Why don't value investors hold value stocks?

I tracked the buying activity of Warren Buffett, Bill Ackman, Terry Smith, Mohnish Pabrai, and Seth Klarman, to see how much their portfolios overlap with value indices. I thought overlap would be high as these are the most well-known names in value investing. However, the results suggest otherwise. Does this mean these icons have moved on from value or are indices missing the mark?

Admittedly, most would classify Ackman and Smith as more quality investors, looking for compounders rather than cigar butts. Regardless, I kept them in as a fun exercise. Afterall, both Smith and Ackman mostly follow the core tenet of value investing, buying companies for less or equal to than intrinsic worth.

Data and methodology

I sourced the last 5 years of holdings from 13F’s, filtering for buying activity only. Sells were not considered as they can due to non-valuation factors, like redemptions or rebalancing, whereas buys are the cleanest signal of an investor's conviction that a stock is undervalued. Buys were compared against the S&P 500 Value, S&P 500 Pure Value, and the Russell 1000 Value on a quarter-by-quarter basis.

For instance, if Berkshire bought seven names in Q3 2025, I checked to see if each one was in the index. I then tallied the data and calculated the percentage overlap. For Q3 2025, 71% (5/7) of Buffet’s buys were part of the S&P 500. However, only 29 (2/7) were part of the S&P 500 pure value index, and 43% (3/7) were part of the S&P 500 value index. 71% (5/7) buys were part of Russell 1000 value.

Results

The results for all investors for every quarter is below

The membership table tallies how many of the stocks bought by each investor in each period were part of theS&P 500. IE: Berkshire bought 7 stocks in Q3 2025. 2 of those names were in the S&P 500, so the tally is 2/7.

Average overlap for past 5 years

The data reveals a stark contrast between index and superinvestors.

The strictest benchmark, S&P 500 Pure Value, showed the least overlap. Buffett led the pack with a meager average overlap of 17%, while Ackman and Smith registered 0%. Surprisingly, I thought Buffet’s average overlap would be higher due to Berkshire’s size. Whereas Smith and Ackman’s results tie up with what I mentioned earlier, a stricter view on value is less aligned with their quality approach.

In contrast, S&P 500 Value showed much higher average overlap, with Smith (53%) and Buffett (52%) nearly tied for the lead. The result does make sense once you factor in the fact that the S&P 500 Value has growth and value stocks in its constituents. The growth names could be better aligned with the compounders that Smith favors. Pabrai remained the outlier at 11%, reflecting his preference for deep value opportunities the index largely ignores. Still, the stark constraint in average overlap between the Pure Value and Value index seems unexpected.

The Russell 1000 Value provided the highest overall overlap due to its broader universe. Buffet again led at 64%, while Pabrai’s low 13% suggests he’s looking where even broad benchmarks fail to reach. Given these investors manage billions and the Russell 1000 covers the majority of companies, the high overlap was more or less expected.

Limitations

Index rebalancing

A significant limitation is the timing mismatch between quarterly 13F filings and index rebalancing.

While 13F reports provide a snapshot of investor activity every three months, the Russell 1000 Value and S&P 500 Pure Value indices typically rebalance in June and December, respectively. This creates a data lag as superinvestors might buy a bargain in March, but that same stock may not be classified as value by the index until the following year.

To account for this lag, I recalculated the averages using 13F quarters that aligned with index rebalancing dates, Q2 for the S&P 500 (June EOM), and Q3 for the Russell (Dec EOM). Accounting for this improves the overlap for the Russell index slightly as it gives the benchmark time to catch up to the superinvestors. However, even with this adjustment, the Pure Value overlap remains noticeably low, suggesting that the disconnect is driven by something more than timing differences.

It’s important to note that my data is limited to the past five years. When we shift to an annual view to account for index rebalancing, the number of data points shrinks significantly and as such, results should be taken with a grain of salt.

The macro context

It is also worth noting the dataset covers a uniquely expensive era. In the post-pandemic world, U.S. equities significantly outperformed global markets, pushing many valuations to be richly priced. This explains the low overlap in S&P indices as many U.S. large caps became too expensive for value investors to touch. While bargains still existed, they were fewer compared to historical norms. To account for this bias, extending the sample size to include pre-pandemic data would provide a clearer picture of how investors behave in more normal conditions.

Index Definition

The difference in how Russell and S&P define value might have a small impact when comparing overlap. While both vendors create standardised growth/value scores for stocks, they differ in the metrics used to create them. S&P characterizes value based on Book-to-price, Earnings-to-price, and Sales-to-price ratios, while Russell’s only looks at book-to-price metrics.

The difference does mean this is not a true apples-to-apples comparison anymore. However, I don't see thing as a hinderance as the focus of this post in exporing the difference between value investors and value indices.

Conclusions

The data reveals a clear disconnect. Stocks that superinvestors buy rarely match stocks held in value indices. Could this mean these titans have abandoned value or are the indices capturing something other than value?

The answer is likely somewhere in between. I asked Gemini and it described this as the conflict between quantitative and qualitative value.

Quantitative value representing value stocks identified through systematic, ex-post looking formulas like low P/E or Price-to-Book ratios. It is a filter used by indices to find cheapness.
Qualitative Value is the name picked by superinvestor and is much harder to automate. If I had to summarise this, it is finding high quality businesses with strong moats and management that are trading at attractive prices.

One popular reason that I agree with for this divergence is due to intangibles. Traditional indices often dont have a way to formulaically quantify assets like brand equity, proprietary software, network effects, and R&D because they don't sit on a balance sheet as book value. Overlooking these has resulted in miscalculating a company's true worth. In my opinion, it looks like the indices are really characterising cheap companies and assuming this is the same as value. Whereas, superinvestors have spent years refining their ability to price intangibles, which might explain why they have had long periods of outperformance in the past.

What does this mean for the individual investor who is looking for exposure to value?

Going with traditional indices offers the undeniable advantage of broad diversification and low fees. However, the compromise seems significant. You are tethered to a mechanical, backward-looking definition of value and you might have to accept that your portfolio will likely include value traps.

Alternatively, following superinvestors allows for human judgment, which can identify intangible moats and brand power that a spreadsheet misses. The trade off is underperformance risk, as even the greatest investors endure periods of underperformance. Couple that with higher fees, and you get a recipe for underwhelming results.

Ultimately, it's up to the individual. As this post shows, if you want to invest like the greats, a standard value ETF won't get you there. They are no longer playing the same game.

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Kash Koww