4 ms·
If every investor was buying only index funds, all it takes is one investor to find one stock that has great fundamentals and is undervalued relative to its per
by bern4444 4y ago
If every investor was buying only index funds, all it takes is one investor to find one stock that has great fundamentals and is undervalued relative to its performance.
They will beat out the other investors on this one pick.
Once someone starts winning and getting a better return the money flocks to them and away from the index funds. That then causes index funds to rebalance, which causes those investors looking for a better return to find other stocks, rinse and repeat.
It will never be the case that everyone is investing only in index funds. It would be so easy to beat out everyone else in that scenario.
- red-iron-pine 4y agoTo this point, a fund, esp. a big one, isn't even trying to find that value -- they're looking to benchmark and spread money, not pan for gold. So in a lot of cases they'll miss out on those hidden gems. And, again, they're not in the hidden gem business, they're in the min-risk, capture broad gains business.
- bern4444 4y agoYes! Forgot about this part. Lots of funds are focused on capital preservation - if the market is down 20% in a year, a funds goal will be to be even (0%) or maybe down slightly like 3-4%. They may be less focused of being up 20% when the market is up 10% and instead may only be up 8%.