Going through a thought exercise on holding an index fund versus holding a collection of individual stocks (splicing an index fund, for example). Let's say for the purposes of this exercise that we use the same weighting methodology TODAY for the index and for the portfolio of individual stocks that we hold (that's allocated using the exact same weightings as the total market fund)
For VTI/VTSMX/VTSAX, the fund manager will buy stocks whenever money comes in (say an investor buys VTI today) and have to sell stocks when money goes out. For a buy and hold investor, assuming no sales in the accumulation stage, he or she is constantly buying stocks when money comes in, but won't be selling any stocks
Normally, when the going is good and the stock market is rising, you have net money going into the index funds, as such, the fund manager will buy at market price. As long as equities are going up, you have an effect of "buying low" (ignoring the "adjusted float" concept that has been introduced to prevent front running). When equities are going down, neither the fund manager nor the individual stock investor has to sell low, as long as money isn't being pulled OUT of the fund.
My question is, is there anyway to look at historical total share count (instead of total net assets, to control for a falling equity market price) to see if money is pulled out of VTI/VTSMX/VTSAX when there is a depression (or when there is high volatility - admittedly this probably occurs less and does not have as much of an effect)? If share count does not decrease (by TOO much at least), then an index approach is truly buying and holding, but if the share count is decreasing, then that means you're in effect selling low in a depression on your existing shares as others are doing that for you. Net turnover is 3% today and was only 5% in 2009, does that encompass the effects of withdrawls on the fund? (As a sidenote, it really does seem that the total market fund attracts long term investors with turnover at 5% in 2009 versus the SP500 fund which had turnover at 12% in 2009, could be because the 500 fund is offered more often than the total market fund in 401k plans)
Looking at historical turnover, VTSMX has (from morningstar performance tracker):
History (05/31/2015) Turnover Ratio
2005 12
2006 4
2007 4
2008 5
2009 5
2010 5
2011 5
2012 3
2013 4
2014 3
while SP500 VFINX has:
History (05/31/2015) Turnover Ratio
2005 7
2006 5
2007 5
2008 6
2009 12
2010 5
2011 4
2012 3
2013 3
2014 3
Thoughts?
Edit: My main point is that it seems with a mutual fund of any kind, what other investors within the fund does impacts your money, whereas an individual stock purchaser would not be affected by this. Of course, you would have to have some way to keep your purchase fees at only 0.05% of your portfolio for this to be a fair comparison ($500 in trading costs each year for a $1m portfolio, or 100 trades at $5 per trade)