Einhorn on passive investing killing value investing

[Anonymous]

With companies completely priced on “growth” or the fantasy of growth (TSLA), and most investors just buying index funds, the market is in a virtuous circle for high priced stocks. Essentially no investor ever recognizes the value in value stocks, so the stock has to pay off in dividends essentially. Meanwhile high price stocks are heavily traded and ramp up by being bought for being big and included in an index.

https://ritholtz.com/2024/02/transcript-david-einhorn/

[Anonymous]

So his argument is these companies would be worth more of people would just agree with him they are worth more?

[Anonymous]

I think this

"most investors just buying index funds" is the primary assumption here, and that appears to be incorrect. This paper says 38% of US stock holdings are in passive funds.

https://foster.uw.edu/wp-content/uploads/2022/07/1b-Sammon-Chinco-new-title.pdf

[Anonymous]

Wait, you can have an index fund with value stocks in it. Why wouldn't that address his concern?

[Anonymous]

18:59 ... Per Morningstar/Rekenthaler, ...

Last month, for the first time, passively managed funds controlled more assets than did their actively managed competitors. (This count includes both traditional mutual funds and exchange-traded funds.) ...

https://www.morningstar.com/funds/index-funds-have-officially-won

[Anonymous]

Is value investing when brokers charge you huge commissions to buy their "hot" stocks? No thanks

[Anonymous]

Value investing has underperformed the general market for more than 10 years. That’s the main reason it is not popular. Yes, index investing has made it harder for value investing to stand out, but that doesn’t overcome the weakness of value investing.

[Anonymous]

Anonymous wrote: Value investing has underperformed the general market for more than 10 years. That’s the main reason it is not popular. Yes, index investing has made it harder for value investing to stand out, but that doesn’t overcome the weakness of value investing.

The invisible hand.

I love it when capitalists whine about the best idea beating their idea.

[Anonymous]

I just read the transcript from the podcast. Very good. Thank you to the OP for posting it.

[Anonymous]

Anonymous wrote:I just read the transcript from the podcast. Very good. Thank you to the OP for posting it.

+1

[Anonymous]

Anonymous wrote:Wait, you can have an index fund with value stocks in it. Why wouldn't that address his concern?

Because the point is not maximizing return for investors. The point is people ooh-ing and aah-ing over capitalist geniuses picking stocks and showing that we live in a meritocracy

[Anonymous]

Anonymous wrote:

Anonymous wrote:Wait, you can have an index fund with value stocks in it. Why wouldn't that address his concern?

Because the point is not maximizing return for investors. The point is people ooh-ing and aah-ing over capitalist geniuses picking stocks and showing that we live in a meritocracy

His point is different than that. It used to be the balance was there were people who hyped growth stocks for their future potential (aka "capital geniuses") and more staid folks who pointed out which stocks were undervalued due to their actual performance on a variety of metrics and more predictable near term performance. Now, because the more conservative position is to just buy an index, but there are still plenty of capitalist geniuses, the market is tilting towards growth stocks. So the idea that whereas in the short term the stock market is a voting machine but in the long term it's a weighing machine has also shifted. This doesn't mean the weighing never comes though, it could come when people decide a whole sector is too overvalued and then it crashes.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Wait, you can have an index fund with value stocks in it. Why wouldn't that address his concern?

Because the point is not maximizing return for investors. The point is people ooh-ing and aah-ing over capitalist geniuses picking stocks and showing that we live in a meritocracy

His point is different than that. It used to be the balance was there were people who hyped growth stocks for their future potential (aka "capital geniuses") and more staid folks who pointed out which stocks were undervalued due to their actual performance on a variety of metrics and more predictable near term performance. Now, because the more conservative position is to just buy an index, but there are still plenty of capitalist geniuses, the market is tilting towards growth stocks. So the idea that whereas in the short term the stock market is a voting machine but in the long term it's a weighing machine has also shifted. This doesn't mean the weighing never comes though, it could come when people decide a whole sector is too overvalued and then it crashes.

I guess I don't get why there isn't just as much opportunity for value to shine as it did before? If the market is index plus geniuses, then aren't the geniuses still overvaluing some stocks and undervaluing other and value can buy the undervalued stocks and make money?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Wait, you can have an index fund with value stocks in it. Why wouldn't that address his concern?

Because the point is not maximizing return for investors. The point is people ooh-ing and aah-ing over capitalist geniuses picking stocks and showing that we live in a meritocracy

His point is different than that. It used to be the balance was there were people who hyped growth stocks for their future potential (aka "capital geniuses") and more staid folks who pointed out which stocks were undervalued due to their actual performance on a variety of metrics and more predictable near term performance. Now, because the more conservative position is to just buy an index, but there are still plenty of capitalist geniuses, the market is tilting towards growth stocks. So the idea that whereas in the short term the stock market is a voting machine but in the long term it's a weighing machine has also shifted. This doesn't mean the weighing never comes though, it could come when people decide a whole sector is too overvalued and then it crashes.

I guess I don't get why there isn't just as much opportunity for value to shine as it did before? If the market is index plus geniuses, then aren't the geniuses still overvaluing some stocks and undervaluing other and value can buy the undervalued stocks and make money?

Yeah. Doesn’t this all just suggest that historically “value” stock were overvalued? Like you go to a flea market and get a bunch of cheap stuff and feel very proud of yourself for having bought all this stuff for a good deal, but it turns out it’s mostly crap and you should have just bought a known quantity that won’t immediately fall apart. I mean, a “value” is only a “value” if the quality is there right?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Wait, you can have an index fund with value stocks in it. Why wouldn't that address his concern?

Because the point is not maximizing return for investors. The point is people ooh-ing and aah-ing over capitalist geniuses picking stocks and showing that we live in a meritocracy

His point is different than that. It used to be the balance was there were people who hyped growth stocks for their future potential (aka "capital geniuses") and more staid folks who pointed out which stocks were undervalued due to their actual performance on a variety of metrics and more predictable near term performance. Now, because the more conservative position is to just buy an index, but there are still plenty of capitalist geniuses, the market is tilting towards growth stocks. So the idea that whereas in the short term the stock market is a voting machine but in the long term it's a weighing machine has also shifted. This doesn't mean the weighing never comes though, it could come when people decide a whole sector is too overvalued and then it crashes.

I guess I don't get why there isn't just as much opportunity for value to shine as it did before? If the market is index plus geniuses, then aren't the geniuses still overvaluing some stocks and undervaluing other and value can buy the undervalued stocks and make money?

They are often working in different sectors.