How Well Do Stock Prices Reflect Intrinsic Values?

Abstract

A legendary fund manager champions the importance of low-cost, diversified portfolios, with dividend yields and earnings growth as the key sources of long-term investment returns. The ownership of mutual fund management companies by financial conglomerates creates an agency conflict that does not serve the interests of shareholders. The growing proliferation of investment “products” is one example of the incentives that drive fund managers to increase assets under management, revenues, and profits as well as to keep management fees and fund expenses at the highest possible levels.