Long story short, I repeatedly heard the notion that Index Funds have crossed the bubble territory based on the continuous Inflow of funds without a valid price finding mechanism behind it.
I‘m an avid Warren Buffet fan who repeatedly praised investment in the broad market as a fairly good strategy for most Investors.
However, adjusted P/E ratios are pushing up against 40 and taking Michael Burry‘s stance on Index Funds into consideration, we might really have completely detached from a reliable price finding mechanism by just blindly pouring money into those indexed companies…
However, there must be a way to find out right?
A companies valuation should represent the net present value of its future cash flows…
If we would determine the NPV of all companies within a specific index (DJ, or DAX maybe) and compare it to the current market valuation of the Index as a whole, we could easily determine on whether we‘re detached from it‘s true value, right?
Or am I mistaken here?
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