Grok’s Tip #13: But Vanguard will tell you that…

grokGrok’s Tip #13: But Vanguard will tell you that…

Nothing complicated here. Just beware of your investment gurus. Even academics are often funded or directly working for various investment firms.

Be very careful about the so-called “academic” literature of investing. It’s not exactly the “ivory tower” out there these days- far from it. Many of these so called “academics”are in bed with various investment firms etc. You should always check what the authors affiliations are-how they get paid. Follow the money.

1) MIT Professor Andrew Lo, for example, is a hedge fund manager:
http://www.bostonglobe.com/business/201 … story.html
He is not the guy who is going to tell you that passive management is best and hedge funds are an expensive waste of time (they are!)

But Vanguard will tell you that:
https://institutional.vanguard.com/iam/pdf/VIPS_mixed_bag.pdf
“A mixed bag: Performance of hedge fund categories during and after the financial crisis.”

2) Wharton School Professor Jeremy Siegel is on the payroll of WisdomTree (can you say spindexes?)
http://en.wikipedia.org/wiki/Jeremy_Siegel
He is not the guy who is going to tell you that fundamentally weighted indexes (aka Spindexes) like those offered by Wisdom Tree are not useful but are merely expensive, high turnover tilts toward “small” and “value” that can be more cheaply and easily done otherwise.

But Vanguard will tell you that:
https://institutional.vanguard.com/VGApp/iip/site/institutional/researchcommentary/article/AskExpertSauter
Gus Sauter wrote:When you analyze so-called fundamental indexes, you find that, by and large, they are providing exposure to segments of the market, particularly value and smaller-cap stocks. In other words you are getting factor exposure, not broad-market exposure. This tilt is based on numerous academic studies showing that value and small-cap stocks have historically outperformed the broad market. If an investor believes small-cap value stocks will continue to outperform, we think it’s best to get exposure using a market-cap-weighted index that targets that segment of the market. That approach is more cost-efficient and more tax-efficient than using indexes that are based on ad hoc rules.

3) Emeritus Princeton Professor Burton Malkiel is on the payroll of Alpha Shares and Alpha Shares is in bed with Claymore Securities doing China ETFs.
http://en.wikipedia.org/wiki/Burton_Malkiel
He apparently is very excited about the fact that China is growing quickly (who knew?). He is not the guy who is going to tell you that there is basically no relationship between how fast a country’s economy grows and how well its stock market performs. In fact some people think that the relationship is inverse.

But Vanguard will tell you that:
http://www.vanguard.com/pdf/icriem.pdf
(See figure 2 on page 4 for that inversely sloping regression line).
Vanguard wrote:The intent of this paper is to caution long-term investors against making asset allocation decisions solely on the basis of expected economic growth. Our analysis shows that the average cross-country correlation between long- run GDP growth and long-run stock returns has been effectively zero. We show that this counterintuitive result holds across the major equity markets over the past 100 years, as well as across emerging and developed markets over the past several decades.

When I read an academic paper from Vanguard, I start out having a very high degree of apriori trust. When I read a paper by many of these so called academics, I am reminded of the following William Bernstein quote (From investors manifesto http://www.amazon.com/dp/1118073762):

William Bernstein wrote:you are engaged in a life-and-death struggle with the financial services industry. … If you act on the assumption that every broker, insurance salesman … and financial advisor you encounter is a hardened criminal, you will do just fine.

and to his list I would add, “so called academics on the payroll of the financial services industry.”

I don’t have much to add. As Grok says, do your research. And one of the best places to research appears to be Vanguard.


6 thoughts on “Grok’s Tip #13: But Vanguard will tell you that…

    1. Hi Charles, The commentator’s job is to make money for themselves and their employer. Pretty much everything you see on CNBC or Fox Business is known as investment porn. I never watch that stuff. I always try to do my own research.

      Thanks for reading and commenting.

    1. Hi Daisy, The thing I find most troubling is that lots of people that are known as experts or pundits have ulterior motives to push an agenda. It’s often very difficult to figure out what is truly in your own best interest.

      Thanks for stopping by and commenting.

  1. These days it’s incumbent on each of us to investigate the possible motivations and incentives behind the source of just about any information. For example, who produces the U.S. governments food guidelines? You might think health and nutrition professionals–nope. The answer is food industry shills.

    1. Hi Kurt, You are so right about the food guidelines. And yes, you should always check your sources of information.

      Thanks for reading and commenting.

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