Value Line Index

  

Categories: Index Funds

Let's start with the name "Value Line." It refers to a brand name, as well as a conceptual framework. Value Line (the company) is a financial research firm, first founded in 1931 by Arnold Bernhard. Its highest profile product is a newsletter called The Value Line Investment Survey.

Now onto "value line" as an idea. Bernhard conceived the idea of superimposing a line over price charts to normalize the value of different companies. The line was derived from a multiple of cash flow. It was meant to help better compare the value of various stocks.

The Value Line Composite Index provides a way to chart the stocks highlighted in the company's Value Line Investment Survey. The index takes those stocks (minus closed-end funds) and combines them into an index. The performance of the index can then be compared to overall market performance. It's basically a way to prove that the investment survey (and the whole "value line" concept) has merit.

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Finance: What's the Difference Between M...121 Views

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And finance allah shmoop what's the difference between mutual funds

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and index funds The answer this guy or well this

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team what do they do They manage the mutual fund

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mutually together You know what nemo They make bets on

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apple and amazon in crotchless tuxedo pants Dot com will

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these bets or into teligent investments In the parlance of

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the industry our elements oven actively managed fund The mutual

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fund is active in that it buys and sells hoping

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to be smarter than the market and find areas you

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know where they're inefficiencies where investors are throwing out the

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baby with the bath water so that they buy the

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shares here a twelve bucks and hope to sell them

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if they hit thirty bucks in two years when the

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new products get released and people are going absolutely bonkers

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for self velcro ing neckties or whatever and index generally

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stands pat on the hand It's dealt throughout the course

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of the year making only small tweaks to invested amount

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so that the fund itself conforms to the structure or

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rules it set out when it was created But there

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are a few vital and insidious differences that should make

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investors today very wary about investing in mutual funds or

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any actively managed fund When mutual funds first became popular

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the investing marketplace was kind of the wild wild west

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that was the nineteen fifties and sixties and a savvy

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fund manager could beat the market by five and even

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twenty percent per year year over year It was kind

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of a golden age of mutual funds and money flowed

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into them But like all good things this market wrinkle

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easy winds and the investing world had to come to

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an end Why competition when there were only a few

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mutual funds out there and a few private investors it

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was relatively easy to identify baby bathwater things you know

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diamonds in the rough Today there are literally thousands of

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mutual funds With such massive competition performance relative to the

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market has lagged dramatic In fact over a typical seven

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to ten year holding period only a very small handful

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of mutual funds beat the typical index fund investing in

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the same or analogous areas of stocks or bonds It's

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like one in twenty ever really beat the market and

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it gets worse Mutual funds charge relatively large fees compared

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With index funds whereas a typical index fund might charge

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twenty basis points to manage your money that is twenty

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cents for every hundred bucks you have with them for

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year The analogous mutual fund My charge One percent or

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more that's five times surprise for demonstrably no better investment

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results and wait It gets even worse Mutual funds trade

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stocks and bonds and other securities index funds rarely trade

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or if they do it's a very small amount of

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trading around the margin keeping index in compliance with its

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legal charter But many mutual funds have turn over the

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apple variety of like fifty eighty or even one hundred

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percent Turn over means that a fund has sold the

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stock to realize a taxable gain You know book a

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profit by taking cash from selling the stock or to

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realize a loss sometimes as well we'll each time of

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fund transact It pays a commission to our friendly excellent

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golf skilled brokers but more painful to most investors is

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that in transacting the fund realizes taxable game So what

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does that mean Well here's the math If your mutual

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fund is up twelve percent given year when the market's

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up ten percent it would be an absolute top of

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the pyramid performance here For the fun of beating the

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market by two hundred basis points would likely mean that

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mutual fund was in the top forty right up there

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with rina's latest it single So what is that awesome

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performance after tax for the mutual fund Well if the

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fund had traded like the typical one it would have

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had turnover of about sixty percent of its assets and

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half of those sales would get ordinary income tax treatment

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think high rates of something like forty percent with federal

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and state taxes combined for most and long term gain

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of twenty percent for the rest Well the wealthy pay

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higher taxes so we're rounding down the numbers here even

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being conservative So if half of the sixty percent or

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thirty percent of the gain of twelve percent which is

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around four percent his tax at forty percent then take

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away one point six percent from the performance to get

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an after tax net result number Then after another thirty

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percent tax at the long term gain rate of twenty

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percent you'd have take away another point six percent so

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in total you'd have to subtract one point six plus

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point six or two point two percent from the twelve

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percent humongous rock star year to net nine point eight

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percent in after tax returns Nope not very exciting relative

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to that index fund And yes there are differences here

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even important ones But the bottom line is that if

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a huge performance top two percent fun has results Not

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much better and or maybe worse than just a basic

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index funds Why does anyone invest in mutual funds anymore 00:04:49.487 --> [endTime] Well this guy

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