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I have no knowledge in this field whatsoever, but is this more an indication that we shouldn't be using the S&P 500 and similar indices as an overall indicator

I have no knowledge in this field whatsoever, but is this more an indication that we shouldn't be using the S&P 500 and similar indices as an overall indicator of the performance of the economy, is there value in looking at these indices absent of Big Tech?

andrewmcwatters 6y ago
There is an S&P 500 Equal Weight Index, but it makes essentially no difference.
- Tsiklon 6y ago
  Equal Weight index from what I've just read about it apparently treats each company in the index equally - as in 1/500th of the total index's value. What I was more thinking of is that the S&P 500 is top heavy with Big Tech stocks, is it better to look an index absent of the Big Tech stocks?
  - andrewmcwatters 6y ago
    No.
  - llampx 6y ago
    An index absent of the big tech stocks would be the Russell 2000 or IWM.
smabie 6y ago
correlation between all stocks in the S&P 500 is so high that removing big tech makes little difference. Also, a major part of the problem in my view is the blind indexing of equities that most investors use for the bulk of their portfolio. Market cap weighting essentially results in what essentially a momentum overlay: new money is allocated disproportionately to the stocks with the highest market cap, resulting in those stocks going up even more.
- ac29 6y ago
  > Market cap weighting essentially results in what essentially a momentum overlay: new money is allocated disproportionately to the stocks with the highest market cap, resulting in those stocks going up even more New money is allocated exactly proportionally to a stock's market cap in a cap-weighted index fund, by definition. New money into such funds can't disproportionally increase the price of one stock in the index versus another.
  - smabie 6y ago
    Sorry, I phrased that incorrectly/poorly. What I meant to say is that market cap weighting allocates more money to stocks that have a higher market cap (and the stocks got that way by going up in the past), pushing up the price even more. This wouldn't be true if all shares of a company were all trading at the same time, but that's not the case. The number of available shares is more constrained than the total free floating market cap would suggest.

andrewmcwatters 6y ago

There is an S&P 500 Equal Weight Index, but it makes essentially no difference.

Tsiklon 6y ago
Equal Weight index from what I've just read about it apparently treats each company in the index equally - as in 1/500th of the total index's value. What I was more thinking of is that the S&P 500 is top heavy with Big Tech stocks, is it better to look an index absent of the Big Tech stocks?
- andrewmcwatters 6y ago
  No.
- llampx 6y ago
  An index absent of the big tech stocks would be the Russell 2000 or IWM.

smabie 6y ago

correlation between all stocks in the S&P 500 is so high that removing big tech makes little difference. Also, a major part of the problem in my view is the blind indexing of equities that most investors use for the bulk of their portfolio. Market cap weighting essentially results in what essentially a momentum overlay: new money is allocated disproportionately to the stocks with the highest market cap, resulting in those stocks going up even more.

ac29 6y ago
> Market cap weighting essentially results in what essentially a momentum overlay: new money is allocated disproportionately to the stocks with the highest market cap, resulting in those stocks going up even more New money is allocated exactly proportionally to a stock's market cap in a cap-weighted index fund, by definition. New money into such funds can't disproportionally increase the price of one stock in the index versus another.
- smabie 6y ago
  Sorry, I phrased that incorrectly/poorly. What I meant to say is that market cap weighting allocates more money to stocks that have a higher market cap (and the stocks got that way by going up in the past), pushing up the price even more. This wouldn't be true if all shares of a company were all trading at the same time, but that's not the case. The number of available shares is more constrained than the total free floating market cap would suggest.