nisiprius wrote:Larry, in the last few years there's been a sort of meme on the rise to the effect that one should overweight certain classes of stocks on the grounds that certain classes of business are underrepresented in the stock market relative to their weight in the economy...
It will be interesting to hear what Larry has to say about this.
I overweight REITs not to match the economy, but to participate in more of the total investable market. This is something bigger than the stock market. There may be other things that are part of the total investable market which I do not attempt to invest in. This is for one or more of several reasons:
- I don't know what they all are.
- I don't understand their market.
- I don't know how to easily make a well-diversified investment in their market.
- I don't consider anything to be a true investment if it doesn't produce a return (earn an income), thus leaving out things like commodities and collectables.
I think real estate passes those tests and REITs provide the mechanism for simple, well-diversified, participation in the market.
Note again, this is not a matter of trying to match the "economy," except perhaps coincidentally. Or maybe it is just a matter of terminology. Maybe the total investable market IS the economy. But I think if one was trying to match the economy then one would weight things by their contribution to the GNP.
There is a theory that the common people know what they want, and deserve to get it good and hard. -- H. L. Mencken (almost)