Carpe Diem, life is too short

ogni lasciata è persa. One life, live it. or Opportunity seldom knocks twice. – Italian proverb

Donald Knuth: programming is the art of telling another human being what one wants the computer to do.

None of us is as smart as all of us.

It is about quality not quantity when it comes to living.

index fund

• it was computer that made the index fund feasible in 1970s.

• the research done by Scholes and Black has indicated some market ineffeiciencies that could potentially be mined such as the tendency for less volatile stocks, thos with a lower “beta” for greater returns.

• the total rational participants makes an effeicient market.

• the volatility of the market could be manufactured.

what we are witnessing today is the slow, almost imperceptible motion of a growing deep ocean swell that will form into a massive wave as it hits the investment beaches. – Dean LeBaron, 1975

only small secrets need protection. Big secrets are protected by the public’s incredulity. – Joseph Goebbels

Wag the dog is a political term for the act of creating a diversion from a damaging issue usually through military force. The metaphor originally referred to an important or powerful entity (the dog) being controlled by a less important one (the tail). It later became used to describe a type of diversionary foreign policy where military action is used to distract from other issues.

“If you can’t beat the market, you should consider joining it.” said Charles Ellis. This is the same as “wanting the market wants.” It seems reasonable. But how to walk this talk is not that simple.

• Bogle’s Vanguard: the prospectus of the “First Index Investment Trust” was filed formally with SEC in May 1976. It projected that the cost of managing an index fund of S&P500 would be 0.3 percent annually in operating expense, and 0.2 percent in transaction costs – roughly a tenth of the all-in cost of an actively managed fund. In the end, FIIT raised only $11.32 million on August 31, 1976. FIIT was renamed as Vanguard Index Trust in 1980, and later the Vanguard 500 Index Fund. At the end of 1982, its assets were just $100 million. It reached $1 billion in 1988.

Michael Lipper: The jury is still out, but you have to keep costs so low that there’s very little profit in indexing for conventional mutual fund management companies. Besides, most money managers have a hard time swallowing the idea that you can’t beat the market. It’s a paradox they’re not willing to accept yet. (1977)

the name of the game is to be the best. that is the motto of capitalism. who wants to be operated on by an average surgeon, be advised by an average lawyer, be an average registered representative, or do anything no better or worse than average?

• On May Day 1975, US regulators had abolished the practice of fixed commissions for stock trades.

• the 1978 Revenue Act generated the 401(k) retirement plan. It encouraged Americans to save for their own pension through stock funds – this buoyed virtually every investment company.

• In September 1980, Vanguard reached $3 billion of assets under management. the company jumped into the 401(k) business in 1983, and by the end of the decade it managed over $47 billion. this positioned Vanguard as a low-cost provider in a high-cost industry. that is the competitive edge for Vanguard.

• Book: Burton Malkiel, A Random Walk down Wall Street

• Bogleism

• tales of efficient markets, the benefits of diversification, and the importance of low costs

Over time, he (David Booth) spotted an obvious blind spot in its mix of fund managers and financial securities—the pension plan had plenty of managers still trying to pick the best stocks in the S&P 500, as well as an internal index fund, but had no exposure to smaller stocks. This was common among big institutional investors at the time. The stocks of smaller companies tend to be far more volatile, and trading conditions vastly trickier than for the big blue-chip members of the S&P 500. At the time, there weren’t even any dedicated indices just for smaller companies.

An equity fund that would invest only in smaller stocks. That would even the playing field for smaller companies. It’s the most dynamic part of the US economy, but they’re being starved of capital.

• In August 1981, IBM launched its first-ever personal computer, initially priced at just $1,565.

Luckily, the US stock market rebounded in 1982, and small caps enjoyed a particularly strong year. The inaugural DFA fund returned nearly 29 percent, compared to the S&P 500’s 14.7 percent gain. That was a boon to DFA’s sales pitch, and by early 1983 its assets under management were approaching the $1 billion mark.

“Rolf Banz, a Swiss protégé of Myron Scholes, had been using the CRSP data compiled in Chicago to calculate the average returns of smaller stocks, and found that while they were far more volatile than the better-known blue-chip stocks, they offered far better returns in the long run. In the 1926–75 period, Banz studied, the average annual rate of return from large stocks was 8.8 percent, while smaller ones boasted an 11.6 percent rate of return.”

Gene Fama: The net effect of the efforts of thousands upon thousands of investors continually trying to outsmart each other was that the stock market was efficient, and in practice hard to beat. Most investors should therefore just sit on their hands and buy the entire market.

• Perhaps the stock market wasn’t entirely efficient, and maybe there were indeed ways to beat it in the long run?

Stephen Ross’s “arbitrage pricing theory” and Barr Rosenberg’s “bionic betas” posited that the returns of any financial security are the result of several systematic factors.

“In 1973, Sanjoy Basu, a finance professor at McMaster University in Ontario, published a paper that indicated that companies with low stock prices relative to their earnings did better than the efficient-markets hypothesis would suggest. Essentially, he showed that the value investing principles espoused by Benjamin Graham in the 1930s—which revolved around buying cheap, out-of-favor stocks trading below their intrinsic worth—was a durable investment factor. By systematically buying all cheap stocks, investors could in theory beat the broader market over time.”

“Then Banz showed the same for small caps, another big moment in the evolution of factor investing. Follow-up studies on smaller stocks in Japan and the UK showed similar results, so in 1986 DFA launched dedicated small-cap funds for those two markets as well. In the early 1990s, finance professors Narasimhan Jegadeesh and Sheridan Titman published a paper indicating that simply surfing market momentum—in practice buying stocks that were already bouncing and selling those that were sliding—could also produce market-beating returns.”

Behavioral economists, on the other hand, argue that factors tend to be the product of our irrational human biases. For example, just like how we buy pricey lottery tickets for the infinitesimal chance of big wins, investors tend to overpay for fast-growing, glamorous stocks, and unfairly shun duller, steadier ones. Smaller stocks do well because we are illogically drawn to names we know well. The momentum factor, on the other hand, works because investors initially underreact to news but overreact in the long run, or often sell winners too quickly and hang on to bad bets for far longer than is advisable.

• Bogle: “I had no idea that, within a decade, the ETF idea [proposed by Nathan Most at their meeting] would ignite a flame that would change not only the nature of indexing, but also the entire field of investing. I can unhesitatingly describe Nathan Most’s visionary creation of the ETF as the most successful financial marketing idea so far during the twenty-first century. Whether it proves to be the most successful investment idea of the century remains to be seen.”

On March 9, 1990, the TSE unveiled TIPS, the Toronto 35 Index Participation Fund, the first ever ETF.

On January 29, 1993, SPDR finally began trading. It charged investors a feee of 0.2 percent a year. By the summer of 1993, SPDR finally broke the $300 million of assets mark it needed to break even on the cost of running it, and by the end of its first year it held $461 million.

Today, ETFs are a $9 trillion industry.

• Charles Ellis’s book “The Loser’s Game”

“Indexing was a scale game, and we wanted to jump ahead of our competitors and seize more assets around the world,” says Fred Grauer.

IN THE EARLY 1990S, a Morgan Stanley executive named Robert Tull had assiduously studied the prospectuses of LOR’s SuperShares, Canada’s TIPS, and the Amex/State Street’s SPDR, and became enamored with the idea of listed index funds. He used them to design something the investment bank dubbed “Optimized Portfolios as Listed Securities,” or OPALS.

• Barclays Global Investors

In 1989, Fred Grauer therefore convinced Wells Fargo to sell 50 percent of WFIA to Nikko Securities, a Japanese brokerage, for $125 million. The new combined company was given the unwieldy name Wells Fargo Nikko Investment Advisors, or WFNIA, and managed $70 billion at the time.

In the end, Barclays’ deeper pockets prevailed, and after a long courtship it bought WFNIA for $440 million in 1995.

WFNIA was smashed together with the asset management arm of Barclays de Zoete Wedd, the bank’s securities division, and together they would manage $256 billion at the time.6 Although the combined firm was eventually renamed Barclays Global Investors, it became a reverse takeover. Grauer soon led the combined company, its headquarters stayed in San Francisco, and the academic culture of WFIA eventually permeated the whole organization.

In early April 2009, $4.2 billion offer from CVC for iShares ETF.

At 8:20 p.m. in New York on June 11, 2009, BlackRock announced that it had struck an agreement to buy BGI from Barclays in a deal valued at the time at $13.5 billion, through a combination of cash and the UK bank acquiring a 20 percent stake in BlackRock. CVC received $175 million as compensation for Barclays breaking its deal to sell iShares.

• ETF’s big three: BlackRock, Vanguard, and State Street

Larry Fink: “I believed I had figured out the market, but I was wrong — because while I wasn’t watching, the world had changed.” 2016 UCLA commencement speech

John Wooden: “If I am through learning, I am through.”

the investment game was changing all the time. adapt and learn.

• Book: Trillions by Robin Wigglesworth

notes

• walipini: A walipini is an earth-sheltered cold frame.

• M31, or Andromeda galaxy, is the nearest major galaxy to our own Milky way

• book: Harvey Mansfield, The Rise and Fall of Rational Control: The History of Modern Political Philosophy, 2026

• book: Harvey C. Mansfield, Machiavelli’s Effectual Truth: Creating the Modern World, 2023

• book: Captive Minds: A Study of Manipulation, by leading philosophers and political thinkers Avishai Margalit and Assaf Sharon, 2026 Harvard

• Helen Vendler, Dickinson: Selected Poems and Commentaries, 2010

• Mary Oliver, A Poetry Handbook (Ecco, 1994)