ebook essays pieces of the puzzle
Tuesday, January 10th, 2012
three flavors of indexing

As the chart shows, the returns after 1999 on the equal-weighted S&P 500 have swamped those of the index itself, which is weighted by market capitalization.  The same goes for the fundamental index approach of Research Affiliates.

The wide gap in performance was generated in the first half of the period, as the air went out of big tech and other large cap stocks after they had gotten to truly crazy valuations.  However, since June 30, 2007 (on the eve of the financial crisis), the same order of results from above has occurred, but the gap has only been eight percentage points.  And recently the cap-weighted S&P has started to do better than the other two, especially when the market falters.

Persistent outperformance like this always alters behavior.  You can be sure that expectations and algorithms are tilted away from the standard S&P 500.  If it starts to outperform consistently, even in up markets (when it’s least expected), we may see a monumental reversal in results.  (Chart:  Bloomberg terminal.)

scam update

Last January I wrote about stock scams running amok, choosing the title based upon the “blogger-friendly ticker symbol AMOK” for the “stock” that was the subject of the posting.  It traded at $1.43 then and closed last night at a 52-week low of 2.9 cents.  It looks as if the website of the scam artist that perpetrated the fraud went down overnight; wouldn’t it be nice if it was for good.