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. . . index funds . . . Just tangenting off of that: Since many indexes are weighted by price, I find myself wondering if index fund investing has an element

. . . index funds . . . Just tangenting off of that: Since many indexes are weighted by price, I find myself wondering if index fund investing has an element of "buy high, sell low" to it. For example, right now Apple alone represents a huge percentage of the S&P 500,* and at the beginning of September 2008 it was weighted heavily toward a number of financial firms who were soon to be making a lot of appearances in newspaper headlines. Back to the price talk, though, what's striking to me is that even though its price has been skyrocketing, AAPL's P/E is still comfortably lower than GOOG or YHOO. * (And that alone should argue for thinking twice before buying Apple stock if you already have any money in an S&P 500 index fund. I have more money in Apple than any other company, and I've never personally purchased a single share of their stock.)

MikeCapone 15y ago
You are correct, that's why people like Joel Greenblatt want to create equally weighted indexes.
pnathan 15y ago
That's a big reason I've steered clear of "top ten" funds lately... I just don't want that much AAPL in my portfolio. Especially the 1Q AAPL curve: very bubble-y. I'd be much more prone to buy if it was a steadier growth curve instead of an exponent.
- nirvana 15y ago
  Take a look at the Apple weekly chart going back to 2004. ITs really impressive. There's some pain in the 2008 era, and its clear the angle shifted in 2009 (when people accepted the iPhone was a success).... and then it went completely vertical this quarter. By that weekly chart, I think a good price for Apple would be $420. I'd be much happier if it had gone up to $450 on earnings (like it did, those were fantastic earnings) and then settled down somewhere in $400-$450.
bcressey 15y ago
Since many indexes are weighted by price, I find myself wondering if index fund investing has an element of "buy high, sell low" to it. Only if you buy shares of the fund when they are high, and sell when they are low. An index fund that buys a set of stocks in proportion to market price at one point in time will automatically capture the relative gains and losses within that set. If Apple's share price doubles, then the market value of its shares that the fund owns will also double, and it will occupy a relatively greater percentage of the fund's portfolio. Companies with a flat or declining share price will account for a relatively lesser percentage over time. Some buying and selling needs to happen, to accommodate new investors and to handle turnover within the target index, but the point of passive index funds is that you don't need trades to capture market performance.

MikeCapone 15y ago

You are correct, that's why people like Joel Greenblatt want to create equally weighted indexes.

pnathan 15y ago

That's a big reason I've steered clear of "top ten" funds lately... I just don't want that much AAPL in my portfolio. Especially the 1Q AAPL curve: very bubble-y. I'd be much more prone to buy if it was a steadier growth curve instead of an exponent.

nirvana 15y ago
Take a look at the Apple weekly chart going back to 2004. ITs really impressive. There's some pain in the 2008 era, and its clear the angle shifted in 2009 (when people accepted the iPhone was a success).... and then it went completely vertical this quarter. By that weekly chart, I think a good price for Apple would be $420. I'd be much happier if it had gone up to $450 on earnings (like it did, those were fantastic earnings) and then settled down somewhere in $400-$450.

bcressey 15y ago

Since many indexes are weighted by price, I find myself wondering if index fund investing has an element of "buy high, sell low" to it. Only if you buy shares of the fund when they are high, and sell when they are low. An index fund that buys a set of stocks in proportion to market price at one point in time will automatically capture the relative gains and losses within that set. If Apple's share price doubles, then the market value of its shares that the fund owns will also double, and it will occupy a relatively greater percentage of the fund's portfolio. Companies with a flat or declining share price will account for a relatively lesser percentage over time. Some buying and selling needs to happen, to accommodate new investors and to handle turnover within the target index, but the point of passive index funds is that you don't need trades to capture market performance.