Final answer:
The idea that a value fund seeks high-priced stocks believing they must be good investments is false; value funds seek undervalued stocks that have the potential for future profit. Speculation based on high prices can be risky, and diversification through mutual funds or index funds is a more prudent strategy.
Step-by-step explanation:
The statement that a value fund seeks to buy stocks that are at a very high price because the market thinks highly of them is false.
A value fund actually looks for stocks that are undervalued by the market, which means they are priced lower relative to their fundamentals such as earnings, sales, dividends, and cash flow. These funds aim to invest in companies that analysts believe currently have poor prospects but are poised for improvement and could potentially turn out to be profitable investments in the future.
Investing based solely on high stock prices can lead to speculation, as was seen in the late 1920s when stock prices were driven to dangerous levels not supported by company fundamentals. Therefore, predicting the shift in expectations that will cause a stock price to rise requires careful analysis and is fraught with risk. Most investors can benefit from diversification and investing in mutual funds or index funds that track a broad market.