Semantron 23 Summer 2023

Value investing versus the efficient market hypothesis

This shows that passive investments, such as index funds, are clearly superior to active ones. At first glance, the goal of active fund managers is to maximize the profit for investors. However, these funds impose management fees as a percentage of the value of overall assets, ranging from 0.5% to 1.5%. 18 Hence, there is always a conflict of interest between the fund manager and his investors. When his fund earns a guaranteed commission from assets under management without risk, he is encouraged to focus on attracting more funds rather than efficiently allocating the resources. Thus, despite the unsatisfactory long-term

City of London Investment Trust [LSE: CTY] vs FTSE 100 [LSE: ISF],

performance, a hedge fund with a great marketing team will be in good shape since it will earn more commissions from new money attracted. Second, there are examples of successful active funds that use value investing and outperform the market in the long term, like the City of London Investment Trust, which is focused on investing in UK equities. 19

One of the most famous investors in the world, who follows value investing principles, Warren Buffett, manages to beat the market for decades through his Berkshire Hathaway holding company. Therefore, value investing can be profitable and beat the market over time. This demonstrates that both sides of the market efficiency debate may be challenged in favour of value investing. Nonetheless, I believe it would be helpful to compare EMH versus value investing in terms of respective advantages and disadvantages for retail investors.

Berkshire Hathaway Inc. [NYSE: BRK.A] vs S&P 500 [NYSE: SPY],

Beginning with the limitations of value investing, estimating a company's intrinsic value is subjective because it is a mix of financial data and views of the company's future growth potential. Furthermore, the market may disagree with your evaluation for a very long time, causing you to hold a position indefinitely. Second, value investing is an active approach that requires a lot of time and research. Also, it demands having positions contrary to the masses in unpopular 18 Vaughn, H. Mutual Funds Have Fees, But Some Are More Costly Than Others. Here’s How to Find the Right Low -Fee Fund for You. 19 Janus Henderson Investors. The City of London Investment Trust plc. gb/investor/product/the-city-of-london-investment-trust-plc/.


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