In Light of Boom in Index ETFs

[Hershey]

The correct strategy going forward to beat the indexes must be:

 

Go small, small to avoid indexes;

Buy somewhat diversified of mid range caps at valuations less than the index; and/or

Be very concentrated in mega large cap stocks at valuations less than the index.

 

Due to the huge rise in ETFs, the implosion one day of the top market caps in the ETFs and therefore, the ETFs themselves will be severe.  Riding it on the way up is always nice, but as valuations and market cap concentrations increase, the support (not in a technical sense) is flimsy.

 

Thoughts?  Thanks,

 

 

[no_free_lunch]

I agree with looking at items too small for indices.  It is a lot of work to build a portfolio out of those but if you have the time, definitely.  Not sure that the next two points will work full cycle but you could avoid an implosion if the market overheats in a small group of stocks. 

[LC]

My strategy is more of the latter two points. My caveat is that in addition to the relative undervaluation, you also want there to be some absolute value that gives additional margin of safety. So in my case, look at all the relatively undervalued mid-large caps and pick the ones u think have the best long term earnings and pricing power