logo
  Join        Login             Stock Quote

Why Do Value Investors Like Indexing?

 December 27, 2012 09:25 AM


In general, most value investors like indexing.  Buffett and many others agree on this.  But why?

1) Most value investors that I have known want ordinary people to have an option of doing pretty well, without investing with them, because the minimums are too high — investing in index funds fits that.  Further, Vanguard, who acts in the interest of their investors is an excellent institution.  If I could have a fund there and be paid 10-20 basis points, I would do it in a heartbeat.

2) The second reason is less noble.  We like less competition.  Index money is thought-free money with respect to company and sector selection.  The more of a company that is held by index investors, the greater the probability that it is mispriced.

[Related -In A World Of Artificial Liquidity – Cash Is King]

Now, that is not necessarily so crass on our part.  Look, good investing for most people is like holding a second job.  Do you really want to devote that much of your life to seeking out bargains?  Not many will want to do that.  (Note: there is a side benefit to doing value investing, no matter what sort of firm you work for.  You learn to think like an intelligent businessman — most employees don't do that.  The ability to think like a intelligent businessman sets you up for greater responsibility, because you can not only do your task, but you can consider the deeper questions of business, making you a prime candidate for a promotion.)

But… there is another venue for mispriced stocks.  Some large stocks don't get into the index because they are foreign, or have a large amount of the stock owned by a control group, which makes them less liquid.  The main idea is that stocks that few people think about are less liquid, and more likely to be mispriced, but the question remains: are they mispriced high or low?

[Related -Did The IMF Provide Support To Syriza?]

That is the question for the value investor, and not for those that buy stocks as commodities, as many index investors do.

iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageIn A World Of Artificial Liquidity – Cash Is King

It's more crucial now than ever for people to consider extracting a portion of cash from their bank read on...

article imageDid The IMF Provide Support To Syriza?

The IMF published yesterday a preliminary analysis on the debt sustainability of the Greek read on...

article image3 Defensive Stocks Offering Safety, Yield In A Turbulent Market

The world can be a scary place to invest these days. Greece can't pay its debts, Russia is a mess, China's read on...

article imageFour Stocks in the Dow Making Fresh 52 Week Lows

“What gets weak tends to get weaker; what gets strong tends to get read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.