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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club
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To: Justa Werkenstiff who wrote (8663)9/19/1999 8:23:00 AM
From: w0z  Read Replies (3) of 15132
 
This discussion brings up an interesting thought that has been in my mind the past year or so and I would like to share it for others' comments.

Starting somewhere in the early 90's, index fund investing became the rage (rightfully so since most of the actively managed funds could not beat the index). As more investors began using these funds, the big-cap stocks in them were bid up to incredible levels considering their real growth opportunities. The most striking example of this was KO which is still at 42X trailing earnings after correcting about 35 %over the past year or so! IBM and HWP are both at 31X trailing earnings which is very high considering their growth prospects.

Could it be that the growth in index fund investing artificially bid up many of the big cap stocks to the point that the "indices" are overvalued relative to their real growth potential? Could it be that actively managed funds are beginning to beat the index funds because of this? Are the index funds or their component stocks still a wise place to be?

There is still plenty of value to be found in this market but IMHO it is not in the large caps that make up many index funds! Instead it is to be found in many of the mid and small cap stocks that have been largely ignored this decade. Maybe their time is coming now that many are recognizing that the component stocks of index funds are in their own bear market. Thoughts?
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