kyounge1956
Thinks s/he gets paid by the post
- Joined
- Sep 11, 2008
- Messages
- 2,171
I'm reading a most interesting book called The Fundamental Index, by Robert Arnott, Jason Hsu and John West. I'm not even halfway through, but so far, the central idea of the book appears to be that weighting the stocks in an index by market capitalization puts too much in stocks which are overpriced in terms of fundamental measurements like sales, profits or dividend yield, and too little in those which are underpriced. When the prices of the stocks move to more closely reflect the fundamentals of each business, more is lost on the overpriced stocks than is gained on the underpriced ones, creating a performance drag in the index which can be overcome by using some other characteristic to weight the stocks.
Comments?
Comments?