Einhorn on passive investing killing value investing

[Anonymous]

Anonymous wrote:

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?

I think his argument is that growth stocks encourage momentum buyers--which leads to self-fulfilling prophecy gains, and instead of there being a sufficient weight of value buyers, they are instead passive buyers through indexes. So the tilt goes to growth. I'm a mainly index investor with a tilt towards individual growth stocks, but I do see a problem with nobody every really valuing things based on real performance. I'd have more faith in the stock market's continued performance if there were a stronger contingent of value investors. I think the current approach leads to chaotic performance.

[Anonymous]

Nonsense.

My husband bought Apple when it was worth pennies. People bet on quality stocks all the time, not just the high-price ones.

Just because a portion of the population (and DCUM) does not understand stocks and is not educated on specific sectors, doesn’t mean everyone is like this.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

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?

I think his argument is that growth stocks encourage momentum buyers--which leads to self-fulfilling prophecy gains, and instead of there being a sufficient weight of value buyers, they are instead passive buyers through indexes. So the tilt goes to growth. I'm a mainly index investor with a tilt towards individual growth stocks, but I do see a problem with nobody every really valuing things based on real performance. I'd have more faith in the stock market's continued performance if there were a stronger contingent of value investors. I think the current approach leads to chaotic performance.

I get the element of self-fulfilling prophecy b/c of FOMO and the greater fool theory. But this leaves the highly overvalued stock open to hostile action by aggressive short sellers, who stand to make huge gains if they can publicize mismatch between trading value and book value or potential.

I think the reason that value investing is harder now (than 40 or 50 years ago) is because of availability of information. At least that's what Buffett and Munger say. Way harder to find an undervalued company. And the metrics that Benjamin Graham used for value investing are only a dream now--if you had to wait for a stock to be that mispriced before buying, you'd never buy.

tl;dr Can't blame index investors.

[Anonymous]

Anonymous wrote:Nonsense.

My husband bought Apple when it was worth pennies. People bet on quality stocks all the time, not just the high-price ones.

Just because a portion of the population (and DCUM) does not understand stocks and is not educated on specific sectors, doesn’t mean everyone is like this.

oh yeah, how about his Palm and Blackberry stock? How are those doing?

[Anonymous]

Anonymous wrote:Nonsense.

My husband bought Apple when it was worth pennies. People bet on quality stocks all the time, not just the high-price ones.

Just because a portion of the population (and DCUM) does not understand stocks and is not educated on specific sectors, doesn’t mean everyone is like this.

lol. It’s the people who actually do “understand stocks” that know you aren’t going to consistently beat the market without luck or trading on actionable insider information.

I’ve bought and sold Apple many times over the past 17 years. But it’s gambling. Saying it’s not is just dishonest. My real money is in index funds because they’ve demonstrated to be the best long term investment.

[Anonymous]

Anonymous wrote:Nonsense.

My husband bought Apple when it was worth pennies. People bet on quality stocks all the time, not just the high-price ones.

Just because a portion of the population (and DCUM) does not understand stocks and is not educated on specific sectors, doesn’t mean everyone is like this.

You clearly didn't listen to the podcast (or read the transcript.)

[Anonymous]

Anonymous wrote:

Anonymous wrote:Nonsense.

My husband bought Apple when it was worth pennies. People bet on quality stocks all the time, not just the high-price ones.

Just because a portion of the population (and DCUM) does not understand stocks and is not educated on specific sectors, doesn’t mean everyone is like this.

lol. It’s the people who actually do “understand stocks” that know you aren’t going to consistently beat the market without luck or trading on actionable insider information.

I’ve bought and sold Apple many times over the past 17 years. But it’s gambling. Saying it’s not is just dishonest. My real money is in index funds because they’ve demonstrated to be the best long term investment.

It's a really common human trait to want to ascribe success to your own choices/work. Of course that's important in most things in life, but certainly not the explanation for all success. It's hard for a lot of people to accept that they don't have control over things like this.

[Anonymous]

Anonymous wrote:Nonsense.

My husband bought Apple when it was worth pennies. People bet on quality stocks all the time, not just the high-price ones.

Just because a portion of the population (and DCUM) does not understand stocks and is not educated on specific sectors, doesn’t mean everyone is like this.

That’s insane. Apple was a poor value when it was worth pennies before the iPhone. He placed a large wager and it turned out to have huge growth. The antithesis of a value stock.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Nonsense.

My husband bought Apple when it was worth pennies. People bet on quality stocks all the time, not just the high-price ones.

Just because a portion of the population (and DCUM) does not understand stocks and is not educated on specific sectors, doesn’t mean everyone is like this.

That’s insane. Apple was a poor value when it was worth pennies before the iPhone. He placed a large wager and it turned out to have huge growth. The antithesis of a value stock.

This exactly

[Anonymous]

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

Why is it good foool?

[Anonymous]

Anonymous wrote:Nonsense.

My husband bought Apple when it was worth pennies. People bet on quality stocks all the time, not just the high-price ones.

Just because a portion of the population (and DCUM) does not understand stocks and is not educated on specific sectors, doesn’t mean everyone is like this.

Why do idiots always post in the money forum

[Anonymous]

Anonymous wrote:

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

Why is it good foool?

Read it yourself. I'm certainly not going to summarize for someone like you.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Nonsense.

My husband bought Apple when it was worth pennies. People bet on quality stocks all the time, not just the high-price ones.

Just because a portion of the population (and DCUM) does not understand stocks and is not educated on specific sectors, doesn’t mean everyone is like this.

Why do idiots always post in the money forum

Look in the mirror and ask yourself.