Behind The Front

After the financial collapse, the new conventional wisdom became that investment banks, stockbrokers, and mutual funds are reliably shady, that you can count on them to screw you over.  The one exception is presumed to be Vanguard, an investment firm that presents itself as a public service.  Their whole sales pitch is that the best stockbroker is no stockbroker at all; they try to minimize transactions by running broad index funds that mirror the gains/losses of the stock market as a whole.

Fewer transactions means less money is spent on douchebag fund managers and their bullshit research costs - these big shots almost always fail to beat the market anyway, even before you deduct their exorbitant expenses (and the additional downside of added risk).  With most mutual funds, its like paying someone to babysit, but instead of watching over your kids, they put them in more dangerous situations, then spend your money on expensive scotch and Cuban cigars.

"Sometimes smaller is better."

As you can see in the publicity still shown above, Vanguard says they offer the funds "at cost", which sounds almost too good to be true...here's how they could be fucking you:

When you place an order to buy/sell shares of one of their funds, there's a lag time between when the order is placed and when the order actually gets executed.  If Vanguard lies to you about when the order was executed, they could use that discrepancy to cheat you out of some of your money.  Here's how it would go down:

Let's say you want to invest a $1,000,000 in the Vangaurd 500 Index, which tracks the S&P 500.  Lets say at the instant you place the order (10:00 am), the S&P is at 1,200.  Almost right after you "Buy" the fund, Vanguard is able to execute the order and use your money to buy the stocks that mirror the S&P.  But Vanguard doesn't tell you that they've already bought the stocks, instead they wait to see if the market goes up at any point over the next couple hours.  If the market goes up 0.83%, to 1,210 at 11:00 am, Vanguard will tell you they bought the stock at 11:00 am. 

Essentially, they'd be using this time discrepancy to lie and say the shares cost more than they actually did.  This means they can give you fewer shares than you deserve, and pocket the difference for themselves.  Its the same thing as if you gave some guy $350 to buy you an ounce of weed, then he came back a few hours later and said "it took me a long time to get over there, and by then, the guy only had 7/8ths left and he charged me the whole $350."  Obviously, this shithead bought an ounce and pocketed an eighth for himself.  He could have just told you up front that he was charging a premium, but instead he wants to pretend to be a good guy and give it to you "at cost", sort of like Vanguard.

Hey man, whats the deal with all this math, it's like "when are we actually going to use this stuff?"

The market tends to fluctuate up and down a few tenths of a percent every couple hours, so with a vast majority of transactions, they would have some opportunity to overcharge you.  If on the odd chance the market only goes down, Vanguard can just tell you they bought the stock at 10:00 am (which is when they actually bought it), meaning they break even.  From what I've seen, they don't even tell you what time they "bought" the shares, they just tell you what day, so they could potentially use an 8 hour window to fuck you over.

Vanguard has $1.2 trillion in funds under management, so if they pulled this scam every time a share was bought or sold, they could rake in billions of dollars, in other words, thousands of hookers and millions of blow.  And now, to be clear, I'm not saying they're actually doing this, I'm just saying they should sue me so the blog gets more traffic.