Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
I beg to differ. I have opined before Investment Management and Information Technology are two professions where the maximum number of unscrupulous practices being followed. The article refers to the former which we are all required to deal with. The latter is my profession, so regardless of whether anyone agrees, I should have a right to opine.
The difficulty is that in THESE two profession most everything is a matter of opinion to be excused or celebrated by unscrupulous professionals whose real expertise is in Bulls***, at the expense of others who actually have the education and background to be in the industry they are qualified for. A doctor can become an investment manager without much trouble. Try doing the opposite. Facts matter little and "marketing" rules the roost. When a profession pays higher salaries, it attracts greed and unscrupulous behavior. It is as simple as that. And when you add low barrier to entry for these profession, you cannot expect honesty and integrity. The motivation for being dishonest and being unscrupulous is money. Who does it for any other reason?
Starbucks cannot make crap coffee and survive. GM cannot make awful cars and survive. Netflix cannot stream inadequate programming and survive. Apply that to Investment Management and Information Technology. Evaluation of outputs from the latter two are abstract and therefore ripe to be usurped and sliced and diced for personal or professional gain. Try selling bad coffee. Will NOT work. Crap investments, you don't even have to try much.
PS: When I say Information Technology I'm not referring to companies whose business is technology. I'm referring to IT departments of organizations whose business is not IT.
PPS: I recently woke up from my stupor, so please indulge me.
We live in a society where every microsecond of focus by corporations is on EPS. Gotta make the numbers, gotta beat estimates. Where I think the problem is is inequality for one, but the other issue is that I think there is a line that gets crossed where the average person gets hit - you have companies that I think cut back on data security, then you have issues like what happened to Target, which is still costing them money. You have corporations that are so EPS focused that they cross the line and then it ends up costing them way more money then they believed they were saving.
Skimmed the above article, not sure how mutual funds are the issue. If anything, it's kind of bizarre. If mutual funds owning certain stocks is an issue, then to expand outward, why isn't anyone invested in anything a problem.
Retailers complain about Visa and Mastercard. If the retailers pulled together in a coalition and invested in Visa/MA, they could participate in the profits of the corporations they are complaining about.
Mutual funds provide the average person a straightforward way to participate in a variety of investments.
Yes. I have spoken with way too many folks who bitch about this or that about pricing from a particular company. My reply has been that, if you think you're being overcharged for a service and the company is making a profit; invest in the company. Examples are everywhere; be it Comcast, a phone service provided........... Well, I don't need to 'splain more..... Hell, I know at this point in time that we are protecting what it costs our household to provide health insurance and pay all of the now higher deductibles. We're getting this money back from our healthcare investments. Although we don't really care about where the capital appreciation arrives.
It is hard to imagine a more poorly conceived and executed article. It fails in so many dimensions that it makes a logical critique difficult. Shame on Slate. Where to start?
Admittedly, I merely scanned the article. It really doesn’t warrant a closer examination.
It seems to start by challenging the merits of capitalism (I guess the authors don’t acknowledge the failures of alternate options on both large and small scales) and ends by proposing government intervention in terms of imposing severe limits on what “institutional investors” can own. These are universally terrible ideas. Here are just a few examples of the misinformed ideas advocated in this misfortunate article.
The piece focuses on the airline industry, and claims excess profits promulgated by the too few mutual fund operators as a primary cause. I suppose the authors don’t consider the many failed airline carriers and their perennial struggle for survival and profit. Even Warren Buffett learned this persistent problem the hard way.
Mutual fund companies have become major players in the marketplace; but there are other competing institutional investors too. In fact, the number of competing mutual funds number North of 7,000. Competition is a necessary factor in establishing a fair price. The best prices result from informed competition, and these funds contribute to the overall market smarts. No mutual fund is powerful enough to control or dictate final price equilibrium for any industry. Capitalism serves that function.
The concept that mutual fund managers strongly influence company board meetings and pricing decisions is absurd. Competition within each industry works that miracle. That’s why capitalism survives and other economic forms fill the dustbin of history. Typically, a mutual fund owns hundreds of positions and that portfolio changes frequently. The fund managers simply don’t have the time or expertise to attend and impact corporate meetings.
I’m sure mutual fund managers are not saints. But they compete for individual investor’s savings. They provide a meaningful service for those who chose to invest with them. I am happy to pay their fees because, for me, it is a matter of preserving my time.
To properly diversify, I would need to own maybe 30 individual stocks and would need to study perhaps 100 other candidate alternatives. That’s a tough, time sink. Mutual funds significantly reduce the work load at modest costs and with substantial time savings.
My quick reaction is that the Slate article fails big time, and does the mutual fund industry a huge disservice.
Working on figuring out why this research isn't, well, stupid. The basic argument is this: if an "institutional investor" owns shares in two companies in the same industry, it's in the manager's best interest for both of the firms to overcharge which maximizes the firms' earnings and the investors' profits at the expense of customers. Since "the 1%" invest and "the 99%" shop, it's a systemic transfer of money from the latter to the former.
The proposed solution is this: allow each "institutional investor" to own one and only one stock in each industry sector.
Uhhh ...
(blinks)
Uhhh ...
Okay, the analysis is based on one of the world's worst and oddest industries, commercial airlines where capital costs are vast, a key resource (access to gates at hub airports) is guarded like a dragon's hoard and disruptors are few.
General Electric Co is a diversified company with products & services that range from aircraft engines, power generation, oil & gas production equipment, & household appliances to medical imaging, business & consumer financing and industrial products.
So if you invest in GE, you're blocked from any further investment in the seven industries in which it has operations?
The S&P 500 becomes the S&P No More Than 100?
Of course, you could only have one of Barnes & Noble and Borders because they represent an unassailable duopoly.
And it's at least plausible that the requirement would be that Fidelity, as a whole, could own only one bank since Posner keeps pointing an accusing finger at "BlackRock" without any hint of what at BlackRock owns the apparently dysfunctional, conflicting stakes.
Except for the fact that smart outsiders have so often said incredibly stupid things about the workings of the fund industry (the federal appeals court in one case decided that (a) rich people are smart, (b) rich people pay high fees for actively-managed hedge funds, and (c) the fees on actively-managed mutual funds are lower than those on hedge funds, therefore (d) the fees on mutual funds are reasonable.)
Say Mr Ruffles, why did you post this link? House rules state that you must add some value by adding your own thoughts on why you post a topic.
Come on now, Maurice There are far more serious offenders to this spoken or unspoken house rules, which in any case IMO has not remotely been enforced.
Being curious, I did a quick scan of 50 or so recent posts. While it's clear that a fair number of long-tenured members have posted textless links of late, it's also clear that everyone has been working conscientiously to get it right. And I'm grateful for that.
And I'd say that in about half of the cases of textless links, the posters created a thread title that gave you a pretty good reading of what was coming.
HORSLEY: Reagan famously did cut taxes, sharply, in his first year in office. But as former Senator Alan Simpson, who co-chaired the fiscal commission, was quick to remind Norquist, that's only half the story.
Former Senator ALAN SIMPSON (Republican, Wyoming): Ronald Reagan raised taxes 11 times in his administration. I was here. I was here. I knew him. Better than anybody in this room. He was a dear friend and a total realist as to politics.
HORSLEY: Simpson's recollection is spot on, says historian Douglas Brinkley, the editor of Reagan's diaries.
Professor DOUGLAS BRINKLEY (Rice University): Ronald Reagan was never afraid to raise taxes. He knew that it was necessary at times. And so there's a false mythology out there about Reagan as this conservative president who came in and just cut taxes and trimmed federal spending in a dramatic way. It didn't happen that way. It's false.
HORSLEY: Reagan's budget director, David Stockman, explains the 1981 tax cut blew a much bigger hole in the federal budget than expected. So over the next few years, Reagan agreed to raise taxes again and again, ultimately undoing about half the savings of the '81 cut.
Mr. DAVID STOCKMAN (Former Director, Office Management and Budget): He wasn't very happy about it. He did it reluctantly. But at the end of the day, the math was overwhelming.
FLINTOFF: That's because Reagan was never able to match his 1981 tax cuts with a comparable cut in federal spending. A modest reduction in domestic spending was dwarfed by Reagan's big buildup in the Pentagon budget. And, Stockman says, Reagan never made a serious effort to challenge middle class entitlement programs, after an early proposal to curtail Social Security benefits was shot down.
Mr. STOCKMAN: The White House and President Reagan himself retreated within three days when it became clear the enormous political resistance that would occur if you were going to cut entitlements.
FLINTOFF: And without big spending cuts, Reagan faced a choice between raising taxes and an even bigger federal debt. He chose the tax hikes. ... But ever since Reagan, presidents who've tried to raise taxes are confronted with the myth of their tax-cutting predecessor.
What puzzles historian Brinkley is how Reagan, who also raised taxes, avoided paying a political price.
Prof. BRINKLEY: He seemed to get away with both. He seemed to really be kind of a centrist, big government deficit spender, but also be seen as a budget cutter. And it's because his persona was so great.
FLINTOFF: That persona is carefully cultivated by those, like Grover Norquist, who use Reagan's legacy as a weapon to fight off new taxes. Stockman says these myth-makers are distorting the real Reagan record.
Mr. STOCKMAN: I wouldn't call it merely airbrushing. I would call it outright revisionism if not fabrication of history.
The discussion seems to have become sufficiently tangential for me to chime in. The idea that lack of competition enhances profits, so long as one (and one's competitors) produces a desired product, is obvious. If mutual funds don't impede the tacit cooperation among competing companies (ever wonder why similar drugs cost the same? Capitalism is definitely not perfect.), profits should be protected, and stock prices or dividends should rise, so mutual funds and their managers might contribute to the lack of competition. Since people with more disposable income are likely to own stock or mutual funds, they will benefit at the expense of those who can't invest.
I'm less confident that restricting mutual funds to investing in one member of a class of companies will enhance competition, but I'm sure it will increase the intensity of the individual companies' presentations to the fund managers.
OTOH, I'm disappointed that mutual fund managers with large stakes in companies almost routinely vote their stock with the recommendations of the directors, many of whom owe their loyalty to the company that selected them, not to the stockholders. I remain unconvinced that multi-million dollar compensation is necessary to hire competent managers, and I am definitely not convinced that all these CEOs place the stockholders' interests above theirs. At the very least, I wish the larger mutual funds would abstain from these votes, which might enhance the impact of the votes of smaller shareholders.
>> Thank you for your selective memories of Pres Reagan.
Mine? Whoa --- even more comical.
In this fight, as the phrase goes, you got the wrong other-side dog, or no dog. I was pointing you only toward people who were actually there.
Defend Raygun all you wish, our first and hopefully last leader with demonstrable OtJ dementia; it does not matter. He was at best a chameleonic showman whom much of the populace somehow deemed a great leader and morale-builder, those who needed such pep talking. I do wish all presidents had his avuncular charisma without the damaging fraudulence. Remember that Raygun was the one who actually said, more than once, "The most terrifying words in the English language are: I'm from the government and I'm here to help." Seriously. What kind of person says such a thing? And of course does not actually mean it, is just pandering ?? The start of our sorest problems today, unless you think that was Woodstock.
But the tax record is crystal-clear, yes.
And this thread started as something to do with taxation, businesses' policies, and investment influences.
Comments
The difficulty is that in THESE two profession most everything is a matter of opinion to be excused or celebrated by unscrupulous professionals whose real expertise is in Bulls***, at the expense of others who actually have the education and background to be in the industry they are qualified for. A doctor can become an investment manager without much trouble. Try doing the opposite. Facts matter little and "marketing" rules the roost. When a profession pays higher salaries, it attracts greed and unscrupulous behavior. It is as simple as that. And when you add low barrier to entry for these profession, you cannot expect honesty and integrity. The motivation for being dishonest and being unscrupulous is money. Who does it for any other reason?
Starbucks cannot make crap coffee and survive. GM cannot make awful cars and survive. Netflix cannot stream inadequate programming and survive. Apply that to Investment Management and Information Technology. Evaluation of outputs from the latter two are abstract and therefore ripe to be usurped and sliced and diced for personal or professional gain. Try selling bad coffee. Will NOT work. Crap investments, you don't even have to try much.
PS: When I say Information Technology I'm not referring to companies whose business is technology. I'm referring to IT departments of organizations whose business is not IT.
PPS: I recently woke up from my stupor, so please indulge me.
Skimmed the above article, not sure how mutual funds are the issue. If anything, it's kind of bizarre. If mutual funds owning certain stocks is an issue, then to expand outward, why isn't anyone invested in anything a problem.
Retailers complain about Visa and Mastercard. If the retailers pulled together in a coalition and invested in Visa/MA, they could participate in the profits of the corporations they are complaining about.
Mutual funds provide the average person a straightforward way to participate in a variety of investments.
I guess I'm just not getting it.
Yes. I have spoken with way too many folks who bitch about this or that about pricing from a particular company. My reply has been that, if you think you're being overcharged for a service and the company is making a profit; invest in the company.
Examples are everywhere; be it Comcast, a phone service provided...........
Well, I don't need to 'splain more.....
Hell, I know at this point in time that we are protecting what it costs our household to provide health insurance and pay all of the now higher deductibles. We're getting this money back from our healthcare investments. Although we don't really care about where the capital appreciation arrives.
It is hard to imagine a more poorly conceived and executed article. It fails in so many dimensions that it makes a logical critique difficult. Shame on Slate. Where to start?
Admittedly, I merely scanned the article. It really doesn’t warrant a closer examination.
It seems to start by challenging the merits of capitalism (I guess the authors don’t acknowledge the failures of alternate options on both large and small scales) and ends by proposing government intervention in terms of imposing severe limits on what “institutional investors” can own. These are universally terrible ideas. Here are just a few examples of the misinformed ideas advocated in this misfortunate article.
The piece focuses on the airline industry, and claims excess profits promulgated by the too few mutual fund operators as a primary cause. I suppose the authors don’t consider the many failed airline carriers and their perennial struggle for survival and profit. Even Warren Buffett learned this persistent problem the hard way.
Mutual fund companies have become major players in the marketplace; but there are other competing institutional investors too. In fact, the number of competing mutual funds number North of 7,000. Competition is a necessary factor in establishing a fair price. The best prices result from informed competition, and these funds contribute to the overall market smarts. No mutual fund is powerful enough to control or dictate final price equilibrium for any industry. Capitalism serves that function.
The concept that mutual fund managers strongly influence company board meetings and pricing decisions is absurd. Competition within each industry works that miracle. That’s why capitalism survives and other economic forms fill the dustbin of history. Typically, a mutual fund owns hundreds of positions and that portfolio changes frequently. The fund managers simply don’t have the time or expertise to attend and impact corporate meetings.
I’m sure mutual fund managers are not saints. But they compete for individual investor’s savings. They provide a meaningful service for those who chose to invest with them. I am happy to pay their fees because, for me, it is a matter of preserving my time.
To properly diversify, I would need to own maybe 30 individual stocks and would need to study perhaps 100 other candidate alternatives. That’s a tough, time sink. Mutual funds significantly reduce the work load at modest costs and with substantial time savings.
My quick reaction is that the Slate article fails big time, and does the mutual fund industry a huge disservice.
Best Regards.
Working on figuring out why this research isn't, well, stupid. The basic argument is this: if an "institutional investor" owns shares in two companies in the same industry, it's in the manager's best interest for both of the firms to overcharge which maximizes the firms' earnings and the investors' profits at the expense of customers. Since "the 1%" invest and "the 99%" shop, it's a systemic transfer of money from the latter to the former.
The proposed solution is this: allow each "institutional investor" to own one and only one stock in each industry sector.
Uhhh ...
(blinks)
Uhhh ...
Okay, the analysis is based on one of the world's worst and oddest industries, commercial airlines where capital costs are vast, a key resource (access to gates at hub airports) is guarded like a dragon's hoard and disruptors are few. So if you invest in GE, you're blocked from any further investment in the seven industries in which it has operations?
The S&P 500 becomes the S&P No More Than 100?
Of course, you could only have one of Barnes & Noble and Borders because they represent an unassailable duopoly.
And it's at least plausible that the requirement would be that Fidelity, as a whole, could own only one bank since Posner keeps pointing an accusing finger at "BlackRock" without any hint of what at BlackRock owns the apparently dysfunctional, conflicting stakes.
Except for the fact that smart outsiders have so often said incredibly stupid things about the workings of the fund industry (the federal appeals court in one case decided that (a) rich people are smart, (b) rich people pay high fees for actively-managed hedge funds, and (c) the fees on actively-managed mutual funds are lower than those on hedge funds, therefore (d) the fees on mutual funds are reasonable.)
David
There are far more serious offenders to this spoken or unspoken house rules, which in any case IMO has not remotely been enforced.
There are far more serious offenders"There is a far more serious offender.
Being curious, I did a quick scan of 50 or so recent posts. While it's clear that a fair number of long-tenured members have posted textless links of late, it's also clear that everyone has been working conscientiously to get it right. And I'm grateful for that.
And I'd say that in about half of the cases of textless links, the posters created a thread title that gave you a pretty good reading of what was coming.
Back to working on the Seafarer call highlights,
David
>> Since Ronald Reagan left office, there is not one American president who I believe would oppose such a tax.
A comical view in fact:
http://www.npr.org/2011/02/04/133489113/Reagan-Legacy-Clouds-Tax-Record
http://newsjunkiepost.com/2011/02/06/the-disastrous-legacy-of-ronald-reagan-in-charts/
HORSLEY: Reagan famously did cut taxes, sharply, in his first year in office. But as former Senator Alan Simpson, who co-chaired the fiscal commission, was quick to remind Norquist, that's only half the story.
Former Senator ALAN SIMPSON (Republican, Wyoming): Ronald Reagan raised taxes 11 times in his administration. I was here. I was here. I knew him. Better than anybody in this room. He was a dear friend and a total realist as to politics.
HORSLEY: Simpson's recollection is spot on, says historian Douglas Brinkley, the editor of Reagan's diaries.
Professor DOUGLAS BRINKLEY (Rice University): Ronald Reagan was never afraid to raise taxes. He knew that it was necessary at times. And so there's a false mythology out there about Reagan as this conservative president who came in and just cut taxes and trimmed federal spending in a dramatic way. It didn't happen that way. It's false.
HORSLEY: Reagan's budget director, David Stockman, explains the 1981 tax cut blew a much bigger hole in the federal budget than expected. So over the next few years, Reagan agreed to raise taxes again and again, ultimately undoing about half the savings of the '81 cut.
Mr. DAVID STOCKMAN (Former Director, Office Management and Budget): He wasn't very happy about it. He did it reluctantly. But at the end of the day, the math was overwhelming.
FLINTOFF: That's because Reagan was never able to match his 1981 tax cuts with a comparable cut in federal spending. A modest reduction in domestic spending was dwarfed by Reagan's big buildup in the Pentagon budget. And, Stockman says, Reagan never made a serious effort to challenge middle class entitlement programs, after an early proposal to curtail Social Security benefits was shot down.
Mr. STOCKMAN: The White House and President Reagan himself retreated within three days when it became clear the enormous political resistance that would occur if you were going to cut entitlements.
FLINTOFF: And without big spending cuts, Reagan faced a choice between raising taxes and an even bigger federal debt. He chose the tax hikes. ... But ever since Reagan, presidents who've tried to raise taxes are confronted with the myth of their tax-cutting predecessor.
What puzzles historian Brinkley is how Reagan, who also raised taxes, avoided paying a political price.
Prof. BRINKLEY: He seemed to get away with both. He seemed to really be kind of a centrist, big government deficit spender, but also be seen as a budget cutter. And it's because his persona was so great.
FLINTOFF: That persona is carefully cultivated by those, like Grover Norquist, who use Reagan's legacy as a weapon to fight off new taxes. Stockman says these myth-makers are distorting the real Reagan record.
Mr. STOCKMAN: I wouldn't call it merely airbrushing. I would call it outright revisionism if not fabrication of history.
This discussion is as of 4y ago.
https://www.uwgb.edu/dutchs/PSEUDOSC/ConspiracyTheoryDidWeGototheMoon.htm
The idea that lack of competition enhances profits, so long as one (and one's competitors) produces a desired product, is obvious. If mutual funds don't impede the tacit cooperation among competing companies (ever wonder why similar drugs cost the same? Capitalism is definitely not perfect.), profits should be protected, and stock prices or dividends should rise, so mutual funds and their managers might contribute to the lack of competition. Since people with more disposable income are likely to own stock or mutual funds, they will benefit at the expense of those who can't invest.
I'm less confident that restricting mutual funds to investing in one member of a class of companies will enhance competition, but I'm sure it will increase the intensity of the individual companies' presentations to the fund managers.
OTOH, I'm disappointed that mutual fund managers with large stakes in companies almost routinely vote their stock with the recommendations of the directors, many of whom owe their loyalty to the company that selected them, not to the stockholders. I remain unconvinced that multi-million dollar compensation is necessary to hire competent managers, and I am definitely not convinced that all these CEOs place the stockholders' interests above theirs. At the very least, I wish the larger mutual funds would abstain from these votes, which might enhance the impact of the votes of smaller shareholders.
http://science.howstuffworks.com/dark-side-of-moon.htm
The article you cite does mention a day side landing, but the "flip side" is night side, not dark side.
>> Thank you for your selective memories of Pres Reagan.
Mine? Whoa --- even more comical.
In this fight, as the phrase goes, you got the wrong other-side dog, or no dog.
I was pointing you only toward people who were actually there.
Defend Raygun all you wish, our first and hopefully last leader with demonstrable OtJ dementia; it does not matter. He was at best a chameleonic showman whom much of the populace somehow deemed a great leader and morale-builder, those who needed such pep talking. I do wish all presidents had his avuncular charisma without the damaging fraudulence. Remember that Raygun was the one who actually said, more than once, "The most terrifying words in the English language are: I'm from the government and I'm here to help." Seriously. What kind of person says such a thing? And of course does not actually mean it, is just pandering ?? The start of our sorest problems today, unless you think that was Woodstock.
But the tax record is crystal-clear, yes.
And this thread started as something to do with taxation, businesses' policies, and investment influences.