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Value investing is “an investment paradigm that involves investing in stocks that are overlooked by the market and are being traded below their true worth”. Co

Value investing is “an investment paradigm that involves investing in stocks that are overlooked by the market and are being traded below their true worth”. Correct me if wrong, but I don’t think index funds come under that paradigm.

sokoloff 3y ago
It depends on how the index is constructed. A market cap index cannot be value investing. A market sector index is almost surely not value investing (unless that entire sector is undervalued). An index constructed specifically using value measures as the criteria for inclusion can be (at least arguably so). Click on "value indexes" here: https://www.crsp.org/indexes/ https://www.crsp.org/indexes/ to see some underlying value indexes, and funds like this one track the Large Cap version of it: https://fundresearch.fidelity.com/mutual-funds/summary/922908678 https://fundresearch.fidelity.com/mutual-funds/summary/92290... (perhaps not surprising, the fund's largest holding is Berkshire B shares)
- westurner 3y ago
  XBRL filings have the information needed to screen with value investing criteria. GFinance's old stock screener's UI was great. https://github.com/openlink/Virtuoso-RDFIzer-Mapper-Scripts/blob/master/ontologies/xbrl/xbrl.owl https://github.com/openlink/Virtuoso-RDFIzer-Mapper-Scripts/... /? query XBRL https://www.google.com/search?q=query+xbrl https://www.google.com/search?q=query+xbrl https://github.com/topics/xbrl https://github.com/topics/xbrl But then also a fund or an index fund or an Index ETF wouldn't be complete without ethical review for the sustainable competitive advantage given e.g. GRI+#GlobalGoal sustainability reports. When you own enough of a company to bring in a new team.
  - westurner 3y ago
    - [ ] ENH: pandas_datareader: add XBRL support from one or more APIs https://pandas-datareader.readthedocs.io/en/latest/remote_data.html https://pandas-datareader.readthedocs.io/en/latest/remote_da...
nradov 3y ago
I think the larger point is that public capital markets have become steadily more efficient. There are no "value stocks" anymore because nothing is overlooked by the market, those old opportunities have been arbitraged away. Modern computing systems have made it practical to look at every stock every day, so all stocks now trade at their "true worth" because all publicly available information gets instantly priced in. Now pretty much the only way for investors to (legally) beat the market is to do proprietary research in ways that others can't easily copy. You need information that no one else has.
- spfzero 3y ago
  As a counter-argument, you usually need to read a lot into the reported numbers, for example read the 10K notes for multiple years in the past. That's the only way to know that the 3B in assets showing up on the balance sheet for "goodwill", to use one easy example, are not really worth 3B. There are many more-nuanced factors that work alike. The reported numbers are what the accountants think might fly under GAAP, and the accountants work for the CEO, who has a say in the accounting "intent". To test whether markets are perfectly efficient, just look for large movements over time. If a stock goes up 20% in a year, the market might have undervalued it last year, or is overvaluing it this year. It's unlikely the it was correctly valuing it at both times. In the absence of a Covid-19 pandemic, act of god, etc. of course. You could say that the market just takes "investor sentiment" into account, and is therefore still efficient. But value investing is a strategy that looks for misplaced investor sentiment and exploits it. If that's the way you define an efficient market, than I'd say an efficient market is no obstacle to a value investor.
  - vlovich123 3y ago
    > If a stock goes up 20% in a year, the market might have undervalued it last year, or is overvaluing it this year. It's unlikely the it was correctly valuing it at both times. In the absence of a Covid-19 pandemic, act of god, etc. of course. Or the company has grown its revenue by 20% in 1 year which isn't necessarily unheard of. Or they significantly beat the expectations of analysts / their own guidance. In all of those cases the stock could have been correctly valued & still experienced growth.
corethree 3y ago
This doesn't happen any more. Back then you could find companies with a cap that was LESS than the money they had in the bank. Those were no brainer deals. This strategy was actually pioneered by buffets mentor Benjamín graham. By just blindly following a formula you would do value investing by calculating NAV vs market cap. Buffet took it one step further. He calculates another type of value called intrinsic value and that relies on other factors rather not just the ratio of assets to cap. Part of it relies on consistency of revenue, growth and qualitative aspects of the business as well.
- eru 3y ago
  > This doesn't happen any more. Back then you could find companies with a cap that was LESS than the money they had in the bank. Those were no brainer deals. For a while, Yahoo was famously worth less than its stake in Alibaba. But it was also not clear whether shareholders could get management out of the way to stop destroying value.
- ac29 3y ago
  > This doesn't happen any more. Back then you could find companies with a cap that was LESS than the money they had in the bank. Those were no brainer deals. Plenty of companies trade at a discount to book value. I found over a thousand with a stock screener.

sokoloff 3y ago

It depends on how the index is constructed. A market cap index cannot be value investing. A market sector index is almost surely not value investing (unless that entire sector is undervalued). An index constructed specifically using value measures as the criteria for inclusion can be (at least arguably so). Click on "value indexes" here: https://www.crsp.org/indexes/ https://www.crsp.org/indexes/ to see some underlying value indexes, and funds like this one track the Large Cap version of it: https://fundresearch.fidelity.com/mutual-funds/summary/922908678 https://fundresearch.fidelity.com/mutual-funds/summary/92290... (perhaps not surprising, the fund's largest holding is Berkshire B shares)

westurner 3y ago
XBRL filings have the information needed to screen with value investing criteria. GFinance's old stock screener's UI was great. https://github.com/openlink/Virtuoso-RDFIzer-Mapper-Scripts/blob/master/ontologies/xbrl/xbrl.owl https://github.com/openlink/Virtuoso-RDFIzer-Mapper-Scripts/... /? query XBRL https://www.google.com/search?q=query+xbrl https://www.google.com/search?q=query+xbrl https://github.com/topics/xbrl https://github.com/topics/xbrl But then also a fund or an index fund or an Index ETF wouldn't be complete without ethical review for the sustainable competitive advantage given e.g. GRI+#GlobalGoal sustainability reports. When you own enough of a company to bring in a new team.
- westurner 3y ago
  - [ ] ENH: pandas_datareader: add XBRL support from one or more APIs https://pandas-datareader.readthedocs.io/en/latest/remote_data.html https://pandas-datareader.readthedocs.io/en/latest/remote_da...

nradov 3y ago

I think the larger point is that public capital markets have become steadily more efficient. There are no "value stocks" anymore because nothing is overlooked by the market, those old opportunities have been arbitraged away. Modern computing systems have made it practical to look at every stock every day, so all stocks now trade at their "true worth" because all publicly available information gets instantly priced in. Now pretty much the only way for investors to (legally) beat the market is to do proprietary research in ways that others can't easily copy. You need information that no one else has.

spfzero 3y ago
As a counter-argument, you usually need to read a lot into the reported numbers, for example read the 10K notes for multiple years in the past. That's the only way to know that the 3B in assets showing up on the balance sheet for "goodwill", to use one easy example, are not really worth 3B. There are many more-nuanced factors that work alike. The reported numbers are what the accountants think might fly under GAAP, and the accountants work for the CEO, who has a say in the accounting "intent". To test whether markets are perfectly efficient, just look for large movements over time. If a stock goes up 20% in a year, the market might have undervalued it last year, or is overvaluing it this year. It's unlikely the it was correctly valuing it at both times. In the absence of a Covid-19 pandemic, act of god, etc. of course. You could say that the market just takes "investor sentiment" into account, and is therefore still efficient. But value investing is a strategy that looks for misplaced investor sentiment and exploits it. If that's the way you define an efficient market, than I'd say an efficient market is no obstacle to a value investor.
- vlovich123 3y ago
  > If a stock goes up 20% in a year, the market might have undervalued it last year, or is overvaluing it this year. It's unlikely the it was correctly valuing it at both times. In the absence of a Covid-19 pandemic, act of god, etc. of course. Or the company has grown its revenue by 20% in 1 year which isn't necessarily unheard of. Or they significantly beat the expectations of analysts / their own guidance. In all of those cases the stock could have been correctly valued & still experienced growth.

corethree 3y ago

This doesn't happen any more. Back then you could find companies with a cap that was LESS than the money they had in the bank. Those were no brainer deals. This strategy was actually pioneered by buffets mentor Benjamín graham. By just blindly following a formula you would do value investing by calculating NAV vs market cap. Buffet took it one step further. He calculates another type of value called intrinsic value and that relies on other factors rather not just the ratio of assets to cap. Part of it relies on consistency of revenue, growth and qualitative aspects of the business as well.

eru 3y ago
> This doesn't happen any more. Back then you could find companies with a cap that was LESS than the money they had in the bank. Those were no brainer deals. For a while, Yahoo was famously worth less than its stake in Alibaba. But it was also not clear whether shareholders could get management out of the way to stop destroying value.
ac29 3y ago
> This doesn't happen any more. Back then you could find companies with a cap that was LESS than the money they had in the bank. Those were no brainer deals. Plenty of companies trade at a discount to book value. I found over a thousand with a stock screener.