David Einhorn: The Shift in Value Investing: Fewer Players, More Opportunities

In this interview with CNBC, David Einhorn says that the traditional value investing industry, where professionals managed funds and searched for undervalued stocks, has shrunk due to the shift to indexing. This means there’s less competition for value investors today, who can find more undervalued securities. Value investing itself remains the same: buying things for less than they’re worth. Because fewer people are actively looking for these undervalued investments, there are more opportunities for those who do. Here’s an excerpt from the interview:

Einhorn: The value investing industry and value investing are two completely different things.

The value investing industry are my former peers that were paid money to manage money for other people that spent their time researching stocks and trying to identify undervalued companies to buy.

Many of them operated in long-only institutions like mutual funds and stuff like that.

And they used to be paid a lot of money to identify these stocks. Well with the shift to indexing were trillions of dollars has been redeemed out of those strategies, those people have lost their jobs and they’ve lost their assets under management.

So there’s a lot fewer people right now looking to try to buy undervalued companies. So for the few of us that are still doing it, it’s kind of a unique time. It is a much better situation than it was when there was all of this competition before.

That being said, you have to recognize how the environment has changed, how markets are functioning, and what it means to be a value investor.

Value investing, this is the idea of buying things for less than they are worth. And right now because there’s so little money that’s actually pursuing strategies of trying to determine what things are worth , and buying them for less than they are worth, there’s many securities that are radically mis-valued and undervalued.

And you’re able to identify just a few securities per year.

You can watch the entire interview here: