockingly nearly outed the financial independence movement) was pretty fair. The effort fell between two stools, it couldn’t decide what it wanted to be, was the point bargain-hunting or retiring early/taking control of your finances? Being a pilot episode, they also had little time to give a sample and then see if it was something that would pique the public’s interest. So it was too eclectic, ending in an unclear impression of what it was really supposed to be about.

    I’m guessing that being such a niche concept, the presenters and probably even program writers don’t actually get FI/RE, so understandably, they can’t ‘sell’ it. Thus it’ll remain an idea whose time hasn’t yet come; the lack of understanding of the basic concept is down to the dyed-in-the-wool conformism of today’s mindless consumerism. But, I do remember when domestic water-purifiers first came out in the early 90’s, thinking ”That’ll never catch on, let alone bottled water like in Europe” and yet, given time, the advertisers conquered, so who knows. (especially impressive since you can still drink tapwater here in the UK)

    For now though, those worried the spread of common-sense will lessen our opportunities can rest easy again, that program will confirm to the masses that any alternative to ebbing your life away on a treadmill over your best years is a pipe dream.

  • 15 dearieme July 16, 2017, 8:08 pm

    We enjoy bottled water with our meals: at 17p for two litres of fizzy it’s a wonderfully cheap treat. Our tap water is perfectly safe but occasionally it can taste a little peculiar. At one time it became unpleasant too often so the water company bored a new well and sealed the old one.

    If 17p for a couple of litres of fizzy is wildly extravagant consumerism we must plead guilty.

  • 16 The Rhino July 17, 2017, 9:24 am

    I had a read of that follow up article (http://www.telegraph.co.uk/pensions-retirement/financial-planning/can-anyone-actually-afford-retire-40/) and found the numbers difficult to argue with. Property is certainly a painful thorn in the side of the FI argument.

    With that in mind, I did experience a twinge of cognitive dissonance on seeing Claire and Barney Whiter (aka TEA) beaming at me from the pages of the Telegraph in front of their 6 bed Surrey McMansion (http://www.telegraph.co.uk/men/thinking-man/retire-40-still-have-nice-life/).

    Its a far cry from Fisker’s RV, but then again he jacked it in to become a quant – and probably quite sensibly quit blogging.

    Its a funny old world for sure..

  • 17 Mathmo July 17, 2017, 10:51 am

    Thanks for the links this week. For my money, TEA’s article is (as is so often the case) an absolute must-read. Even passed to my wife to skeptically peruse over lunch at the weekend.

    There’s an theme I see increasingly about quiet contemplation, an inner life and thoughtfulness which seems to be in rebellion against the trend of our facebook, twitter, blog-comment-posting lives: shouting out the first thing that comes into our heads.

    A friend recently said she felt terrible and out of control and I asked when she’d last had 8 hours sleep. An incredibly smart lady, bemused incredulous lack of understanding was the initial reaction (as a mum of a young boy).

    So much of this is about making choices explicitly instead of habitually (until they become habitual). That requires effort and willpower and that’s a limited resource (Kahnemann tells us). It was so much easier for Aristotle to live the “good life”, but we rarely even realise we’re failing.

  • 18 The Rhino July 17, 2017, 11:18 am

    @Mathmo – theres a popular finance ‘lifehack’ that advocates putting anything you fancy buying on a shopping list, waiting a month, and then seeing if you still want it.

    The same concept could be applied to social media contributions. Maybe a week rather than a month would suffice. I think I should give it a go..

  • 19 David July 17, 2017, 6:06 pm

    @ The Rhino

    Any idea how to read that premium Telegraph article on Barney the Escape Artist without paying for a subscription?

  • 20 TT July 18, 2017, 6:53 am
  • 21 Faustus July 21, 2017, 9:21 pm

    Agree that the Telegraph article makes a number of salient points, not least that, even with taking the right steps, luck and timing will still have a very major impact on when exactly one reaches FI/ER. If TEA bought his house in London in 1996 I salute his timing, and the markets have been exceptionally kind if one had capital to invest in 2009. At least in the UK, it is likely that anyone under 40 now will face a much tougher road than the previous generation to achieve the same outcome. But of course that shouldn’t be an excuse for not trying.

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