The reality is that the index is buying the stock because it views it as a good value
That's not how all indexes work. The FTSE100, for example, is simply the 100 largest companies on the LSE by market cap[0].
And many indexes (DFA being an exception that I'm aware of[1]) weight companies by their market cap, so the rebalancing trades made by index funds aren't based on value so much as an algorithm.
That's not how all indexes work. The FTSE100, for example, is simply the 100 largest companies on the LSE by market cap[0].
And many indexes (DFA being an exception that I'm aware of[1]) weight companies by their market cap, so the rebalancing trades made by index funds aren't based on value so much as an algorithm.
0 - https://en.wikipedia.org/wiki/FTSE_100_Index
1 - http://assetbuilder.com/investing/dfa_vs_vanguard