edit: Also my long standing challenge, point out the index fund billionaire. We all want to meet that person who's winning so hard, by doing nothing.
No they wouldn't have been, at least not materially. Michael Dell's entire fortune is about $30 billion. That's literally a rounding error on Vanguard's entire assets under management, which is over $5 trillion. That's just Vanguard - Fidelity and Blackrock each have over $6 trillion as well.
I think you're vastly underestimating the amount of liquidity available in the market if you think any single billionaire could materially move the prices of a major, diversified fund.
> Also my long standing challenge, point out the index fund billionaire. We all want to meet that person who's winning so hard, by doing nothing.
Do you mean someone who became a billionaire by taking a relatively small net worth and parking it in index funds? Or do you mean a billionaire who maintains and grows their fortune by parking it index funds?
The former is ludicrous to the point of being a strawman, and I don't understand what it proves by being true. The latter is trivially true and demonstrates that billionaires do choose to passively grow their fortunes.
The point is that it's a direct refutation of the real strawman argument: that Michael Dell, self-made billionaire, is an idiot because he could have _possibly_ made more money at some point by engaging in a different economic activity. He didn't become a billionaire by passive investing, he became a billionaire by actively building businesses, which he continues to do.
WRT to liquidity let's say that Dell wanted to invest $15B over 2013 in the stock market. That's $70MM every single trading day of the year. The SEC, thinks that $20MM in a calendar day is a large investor that could affect markets, and require 13H form registration. So it's clear the SEC at least doesn't agree with the premise that a single billionaire cannot affect the market.
But attacking that example doesn't diminish the spirit of the claim. If we step back from the SPX and talk about investing in a diversified portfolio of equities in general, it's fully possible to quickly invest $15 billion without meaningfully altering the price. The reality of the past decade's bull market is that Michael Dell could have invested $15 billion into the market and turned it into $26 billion.
Of course, that's just the positive claim; it remains a normative as to whether or not he should do anything. But from a purely numerical perspective: yes, he could have invested in diversified stocks and gotten a comparable return.
Responding to your edit:
> So it's clear the SEC at least doesn't agree with the premise that a single billionaire cannot affect the market.
Rule 13h-1 isn't a useful heuristic here, for two reasons:
1. It was philosophically inspired by, and designed to track trading activity of, HFT firms. In particular, the idea is to keep a closer eye on very fast trading activity which could suddenly correlate in the same direction. If the aggregate activity of many amateur investors begins to correlate it's not necessarily a problem; it is a problem if many traders over a certain threshold begin to correlate strongly. Notably, this is why the rule includes a "circuit breaker" clause for halting trading.
2. The rule specifically excludes ETFs exchanging hands. In other words, this rule wouldn't apply to someone who approached a very large firm with billions of dollars to pour into a collection of ETFs.
My objection is to the claim that he's somehow incompetent because he didn't outperform the market with his activity. He basically got the same returns for himself as he would have "in the market", and created economic opportunity for tens of thousands of people in the process. To me, that's a great success.
These are the questions:
Could you have made $2700 in 2018 out of $1500 in 2013 easily by investing in an index? Yes.
Could Michael Dell have used the exact same method to make $27B in 2018 out of $15B in 2013 by investing in an index, without changing the conditions of that index such that the method wouldn't work? Yes.
You seem to now be focusing on the question "Is Michael Dell a stupid dumb idiot or a saint?"
Of course it does, every bit as much as if the person created a company with the money instead.
Are you joking? Look at the Forbes 400 richest. Look at the Fed's Survey of Consumer Finances.
The person with power in San Francisco is not the 24 year old MIT Grad FAANG SWE who can barely afford his mortgage, but the LP for the VC who has founders coming to try to get that series A. Or the activist investors making Apple give a dividend.
Billionaire heirs are "winning so hard" all over the place in index funds. S&P 500 2008-2018 return is 167% on low inflation. Even factoring in inflation it's over 100% - billions more than doubled in a decade. 2008 was an off year, but even factoring around that is still a huge win.
Doing nothing for a decade, and more than doubling a few billion after inflation? Yes that is winning so hard.
The biggest beneficiaries are the heirs who expropriate labor time from those who work, not those working and creating wealth.
edit: With 100% less snark the trillions in the stock market is illiquid, while $15 Billion over a short period of time (as to benefit of the 5 years of growth) is not a trivial thing to accomplish without changing prices when those trades hit the books.
I don't really understand your claim with respect to liquidity, either. Be precise. Are you talking about slippage? Do you really think someone parking billions of dollars in the market would do so without staggering it to avoid prices moving against them? It's not like he's just going to throw $15 billion into the SPX and hope the daily volume adjusts without a problem.
15 billion remains not a lot in the grand scheme of things.
Further adding value by mentioning there is an art to trading an illiquid position
Michael Dell would have needed to make special considerations than just hitting the sell button to get prices remotely close to the last things printed on screen.
I agree though, nobody gets massively rich on passive investment. You get massively rich on active schemes (whether that is via entrepreneurship or investing), and then you passively collect when the scale of your wealth grows to the point where the liquidity of passive schemes is more important.
If they'd invested, say, $5m in AMZN when it opened, they'd be a billionaire today.
Nope. Buying something doesn't make it "active". Active means you are involved in managing the business. My example was buying AMZN and literally doing NOTHING with it for 20 years. It's the very definition of passive investing.
> Active investing is what used to just be called investing — buying or selling individual stocks or bonds.
>...
> Passive investments track indexes, which are groups of securities that are alike in some way.
[1]: https://www.bloomberg.com/quicktake/active-vs-passive-invest...
https://www.investopedia.com/terms/p/passiveinvesting.asp
Besides, it doesn't make much sense to call someone an "active" investor who literally did nothing with it for 20 years. He wouldn't have even had to account for it on his taxes, as AMZN hasn't paid any dividends.
With the Vanguard index fund, the IRS is going to come looking for their cut every year.
Sums that small don't significantly affect board decisions especially if they come from passive investors. For comparison, Vanguards SP500 fund (VOO) has market value $400B.
Had Dell gradually bought SP500 index over a year, the effect on price would have been minimal.
But this is the whole point: you need to be careful when investing this kind of sum, because you may end up negatively impacting the market.
It's all about scale.
On average, you’ll do better in index funds but there’s a lot more variance in active investing. I’m up 400% over the past 4 years or so active investing (although at one point I had lost 50% of my initial stake). A coworker of mine lost 90% of his money this year. You’re not going to see either of those outcomes with index investing.
It doesn't work out if many people try to cash out.
Btw I have had a briefing from a trustee of one of the really big UK pension funds and they in no way invest like that.
Given the briefing was under "Chattem House Rules" I cant say who and which major firm got sacked :-)
Amazon’s whole HQ2 competition took the US by storm and indirectly led to tons of speculative real estate investment all over the country, yet it involved much less than $26 billion...
Yes, such a sum will likely not have a noticeable effect on the US stock market as a whole, but that doesn’t mean it’s a sum that can be invested as easily as many seem to assume.
The competition for HQ2 was fierce across the US. States and cities were bending over backwards to meet Amazon’s demands. Any whiff of activity or rumor was covered by both national and regional news. Real estate investors were buying up land in virtually every state. All of this for a potential economic benefit much lower than this $26 billion we’ve been talking about. It was a nationwide frenzy.
Again, the point is that investing $26 billion can have an effect depending on how it is invested, not that it will definitely have an effect.
Except that this is a much more complex affirmation than it appears. I do think people making this point are deluded, ignoring the complexity of the situation. What, of course, does not mean that they are wrong, only that the affirmation doesn't add any new information,
OPs point was Dell experienced an average return and could have done this without all the work he did to take Dell private and then public again. The key is he was already one of the richest people in the world (from incredible percentage gains in the early days of Dell), once you're up there you can indeed passively invest and have huge returns for no work. The trick is all about getting the initial fortune.
Index funds are one of the best liquid investments esp. compared to other high return ones like Real Estate of Venture Capital.
> edit: Also my long standing challenge, point out the index fund billionaire. We all want to meet that person who's winning so hard, by doing nothing.
I am not really sure what your point is. Can you please clarify? As far as I know, no one suggests index funds as a path to making billions. If you want to be a billionaire, either be born as one or go all in on a single crazy bet and hope it grows tremendously.
My point is that there is no difference. This just how investment works in general.
Going with the poker example, your skill is higher than mine if your expected return per round is greater than mine.
One way to get a decent estimate is to repeat the experiment many times, while keeping external factors roughly similar. With poker, it's relatively easy: let's go to the same casino, spend a whole night playing at different tables (to avoid the luck of playing versus all noobs or versus all pros at a given table). Then compare our winnings. Better yet, repeat it over a few days, to get even more data points.
But in the case of a single large decision, such as Dell's investment, it's incredibly hard to estimate the expected returns. Maybe Dell's investment was an amazing decision, and he was all but certain to make $50B from it - and only due to an unusually unlucky random events, he only made ~$12B. Or maybe his investment was really bad, and he was likely to lose all his money, except through sheer dumb luck things actually worked out to a $12B profit.
If Dell went into the turnaround business, like Buffett, we could at least average out his performance over a dozen companies he tried it on. It would be still a very very rough estimate (e.g., due to survivor bias: Dell wouldn't turn around a dozen companies if he was losing a few billion per attempt: he would stop after 1 or 2). But at least it would be something.
As things stand, I doubt anyone can make a convincing case about whether Dell's investment was a good or bad idea.
By the way, even for S&P 500, it's not easy to estimate expected returns. But perhaps, over the 5 year period, they are around 30-60% -- depending on your opinion about various economic and financial models and assumptions. So I guess they were a bit better than expected over the period in question.
Who sell the stocks in order to raise funds to do other things. Of course it trickles down.
"3,453 days later, the US bull market becomes the longest on record" [0]
> There is a glut of global capital
"The ECB halts quantitative easing" [1]
"Bank of Japan signals exit from quantitative easing, but …" [2]
"Everyone Is Talking About Rate Hikes, But The Fed's Balance Sheet Might Be More Important" [3]
Money Stock / Real Gross Domestic Product appears to be stabilizing [4]. Given the global tightening of monetary policy, this is consistent with reduced availability of capital in the future (per unit of real economic activity).
> 90 year+ history that shows the market grows at 7 percent annually
"Past performance is not necessarily an indication of how the Trust will perform in the future." [5]
> What contravening data do you have?
"The Nikkei Index is still 40% below its all-time high of 39,000, which was hit at the end of December 1989. It took nearly 20 years before the Japanese stock market hit bottom." [6]
[0] https://www.cnbc.com/2018/08/22/longest-bull-market-since-wo...
[1] https://www.economist.com/finance-and-economics/2018/12/13/t...
[2] http://www.atimes.com/article/bank-of-japan-signals-exit-fro...
[3] https://www.forbes.com/sites/petertchir/2018/12/19/everyone-...
[4] https://imgur.com/a/RA62s4e
[5] https://us.spdrs.com/library-content/public/SPDR_500%20TRUST...
If you're worse off than an S&P index fund then you're not a genius - you're an idiot.
Its only appropriate to compare returns against the sp500 if you are taking on exactly the same amount(and type) of risk as the sp500.
By this bad logic, bonds are a terrible investment and nobody should ever buy them because the s500 is better.
Same goes for owning private companies, although it is murkier to see.
A single company is always going to be riskier and more volatile than the sp500.
I wouldn't necessarily characterize Dell as an idiot though. :)
In the last year I have met 4 billionaires - and what I have observed was that above a certain level of extreme wealth it’s not about just making more money, it’s about forfilling autonomy, mastery and purpose, which might mean a non-optimal financial strategy, but is rewarding in other ways.
One can invest, take risks, and fail. Doesn’t make you an idiot. Majority of startups fail. Doesn’t mean the founders are idiots.
You aren't an entrepreneur, are you?
A huge part of the economy of Austin is Dell and I am sure he likes being part of the action and an engine for the local economy and his employees.
If he had simply parked his money in a s&p 500 index with dividends reinvested, his $15B would have grown to $26.6B. All without breaking a sweat or exposing himself to concentrated risk.
His investment and turnaround of Dell was successful to be sure, but not nearly as spectacular as the article seems to be implying.