Subject: Re: OT: Einhorn on value investing
He is not the first to observe that the Bogle-ization of stock market investing -- the massive shift from active, high-fee mutual funds to passive, low-fee index funds and ETFs -- has reduced the number of active managers and the idea generators who worked for them.
He's now arguing that the number of active, professional value investors has been reduced so dramatically that it is once again a fertile area for industrious value investors. It was either in his talk or subsequent interview on CNBC that he suggested "this must be what Warren Buffett felt like in the '50s."

Another, less cheery, view of this development might go like this:

The reason value investing was a good way to make a buck is that if you bought something well below its t rue value, you could be pretty darned sure it would be trading at a fair valuation level some time in the next few years. Usually 3-4, sometimes 5-6, let's say 7 at the very outside. Given the ongoing (though perhaps modest) ongoing growth in intrinsic value during this interval, the growth plus the mean reversion would lead to good annualized rate of return with very low risk.

But...with fewer and fewer investors even considering the intrinsic value of where they are putting their money (indexers, closet indexers, and fad chasers), the typical time frame for the weighing machine to kick in might well be twice as long as it used to be, or longer. The annualized rate of return from value investing, even if done prudently and successfully, may therefore no longer be very interesting on average.

So he may be right that the value orientation target set is pretty big these days, but it might not do much good for those who pursue it.

Jim