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Re:The best investment advice you'll never get by jerf on Sunday November 28, 2010 @11:07PM (#1949333)
Having also read this a lot, it makes me wonder how the clever financial world will find a way to take a lot of people owning index funds and somehow fleece them.

I also find myself pondering the macroeconomic effects of a lot of the market simply being in index funds, though I'm sure we're a long ways from that.

My personal rule-of-thumb "By the time you've heard of it, it's too late to get in on it" is also triggering, though I have to admit for the life of me I really can't imagine how to exploit this tendency. But I am anything but a financial wizard.

Re:The best investment advice you'll never get by WildUtah on Sunday November 28, 2010 @11:18PM (#1949358)
take a lot of people owning index funds and somehow fleece them

There are strategies to do this now, but they're hard to execute. One example is to target stocks that are likely to enter or drop off indicies. Index funds will be looking to buy or sell them soon.

Mostly these strategies depend on your ability to set up a very high speed link to the computers that clear trades and interpret the algorithms that index funds use to establish their samples of the market. If you can get in just ahead of the index funds and their monster volume, you can shave a few tenths of pennies from the investors.

You can make millions with those strategies but it's a drop in the index fund bucket. Quite a lot of "quant" trading activity is about ripping off ordinary people by unnoticed fractions by getting in ahead of them. Much more innocuous than the large scale bribery and fraud that makes up so much of the financial industry.

Re:The best investment advice you'll never get by nradov on Monday November 29, 2010 @01:18AM (#1949563)
This was covered in a WSJ article yesterday. http://online.wsj.com/article/SB1000142405274870400870457563... "Over the long run, sharp traders getting out in front of these forced portfolio changes have poached at least 0.38 percentage point of annual return away from Russell 2000 index funds, estimates a new study in the Journal of Empirical Finance."
Re:The best investment advice you'll never get by amh on Monday November 29, 2010 @09:15AM (#1950318)
Not all index methodologies are created equal, the way that Russell handles periodic reconstitution is particularly susceptible to front running. Other indexing methods are not as bad.
Re:The best investment advice you'll never get by farmerbuzz on Tuesday November 30, 2010 @04:59PM (#1955753)
Another idea is to make things so confusing that the customer is no longer sure what they're getting. Just name a managed fund something confusing that makes it seem like an index fund (but still include all the fees like a managed fund).
Re:The best investment advice you'll never get by RK on Monday November 29, 2010 @12:42AM (#1949501)
it makes me wonder how the clever financial world will find a way to take a lot of people owning index funds and somehow fleece them.

I think a lot of companies are setting up index funds now with high fees, because they know index funds have become a buzz word.

Always read the fine print.

Re:The best investment advice you'll never get by hardik on Monday November 29, 2010 @12:48AM (#1949517)
The recent surge of high frequency trading is in some part just that (fleecing of index funders) since these guys try to extract value from all trades happening in the market (and index funds will do some trades, albiet fewer than active funds)