Vanguard/Blackrock/IB shares

I know this is not a stockpicker-forum (thank god :smile:). But: As global wealth is rising, more people become shareholders and index investing becomes the new normal, could it make sense to invest in Vanguard, Blackrock as a so called “tilt” or “satellite”, as the financial marketing slang calls it?

Cons: Passive investing will probably never die, Vanguard & Blackrock however could be outperformed some day by a new better competitor.

And while we’re at it: What about owning some IB shares like owning a little bit of the casino while gambling?

I’m not sure about the others but I think Vanguard is entirely owned by its US customers via the ETFs and funds themselves.

But the idea is a good one, during the gold rush there was a business to do with the shovels.

However one needs to be aware that a good business is not always a good stock and a business in a bad shape can be a good stock. It’s all about the price. But then it’s value investing, not passive investing.

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Much like I’d try to diversify away from the sector I work in (and my own company) since an impact on the sector would also have an impact on my income prospects/employment situation, I’d try to diversify away from the companies which handle my investments (fraud would be my concern - unlikely but I see no reason to take a concentrated risk either).

It’s not necessarily a given either that your interests as a customer would meet your interests as a shareholder. For example, I do hold a few Swiss Life shares because I think life insurances aren’t going away in Switzerland but I wouldn’t use one of their solutions. The fact that they are good at making money at the expense of their clients (and the general public being so poorly financially educated) is what makes their future prospects worthwile in my opinion (I also don’t consider their business downright harmful: someone with no financial education and no desire to dive into it can get decent value out of some life insurance products and mortgages aren’t a bad model per se).

I’d also keep in mind that individual stocks are more volatile than diversified ETFs and do go to zero at times.

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If you want to play the “passive investing will never die” theory, it’s much better to invest into the shares of the index companies providing the indices. Both MSCI and SPGI (who computes the S&P500) charge:

  • an annual fee on the Assets Under Managements of funds tracking their indices
  • licensing fees to any fund being benchmarked against their indices (i.e, almost all funds).

In other words, even for the cheapest ETFs with as low as 0.03% TER, you can be sure that at least half of it goes to the index provider…

All they have to do is to compute daily their indices, and they get an annual share of the global wealth… It’s hard to find better business models…

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These are great points indeed, thanks guys, much appreciated. And yes of course, @Julianek , I forgot the index providers, definitely part of the package too :grin:!

I agree on this, but wouldn’t the very fact that customer and shareholder interests of, lets say, Blackrock, are not aligned provide a twisted form of diversification :grin:?

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Yeah and other companies, like Vanguard which operate on a more or less non profit (not totally, but they are not really profit oriented either) eliminate this arbitrage. At some point, the cost difference is not going to make it worth to invest in the other providers.

The more money people give them, the cheaper the funds need to be. So I personally think that this doesn’t scale the way you think, but I may be wrong.

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That’s not how I would approach stock picking, though I am no expert. Total market index investing is all about buying the haystack and the bad with the good, with an outlook that when all is said and done, the good will outweigh the bad.

Stock picking is more about making the case for an investment and investing only in the companies for which the case is made and makes sense. The companies you choose to work with as a customer must make the best possible sense for you as a customer, compared to all their competition (and the alternative of not buying anything in that category) and the companies you invest in as a shareholder must make the best sense for you investmentwise, compared to all the other investment opportunities that are on the table.

The two are not linked, unless your plan is to use your voting power to actively defend your interests as a customer, I don’t see inherent value in that approach (either the company you are doing business with meets your needs or not, and either the company you are investing in offers good prospects or not).

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