Tuesday, July 17, 2007

MMM: Index Funds

Alternate Dimension Andy (ADA):

We've already decided that in most cases it's not okay for you to think for yourself. At least, that's been implicit in everything I've said in these posts so far. We've also decided that it would be totally sweet to find a knowledgeable expert who would invest in the stock market on your behalf.

It does sorta suck, though, about mutual funds charging 2% a year. That cuts into your profits! Or adds to your losses! If you would have made 10%, now you only make about 8%; and after inflation, more like 4.5%. LAMENESS. It would be Ninja Turtle radical if mutual funds didn't cost so much.

Well, here's a story you're gonna love, ADA. Once, there was this Leonardo-level cool dude named John Bogle. One day, he did a backflip into Foot Clan headquarters (a company called Vanguard), and said to The Shredder (the finance industry of corporate America has its roots in secret ninja clans of recent Japan), "You may know ninjitsu, but I soooo know it better than you." Well, the actual words he used were probably more like, "If I just made a mutual fund that copied an index, we wouldn't have to hire people to manage it; it would manage itself; I could charge, like 0.5%."

"Half of a cent on the dollar!?" Shredder screamed. Shredder was fucking pissed about that shit, but eventually he decided to let Bogle give it a try. When it worked, and Bogle's fund did better than most of the funds on the market, Shredder was all, "No fucking way."

Quoth Bogle: "Way." Then Raphael, Donatello and Michaelangelo came back-flipping in, and they all gave each other high-fives and ate pizza. It was quite rad.

See, in addition to charging customers less (thus increasing their profit), Bogle also realized that lots of mutual funds were falling way short of the indices to begin with. Add to that the fact that they were blowing money on shit like advertising and stock trading commissions, and it's sorta unsurprising that Bogle rocked so large.

The real story is actually even more interesting than I've told it here, though it is woefully lacking in the TMNT-metaphor department. And the metaphors don't suck as much (since Bogle actually worked for Vanguard, wasn't a ninja, etc.).

Still, you get the gist.

No comments: