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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: petal who wrote (65088)	10/5/2020 7:34:29 PM
From: Jurgis Bekepuris	3 Recommendations Recommended By Area51 Paul Senior petal Respond to of 78791

But if you truly understand the fundamental and psychological reasons as to why VI works, and will continue to work over long periods of time, I don't see why one should put their money in indexes rather than do the improvements and modifications oneself. I mean, just the fact that the indexes overweight the popular (i.e. overpriced) stocks and underweights the unpopular (which is of course, according to (almost) all of value theory, the opposite of what one should do). Also, just sell when the market is high (like now) and buy when the market is low (i.e. under p/e 15). Buy Graham-stocks, buy Buffett-companies, or any other disciple; there are so many different ways of doing it, so many strategies. I just cannot believe that the average should do better than that, even with only those basic adjustments made. As long as one doesn't get too carried along, and get too attached to the 'game aspect' of it all, it's really shouldn't be more complicated than that. I can't see how. I get that all this must sound naïve, but I really don't see the logical, rational reasons as to why an index should be "unbeatable". Sure, for the general public who know absolutely nothing about stocks; but remember, your average professional isn't too knowledgable either, in my experience. If you'd like, please explain to me the reasons why even the astute investor wouldn't be able – I would be thankful. (B/c I have never heard a good in-depth argument, but then again, have never discussed it with someone on the VI thread either...) I'd rather not spend too much time on this. My goal is not really to push EMT or indexing. My observation is empirical. I've been in the market ~25 years (shorter than Paul ;)). I've seen numerous great investors underperform long term. Investors who I thought were smart, who did great in-depth research (IMO), who had (mostly) permanent capital (this is sometimes hard to ascertain). Not just mutual fund managers, but hedge fund managers, small hedge fund managers. People who IMO are way better than me and possibly way better than you. (It's possible that you gonna become better than them, so don't take this as insult ;)). Even people who outperformed for some time ultimately regressed to average or below average returns. So it's empirical. IMO Buffett is possibly the only person who has outperformed (very) long term, but even he is lagging recently (though mostly because of the size). OTOH, I think there is one or two people on this thread who have outperformed long term, so there are counterexamples. ;) Very few IMO though. That's where my suggested 99%+ comes from. ;) I think you are putting too much weight on your mental model of "value investing". E.g. I disagree that indexes are overweight overpriced stocks. As I have said before FAANMG have been arguably cheap for the last ten years - some even longer. And a lot of so-called value stocks - possibly with very in-depth theses and DD - have underperformed or even gone BK and looking back have been valued correctly by market. Yes, there are (large) fluctuations. But it is not that easy to exploit those and outperform. You say that you "cannot believe that the average should do better than that, even with only those basic adjustments made". The fact is that empirical evidence contradicts your beliefs. Most people with these basic adjustments underperform. I cannot give a full in-depth explanation why, but that's what I see. Good luck.