How to prepare to the possible future crash?

[1000000CHF]

@Bojack

One argument that does make sense to me though is about market’s short-sightedness. it is true that many technologies in your cellphones were developed in govt programs and that private companies often do not have the patience to experiment for years.

Perhaps the state is necessary to create a GPS system or a mission to Mars, or whatever uncertain and unprofitable long-term projects we might have. I think though, to some extent, this function can be replaced by voluntary associations (look Wikipedia or Linux) and industry cooperation (Open Source and Linux are good examples, even Microsoft is contributing tons of money to its development because indirectly they make money on it).

@Bojack

This also makes me think: what influence do we, as passive investors, have? Even is Vanguard manages a few percent of the World’s stock market through their passive index funds, do they actually have any say in making decisions in the companies they hold? I guess we’re all these silent passengers who give the money and let them do whatever they want with it.

Absolutely, we’re just free-riding on other people’s efforts - stock-pickers who set the prices and big fund managers who do due diligence and investigate corporate governance, etc. I think Vanguard is big enough ( + it is located in the financial center of the World) to make a difference though.

[dom.swiss]

@Bojack and @1000000CHF check out this (lengthy) documentary about the market dominance of - not Vanguard - but Blackrock, whose iShare products might also be in your portfolios. Would be great if someone could summarize this and start a discussion how to go with the big players or rather seek out smaller (and maybe less efficient and therefore costlier) fund managers

[ChickenFat]

Why would you want to move away from Blackrock if you had any iShares ETF?
Knowing your point would be a great kickstarter for the discussion you wish to have

[dom.swiss]

@ChickenFat: after re-viewing the documentary from ARTE the following facts or factoids emerge which might be relevant to the FI community

• BlackRock is the largest provider of ETFs and sells them under the iShares brand
• BlackRock has grown significantly since the financial crisis in 2007/8 and is now the largest investment firm on the planet
• Is is not regulated as a bank and does not have to be capitalized (banks typically hold 13-14% of assets in capital)
• Risk Management is in its DNA and own information as well as other information are pooled and processed by a powerful tool named Aladdin
• There are hints of Blackrock using insider information in Greece and of not having strong Chinese walls in place
• There is evidence that it’s management’s interest come before their staff’s interests (Blackrock invested the employees’ pension money in ever-changing mediocre investments funds and benefitted from trading commissions)

Conclusion: with BlackRock we might be investing through a company that puts own interest first, has a huge head start on any financial system related information and does not have any means or incentive to support a flailing market due to lack of capital. It is not sufficently regulated event though it may be considered as a systemically relevant (in the sense of being able to send a shock to the financial system when in trouble, which might have an impact on the real economy).

So if we would like to protect our stash from a meltdown of financial markets it may be a bad idea to hook up with the biggest kid on the block whose interests are not necessarily aligned with ours and whose AI-tools are already controlling a major stake of daily securities turn-over. The flash crash of May 6, 2010 came and went within minutes, the root cause is not fully clear but was connected to automated trading applications. Luckily it happened in an economic environment that was basically healthy. Imagine what might happen if the world’s biggest currency - trust - is lost and BlackRock becomes another Lehman Brothers case…

Ok, this all sounds a bit dark, but I took my own advice and purchased some SPI ETF from UBS, just to start balancing out the issuer risk with the Swiss part of my investment.

[dbu]

Why not buy Vanguard ETFs?

SPI is only Swiss market, doesn’t really address your going away from iShares (US/World) ETFs.

[bamboo]

Where I am not convinced by this documentary is that if you look carefully in the report of US companies you find often that Vanguard is an even bigger shareholder than Blackrock. The major criticism with passive investment is that Vanguard or BlackRock end up holding a large chunk of a whole segment of the industry or services and this reduces the competition between companies, to the detriment of the consumer and the advantage of the investor. When you have 8% of a company you can propose people to the board and you en up having your man in most of the companies of the S&P500. As investor I find this a bit unfair but I will not cry when I get the yummy dividend.

[Bibi4]

An article in french about this little documentary from ARTE

Blackrock et les ETFs par Arte : documentaire de qualité ou sensationnaliste ?

Maybe it is better to go with Vanguard… But I will not sell what I have with iShare because of a poorly constructed documentary.

[dom.swiss]

Thanks for this contribution @Bibi4. The authors really took their time to check facts and expose inconsistencies and weak spots. A bit disappointing to see ARTE did not provide top-notch facts. It’s certainly good for us to look at the companies and procedures behind the ETF products we all love so much!