For most people, value investing makes a lot of sense. Find a business worth a dollar and buy it for 50 cents. Easy enough. And yet, many people (even self-professed long-term investors) find it extremely challenging to implement this in practice. Investors routinely enter the market at high points, only to exit collectively at the low points.
This isn’t for a lack of trying or expertise. Institutional behaviour is equally complicit in promoting this herd like mentality. There is no doubt in my mind that individuals armed with CFAs and MBAs working at investment management firms or brokerages are overwhelmingly hardworking and intelligent. And yet, the results of mutual funds, and even hedge funds have been overwhelmingly negative. Academic evidence has shown convincingly that investors would be far better of investing in low cost index funds.
But why is this so?
