Parag Parikh - Value investor & the problems of Indexing

Parag Parikh is a value investor that I have a huge amount of respect for. I have mentioned him before in this blog and sure as eggs is eggs I will mention him again. Here is a video that was posted recently that features Mr Parikh talking about indexing and the folly that he sees in indexing. As an Indian investor Mr Parikh invests in the Indian stock market and so the examples that he draws on are different from other markets.

The particular thing that I have been thinking about having watched his video is that an index reflects price rather than value. The price of an index will change as bubbles occur. As Terry Smith points out that in buying and index you inevitably buy shares in companies that you would not normally buy. Similarly if you are invested in an index like say the FTSE100 or the S&P500 really good companies drop out of the index - they can be pushed out by what Parag Parikh calls "fancies" that people pay "fancy prices" - if you buy such an index inevatably, in such a situation, you will buy these companies as well as sell companies that are really good and will give you excellent earnings over the long term.

This is an insightfull presentation by Mr Parikh my only criticism is the quality of the sound which in contrast to the presentation is a little poor.