 Good day, fellow investors. Today we'll discuss how index investing is good, but I firmly believe that you can do much, much, much, much better. So we'll summarize Jack Bogle's view on index investing, his main points that I mostly agree with and then I'll show you some research by Professor Fernandez from the IESE business school that contains simple investing strategies that have outperformed the SAP 500 by far over the last two decades. The outperformance is exactly where my criticism towards index investing, mindless index investment lies. And therefore, if you're a rational investor, especially now, it's not that difficult to beat the market. Further, I'll show you the 30 lowest PE ratio and price to book ratio stocks of the SAP 500 where you can dig in for better business returns, because that's exactly what Bogle says. What will determine your returns is the business. So if you invest in the SAP 500, you will invest in corporate America, but you can invest at a 4% earnings yield at a 25% price earnings ratio, or you can invest at 10% earnings yield with a price earnings ratio of 10. So it's up to you to see what will be the best return over time. Index investing invests always in the hot stocks, which are usually expensive. But let's start with Jack Bogle's. So in a recent interview with Maria Bartolomeo from Fox Business, the link is in the description below. Jack Bogle discusses how everything has changed since he started Vanguard in 1974. The mutual fund industry is different and 70% of the cash flows goes to index funds, which didn't even exist back then. But what I totally agree with Bogle is that people focus on costs and that's a good thing. The lower are the fees, the less you pay intermediaries like the financial institutions, the more money is left for you. I already said that I completely agree with Bogle that the business generates your investment returns. And I also agree with him that ETFs are really not good, because those are made for trading. And when investing in index funds, you want to be a long term dollar cost averaging reinvesting dividends investor. That's it. ETFs have higher fees that lead you to trade. And that's something where you pay a lot of fees to your broker and to those who invent those crazy ETFs that have no really meaning, but try to get some more money out of you if they are so cool where they can charge a higher fee. So I agree on all those points. But in the interview, if you have watched it, then you will see that one criticism towards index funds is improper capital allocation, because those are market capitalization weighted. So the bigger the stock is, the more of the index funds will be invested in that. Jack Bogle says that there is no cost to that and there is no such thing as improper capital allocation, because they invest as the market is. However, I think and statistically, we will see Professor Fernandez research shows that that is completely wrong and that unweighted investing beats, destroys weighted investing. So that's something where Bogle is wrong. And that's something where you can easily outperform over the long term. Let's see. So when you invest in the SAP 500 now, 4.11% of your money goes into Apple, because it's the largest market cap stock. And only 0.51% goes into Walmart. So what you're doing, you're buying more of the cool stock and less of the undervalued stocks. And such an investing distribution makes the stocks of the larger companies even more expensive, because more money runs after those shares. So this is not proper capital allocation, because it looks only at market cap that's even distorted by the purchases of the ETF. So it doesn't look at valuations, it doesn't look at price to book values, it doesn't look at anything, it's mindless investing. And the market has already distorted, thanks to index fund, and that won't end well. Jack Bogle is 90, so he doesn't care over the long term. And he has been lucky, because he has had constantly declining interest rates since Vanguard got traction. That's something he doesn't mention, but he knows it. So how can an investor outperform? Fernandez presents eight portfolios that investing 100 in January 2000 became on average 45,000 in April 2018. 100 investment in the SAP 500 in January became $256. So those are huge differences. What we have to do to outperform is simply being rational. Be diversified, small stocks and value stocks have outperformed over history in history. Unweighted indexes have outperformed weighted indexes. Further, rational investors evaluate the managerial and ethical behavior of the companies in which they invest, and rational investors avoid investing inexpensive according to their judgment companies. So let's look at this table, annualized return for the SAP 500 is 5.2%. Yes, 5.2, not 10, not 7, 5.2 since 2000. SAP 100, the bigger companies is 4.2, SAP 409.7, a little bit high for the mid cap and 10.1 for the small cap. So the smaller you go, the smaller stocks you buy, the higher is your return. And that has been so over history. Now, if we look at smaller companies that we already see outperforming even in weighted index, but go to unweighted returns, we can see that smallest 20 companies of the SAP 1500 have had annualized returns of 47%, smallest 40%, 45%, 40% the smallest 80%. The biggest 20 companies, these are portfolio rebalanced every year that include their respective stocks, has had only 3.6%. So if you buy the biggest, you have the lowest returns. Now, this does not mean this will happen again, but this is just an example of for food forethought of how, yes, you can destroy the SAP 500 if you don't do what everybody else is doing. And what everybody else has been doing over the past 18, 20 years, is investing blindly in index funds. And they got 5% because they were lucky. Further, in the next 10, 20 years, they could be happy with zero. They won't be happy with negative, but I tell you, they will be, should be happy with zero. So if you want to do things differently, you have to use common sense, you have to be rational, and you have to find better ways, better business returns than what the biggest stock on the market offer, which is what index investing is. So the point is that the SAP 500 is expensive, the price earnings ratio is 24, but there are many stocks that have lower price to earnings ratios. Look at the lowest 25 valuation stocks of the SAP 500. It starts with micron five, then it goes to what? Alliance data systems 9.6. But those are 30 stocks that have price earnings ratio below 10. You might find there a few five, if you go to micro, if you go to small cap, if you go to mid cap, you will find even more of those. And you can have a portfolio of 20, 40 stocks with price earnings ratio below 10, that will give you a long term return of above 10% at the same risk of the SAP 500. Further, also price to book, price to book value. There are stocks that have price to book values below one, which is much, much better than the above three the SAP 500 offers. So if you look, you can find the well diversified 20, 30 stock, good stocks, good American corporations, businesses that will give you above 10% returns in the long term. You just have to look for them. And those will do better than the extremely expensive SAP 500 stocks. If you want to know more about how to find those stocks, how to analyze where to find, if you want to hear more about analysis of such stocks, please subscribe to this channel or check my research platform, where there are already some very interesting high return lower risk stocks. Thank you for watching, looking forward to comments and I'll see you in the next video.