With Indexing, Being Dumb Can Be Smart
It may not be wise to seek the single "best" approach.
Splitting the Difference
In the early 1990s, Morningstar created the Morningstar Style Box to describe U.S. equity funds. The style box sorted stocks by two dimensions: by size, from large to small, and by cost, from growth to value. (In this column, I reword what typically is called "style" as "cost" because that is ultimately what distinguishes growth from value stocks, the cost of the stock.) Measuring size was straightforward. Determining the cost axis was a bit trickier. Some value managers sought cheap earnings, while others hunted for bargain assets. Cost, it seemed, could be defined by either price/earnings or price/book ratios.