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HippoSir
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Re: SP500 is very top heavy right now

Post by HippoSir » Sat Nov 16, 2019 12:35 pm

MotoTrojan wrote:
Sat Nov 16, 2019 1:56 am
Curious your rationale for using AVUV over say VIOV (or any other S&P600 value offering)? I’m starting a position in AVDV but felt the pure index options for domestic funds are a safer bet. Also imagine the index offering to be better in taxable.
I wanted something very small and value-y while still maintaining a bit of a quality filter. I already tilt factor using VFMF, but it's multifactor so less concentrated value.

Both AVUV and VFMF are designed by DFA alums, and both eschew following any index, so they seemed like a natural pair.

In general I maintain a 50/50 VFMF/VTI allocation. With this move I've taken 2.5% out of VTI, the max I'd take is 5%, which is small enough to not really have any material impact on my actual portfolio performance, but I'm a tinkerer and it's fun (although I sound like a very bad boglehead right now). :greedy

MotoTrojan
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Re: SP500 is very top heavy right now

Post by MotoTrojan » Sat Nov 16, 2019 12:58 pm

HippoSir wrote:
Sat Nov 16, 2019 12:35 pm
MotoTrojan wrote:
Sat Nov 16, 2019 1:56 am
Curious your rationale for using AVUV over say VIOV (or any other S&P600 value offering)? I’m starting a position in AVDV but felt the pure index options for domestic funds are a safer bet. Also imagine the index offering to be better in taxable.
I wanted something very small and value-y while still maintaining a bit of a quality filter. I already tilt factor using VFMF, but it's multifactor so less concentrated value.

Both AVUV and VFMF are designed by DFA alums, and both eschew following any index, so they seemed like a natural pair.

In general I maintain a 50/50 VFMF/VTI allocation. With this move I've taken 2.5% out of VTI, the max I'd take is 5%, which is small enough to not really have any material impact on my actual portfolio performance, but I'm a tinkerer and it's fun (although I sound like a very bad boglehead right now). :greedy
I appreciate your honestly in your tinkering addiction ;). I have similar tendencies but try my best to keep it in check and only make forever moves, so they require a bit more thought. At least you've been loyal to your US-only it seems, I am on the other side of the spectrum and itching to bump International from 25% to 30% (while also moving it to small-value).

HippoSir
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Re: SP500 is very top heavy right now

Post by HippoSir » Sat Nov 16, 2019 1:07 pm

MotoTrojan wrote:
Sat Nov 16, 2019 12:58 pm
I appreciate your honestly in your tinkering addiction ;). I have similar tendencies but try my best to keep it in check and only make forever moves, so they require a bit more thought. At least you've been loyal to your US-only it seems, I am on the other side of the spectrum and itching to bump International from 25% to 30% (while also moving it to small-value).
To be clear, this is only the US portion of my portfolio. I have maintained a 50/50 US/international weight for a long time and don't plan on ever changing that (mostly because it's easy to remember/rebalance). I'm sure someday all the rebalancing into international will pay off, annnny day now... :oops:

I did take the opportunity last year to tax harvest my VXUS (total international) into INTF/ISCF/EMGF with an overweight on small/em.

I admit to being a serial tinkerer. :twisted:

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Re: SP500 is very top heavy right now

Post by MotoTrojan » Sat Nov 16, 2019 1:34 pm

HippoSir wrote:
Sat Nov 16, 2019 1:07 pm
MotoTrojan wrote:
Sat Nov 16, 2019 12:58 pm
I appreciate your honestly in your tinkering addiction ;). I have similar tendencies but try my best to keep it in check and only make forever moves, so they require a bit more thought. At least you've been loyal to your US-only it seems, I am on the other side of the spectrum and itching to bump International from 25% to 30% (while also moving it to small-value).
To be clear, this is only the US portion of my portfolio. I have maintained a 50/50 US/international weight for a long time and don't plan on ever changing that (mostly because it's easy to remember/rebalance). I'm sure someday all the rebalancing into international will pay off, annnny day now... :oops:

I did take the opportunity last year to tax harvest my VXUS (total international) into INTF/ISCF/EMGF with an overweight on small/em.

I admit to being a serial tinkerer. :twisted:
Per my IPS I can redo it in 2 years... although in that time I started buying Int SCV, 3x S&P500 and extended duration treasuries.... guess I’m a terrible Boglehead too.

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nedsaid
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Re: SP500 is very top heavy right now

Post by nedsaid » Sat Nov 16, 2019 8:11 pm

HippoSir wrote:
Fri Nov 15, 2019 10:24 pm
nedsaid wrote:
Fri Nov 15, 2019 3:49 pm
Today I trimmed a bit from my Total Stock Market Index to buy more US Large Value Index and US Small Cap Index. The amounts aren't big but a continuation of rebalancing efforts, more Large Value and more Small Cap.
*high five* :beer

Me too, although not by a significant amount. I moved 2.5% of my equity allocation into AVUV.
Again the key word is trim, I am not leading a stampede out of the Total Stock Market Index or the S&P 500. Actually, more like rebalancing than reallocation. . . so far.
A fool and his money are good for business.

rkhusky
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Re: SP500 is very top heavy right now

Post by rkhusky » Sat Nov 16, 2019 8:49 pm

hdas wrote:
Sat Nov 16, 2019 8:43 am
It seems that the high concentration doesn’t bother you in principle, appropriately so. However, in terms of degree, is there a level that will challenge your beliefs? Cheers :greedy
Once the deviation from the long term average reaches 3 standard deviation I would take a look. If I saw a lot of Berkshire Hathaway, Johnson&Johnson, Apple, Google, Procter&Gamble type of companies, then I wouldn't worry much. If I saw a lot of Netflix type of companies, I might worry.

ohai
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Re: SP500 is very top heavy right now

Post by ohai » Sun Nov 17, 2019 12:17 am

I just skimmed the comments, but one thing that we should look out for is antitrust regulation. When a handful of companies become too big, there is a risk of anti monopoly regulation. Already, congress is looking into this, although I think it will be some time before any action materializes.

OrangeKiwi
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Re: SP500 is very top heavy right now

Post by OrangeKiwi » Sun Nov 17, 2019 12:54 am

nisiprius wrote:
Fri Nov 15, 2019 12:41 pm
An honest chart.

Image
The chart doesn’t capture the huge decrease in publicly listed companies, especially per capita, over the past few decades.

It seems to be that fewer large organizations are able to serve the needs of larger populations, and it could be a structural change in the business environment due to the development of technology and automation which really drives down marginal costs.

https://www.nytimes.com/2018/08/04/busi ... arket.html

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unclescrooge
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Re: SP500 is very top heavy right now

Post by unclescrooge » Sun Nov 17, 2019 1:49 am

dmcmahon wrote:
Thu Nov 14, 2019 1:58 pm
Kenkat wrote:
Thu Nov 14, 2019 1:35 pm
This is a pretty cool site that lets you see holdings of the S&P 500 by year:

https://etfdb.com/history-of-the-s-and-p-500/#1999

Top 5 in 1999:
Microsoft
GE
Cisco
Wal-Mart
Exxon Mobil
And by owning the index you automatically rebalanced from these to the new list without taxable side effects.
That's how market cap weighting works.

You buy more of a company when it is overvalued, and less when it is undervalued.

There is no rebalancing when the top holdings decline in value. You just lose value.

Valuethinker
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Re: SP500 is very top heavy right now

Post by Valuethinker » Sun Nov 17, 2019 3:42 am

illumination wrote:
Thu Nov 14, 2019 4:16 pm
Kenkat wrote:
Thu Nov 14, 2019 1:35 pm
This is a pretty cool site that lets you see holdings of the S&P 500 by year:

https://etfdb.com/history-of-the-s-and-p-500/#1999

Top 5 in 1999:
Microsoft
GE
Cisco
Wal-Mart
Exxon Mobil
That's a cool link, thanks

So crazy some of the companies that once occupied the Top Ten in certain years.

I had never even heard of Atlantic Richfield for instance.

Makes me glad I'm (mostly) an index investor and I don't have to predict the future.
Are Arco gas stations so long gone?

That was Atlantic Richfield. Big oil refiner.

I am showing my age.

inbox788
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Re: SP500 is very top heavy right now

Post by inbox788 » Sun Nov 17, 2019 4:08 am

unclescrooge wrote:
Sun Nov 17, 2019 1:49 am
That's how market cap weighting works.

You buy more of a company when it is overvalued, and less when it is undervalued.

There is no rebalancing when the top holdings decline in value. You just lose value.
That’s also how the sp500 index works. When overvalued companies decline, the index goes down and when undervalued companies grow, the index rises. I’m happy with the overall growth of the index irrespective of which components it comes from, large and small.

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Taylor Larimore
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S&P 500 stocks are the largest and most successful in the U.S.

Post by Taylor Larimore » Sun Nov 17, 2019 11:29 am

Bogleheads:

When I started investing in 1950 the S&P 500 stocks were "20". Today the S&P 500 is "3,120" (not including dividends).

Perhaps this is why Warren Buffett is leaving the Vanguard 500 Index Fund to his wife when he dies.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Investors seem hell-bent on carrying out the search for the winning funds of the future, no matter how futile the search as proven to be."
"Simplicity is the master key to financial success." -- Jack Bogle

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Forester
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Re: SP500 is very top heavy right now

Post by Forester » Sun Nov 17, 2019 4:12 pm

"DJIA is more diversified than the S&P 500"

Image
30% MinVol; 10% SCV; 25% Equity Trend; 20% Bonds; 10% Gold; 5% Gold Equity

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willthrill81
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Re: SP500 is very top heavy right now

Post by willthrill81 » Sun Nov 17, 2019 4:21 pm

Forester wrote:
Sun Nov 17, 2019 4:12 pm
"DJIA is more diversified than the S&P 500"

Image
How does the Sharpe ratio measure diversification? Are you saying that gold has been more diversified than U.S. stock since the year 2000 because the former has had a significantly higher Sharpe ratio?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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siamond
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Re: SP500 is very top heavy right now

Post by siamond » Sun Nov 17, 2019 6:25 pm

willthrill81 wrote:
Sun Nov 17, 2019 4:21 pm
How does the Sharpe ratio measure diversification? Are you saying that gold has been more diversified than U.S. stock since the year 2000 because the former has had a significantly higher Sharpe ratio?
I suspect the message behind this graph was slightly sarcastic. In theory, diversification is supposed to improve the risk/return profile (a measure of which being the Sharpe ratio *IF* one equates risk with volatility). Well, in practice, we don't always get the 'proper' results... Doesn't really bother me, but it's a good reminder that markets just never do what we think they will do..

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willthrill81
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Re: SP500 is very top heavy right now

Post by willthrill81 » Sun Nov 17, 2019 7:15 pm

siamond wrote:
Sun Nov 17, 2019 6:25 pm
willthrill81 wrote:
Sun Nov 17, 2019 4:21 pm
How does the Sharpe ratio measure diversification? Are you saying that gold has been more diversified than U.S. stock since the year 2000 because the former has had a significantly higher Sharpe ratio?
I suspect the message behind this graph was slightly sarcastic. In theory, diversification is supposed to improve the risk/return profile (a measure of which being the Sharpe ratio *IF* one equates risk with volatility). Well, in practice, we don't always get the 'proper' results... Doesn't really bother me, but it's a good reminder that markets just never do what we think they will do..
Perhaps it was, but I've heard someone else on this forum put forward the idea in all seriousness, so I'm not sure.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

sharppencilinvestor
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Re: SP500 is very top heavy right now

Post by sharppencilinvestor » Sun Nov 17, 2019 11:46 pm

These conditions make it tempting to invest in an equal-weight fund like RSP ("Invesco S&P 500® Equal Weight ETF").

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willthrill81
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Re: SP500 is very top heavy right now

Post by willthrill81 » Mon Nov 18, 2019 12:11 am

sharppencilinvestor wrote:
Sun Nov 17, 2019 11:46 pm
These conditions make it tempting to invest in an equal-weight fund like RSP ("Invesco S&P 500® Equal Weight ETF").
It's cheaper and has been just as effective to put 1/3 each into large-caps, mid-caps, and small-caps.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

fennewaldaj
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Re: SP500 is very top heavy right now

Post by fennewaldaj » Mon Nov 18, 2019 5:51 am

willthrill81 wrote:
Mon Nov 18, 2019 12:11 am
sharppencilinvestor wrote:
Sun Nov 17, 2019 11:46 pm
These conditions make it tempting to invest in an equal-weight fund like RSP ("Invesco S&P 500® Equal Weight ETF").
It's cheaper and has been just as effective to put 1/3 each into large-caps, mid-caps, and small-caps.
Though RSP is not that expensive nowdays (ER 0.2) so its not like its a huge deal to do that instead of large, mid small.

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willthrill81
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Re: SP500 is very top heavy right now

Post by willthrill81 » Mon Nov 18, 2019 11:33 am

fennewaldaj wrote:
Mon Nov 18, 2019 5:51 am
willthrill81 wrote:
Mon Nov 18, 2019 12:11 am
sharppencilinvestor wrote:
Sun Nov 17, 2019 11:46 pm
These conditions make it tempting to invest in an equal-weight fund like RSP ("Invesco S&P 500® Equal Weight ETF").
It's cheaper and has been just as effective to put 1/3 each into large-caps, mid-caps, and small-caps.
Though RSP is not that expensive nowdays (ER 0.2) so its not like its a huge deal to do that instead of large, mid small.
The other benefit is that many employer-sponsored plans (e.g. 401k, 403b, 457) have funds with large, mid, and small caps, and even more have at least large and small, which is really all that you need to achieve basically the same effect. Very few such plans have access to RSP.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: SP500 is very top heavy right now

Post by Phineas J. Whoopee » Mon Nov 18, 2019 12:55 pm

unclescrooge wrote:
Sun Nov 17, 2019 1:49 am
...
That's how market cap weighting works.

You buy more of a company when it is overvalued, and less when it is undervalued.
...
With respect, that is very much not how market cap weighting works. For an existing position there is no buying or selling required. As components of the index rise and fall their cap weighting rises and falls. The underlined part is a very common misconception.

When somebody claims something is overvalued, and some other thing is undervalued, it's never clear to me what the external-to-the-market pricing authority is. Investors disagreeing about appropriate prices is part and parcel of capital markets.

PJW

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nisiprius
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Re: SP500 is very top heavy right now

Post by nisiprius » Mon Nov 18, 2019 2:21 pm

OrangeKiwi wrote:
Sun Nov 17, 2019 12:54 am
...The chart doesn’t capture the huge decrease in publicly listed companies, especially per capita, over the past few decades.
What huge decrease?

Wilshire 5000 Total Market Index
The Wilshire 5000 Total Market Index is widely accepted as the definitive benchmark for the U.S. equity market, and measures performance of all U.S. equity securities with readily available price data. Named for the nearly 5,000 stocks it contained at launch, it then grew to a high count of 7,562 on July 31, 1998. Since then, the count fell steadily to 3,776 as of December 31, 2013, where it has then bounced back to 3,818 as of September 30, 2014. The last time the Wilshire 5000 actually contained 5,000 or more companies was December 29, 2005.
So, it fluctuates.

It's been as high as 5,000 + 51%. According to their latest factsheet, date March 2019, it currently has 3,530 = 5,000 - 39%.

It's been 50% above where it started, it's now -39% below where it started, in context that seems more like "fluctuation" than "one-way trend."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: SP500 is very top heavy right now

Post by GAAP » Mon Nov 18, 2019 2:33 pm

Why "Right now"? In the population of US stocks, the SP500 is roughly the largest 5%. Anything in it is at the upper end of the bell curve for company size. If you have a population of 500 stocks, there will be a similar distribution -- it may not be perfect at the extremes, but it does match normal expectations.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

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Re: SP500 is very top heavy right now

Post by willthrill81 » Mon Nov 18, 2019 11:36 pm

Phineas J. Whoopee wrote:
Mon Nov 18, 2019 12:55 pm
When somebody claims something is overvalued, and some other thing is undervalued, it's never clear to me what the external-to-the-market pricing authority is. Investors disagreeing about appropriate prices is part and parcel of capital markets.
I believe that when most investors refer to something be undervalued or overvalued, they are speaking with regard to comparing the current market price to what they believe the market price will be at some indeterminant point in the future.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: SP500 is very top heavy right now

Post by Caduceus » Tue Nov 19, 2019 4:02 am

I suspect that this has something to do with index funds, and perhaps the effect will be reversed. Think about it this way. A large portion of the investment universe is just passively indexing on a market-weighted basis. That means that as mega-cap companies' stock prices (Apple, Facebook, Google, etc.) go up, you will end up constantly buying more of them with new invested dollars. That's what indexing does on an aggregate basis - it will direct more new investment dollars toward buying what becomes bigger and what has run up in price. Maybe previously $0.1 of every new dollar went to the largest companies, and now $0.2 does.

I can't help but think - but I don't know of any studies to this effect - that some part of what has happened with the massive run up of prices of these mega-caps has to do with indexing. And I wonder if perhaps this effect will work in reverse with market downturns.

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Re: SP500 is very top heavy right now

Post by Caduceus » Tue Nov 19, 2019 4:05 am

Phineas J. Whoopee wrote:
Mon Nov 18, 2019 12:55 pm
unclescrooge wrote:
Sun Nov 17, 2019 1:49 am
...
That's how market cap weighting works.

You buy more of a company when it is overvalued, and less when it is undervalued.
...
With respect, that is very much not how market cap weighting works. For an existing position there is no buying or selling required. As components of the index rise and fall their cap weighting rises and falls. The underlined part is a very common misconception.

When somebody claims something is overvalued, and some other thing is undervalued, it's never clear to me what the external-to-the-market pricing authority is. Investors disagreeing about appropriate prices is part and parcel of capital markets.

PJW
That's true for existing dollars but not for new dollars. You can be a staunch advocate of index investing and still be intellectually curious about the effects that it has on efficient pricing of markets. It seems clear - and I think John Bogle may have said something to this effect at one point - that if the markets were 90% indexed, there would be significant and obvious opportunities for people to buy mispriced securities.

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Re: SP500 is very top heavy right now

Post by rkhusky » Tue Nov 19, 2019 8:24 am

willthrill81 wrote:
Mon Nov 18, 2019 11:36 pm
Phineas J. Whoopee wrote:
Mon Nov 18, 2019 12:55 pm
When somebody claims something is overvalued, and some other thing is undervalued, it's never clear to me what the external-to-the-market pricing authority is. Investors disagreeing about appropriate prices is part and parcel of capital markets.
I believe that when most investors refer to something be undervalued or overvalued, they are speaking with regard to comparing the current market price to what they believe the market price will be at some indeterminant point in the future.
I've often wondered for what percentage of investors is the future point 1 hour from now, versus 1 day, 1 year, or 20 years from now. And how the relative percentages of those types of investors shapes the market.

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Re: SP500 is very top heavy right now

Post by rkhusky » Tue Nov 19, 2019 8:27 am

Caduceus wrote:
Tue Nov 19, 2019 4:02 am
I can't help but think - but I don't know of any studies to this effect - that some part of what has happened with the massive run up of prices of these mega-caps has to do with indexing. And I wonder if perhaps this effect will work in reverse with market downturns.
Or perhaps it is just that the mega-caps have the products people want and have either staved off the competition or bought them. They have also diversified their holdings and have much in the way of products, technologies, and intellectual property. And people expect that to continue.

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willthrill81
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Re: SP500 is very top heavy right now

Post by willthrill81 » Tue Nov 19, 2019 12:10 pm

Caduceus wrote:
Tue Nov 19, 2019 4:05 am
Phineas J. Whoopee wrote:
Mon Nov 18, 2019 12:55 pm
unclescrooge wrote:
Sun Nov 17, 2019 1:49 am
...
That's how market cap weighting works.

You buy more of a company when it is overvalued, and less when it is undervalued.
...
With respect, that is very much not how market cap weighting works. For an existing position there is no buying or selling required. As components of the index rise and fall their cap weighting rises and falls. The underlined part is a very common misconception.

When somebody claims something is overvalued, and some other thing is undervalued, it's never clear to me what the external-to-the-market pricing authority is. Investors disagreeing about appropriate prices is part and parcel of capital markets.

PJW
That's true for existing dollars but not for new dollars. You can be a staunch advocate of index investing and still be intellectually curious about the effects that it has on efficient pricing of markets. It seems clear - and I think John Bogle may have said something to this effect at one point - that if the markets were 90% indexed, there would be significant and obvious opportunities for people to buy mispriced securities.
And that's a sort of natural safeguard against 'excessive indexing'.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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siamond
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Re: SP500 is very top heavy right now

Post by siamond » Tue Nov 19, 2019 12:25 pm

rkhusky wrote:
Tue Nov 19, 2019 8:24 am
willthrill81 wrote:
Mon Nov 18, 2019 11:36 pm
Phineas J. Whoopee wrote:
Mon Nov 18, 2019 12:55 pm
When somebody claims something is overvalued, and some other thing is undervalued, it's never clear to me what the external-to-the-market pricing authority is. Investors disagreeing about appropriate prices is part and parcel of capital markets.
I believe that when most investors refer to something be undervalued or overvalued, they are speaking with regard to comparing the current market price to what they believe the market price will be at some indeterminant point in the future.
I've often wondered for what percentage of investors is the future point 1 hour from now, versus 1 day, 1 year, or 20 years from now. And how the relative percentages of those types of investors shapes the market.
Yes, absolutely. Every investor has a different time horizon. Bogleheads tend to be long-term investors. Others are short-term speculators. Clearly the latter category cares a lot about a future point expressed in a matter of months or even days, if not hours or minutes. While Bogleheads think in decades. Morgan Housel wrote a brilliant blog on the matter which totally opened my eyes. Valuations should be RELATIVE to the investor's time horizon. Hence a big continuum, not a single 'fair value'. Which goes a long way in explaining why short-term forecasting is impossible, pricing is basically a giant chaos of different perspectives... Fascinating, isn't it?

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Re: SP500 is very top heavy right now

Post by willthrill81 » Tue Nov 19, 2019 12:35 pm

siamond wrote:
Tue Nov 19, 2019 12:25 pm
rkhusky wrote:
Tue Nov 19, 2019 8:24 am
willthrill81 wrote:
Mon Nov 18, 2019 11:36 pm
Phineas J. Whoopee wrote:
Mon Nov 18, 2019 12:55 pm
When somebody claims something is overvalued, and some other thing is undervalued, it's never clear to me what the external-to-the-market pricing authority is. Investors disagreeing about appropriate prices is part and parcel of capital markets.
I believe that when most investors refer to something be undervalued or overvalued, they are speaking with regard to comparing the current market price to what they believe the market price will be at some indeterminant point in the future.
I've often wondered for what percentage of investors is the future point 1 hour from now, versus 1 day, 1 year, or 20 years from now. And how the relative percentages of those types of investors shapes the market.
Yes, absolutely. Every investor has a different time horizon. Bogleheads tend to be long-term investors. Others are short-term speculators. Clearly the latter category cares a lot about a future point expressed in a matter of months or even days, if not hours or minutes. While Bogleheads think in decades. Morgan Housel wrote a brilliant blog on the matter which totally opened my eyes. Valuations should be RELATIVE to the investor's time horizon. Hence a big continuum, not a single 'fair value'. Which goes a long way in explaining why short-term forecasting is impossible, pricing is basically a giant chaos of different perspectives... Fascinating, isn't it?
It's very hard for me to describe why, but this is part of the reason why the EMH 'rubs me the wrong way'. How can the market price accurately reflect all available information when virtually all market participants have such disparate time horizons, goals, risk tolerances, etc.? Maybe I'm just too dense to understand how.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: SP500 is very top heavy right now

Post by garlandwhizzer » Tue Nov 19, 2019 1:50 pm

The appeal of cap weight indexing is not that it is guaranteed to be the most efficient form of asset pricing. Clearly it is not always the most efficient. The appeal is simply that if we remove the index investors from the market all that is left is the market. The aggregate sum of all non-market index investors equals the market. That means for every asset price the market sets there are equal active investor dollars on one side thinking that price is too high and on the other side thinking the price is too low. In other words active investors as a group cancel each other out around the current market price. Decades ago asset prices were set by amateur active investors and now more and more they are set by professionals, probably more efficiently. Still, the asset price that the market sets may not be accurate but that is not the question. The question is can the individual investor reliably identify and exploit market inefficiencies after costs. The total aggregate evidence on this overwhelmingly says NO. It is true IMO that investing skill, though is extremely rare, does exist and that rare investors are able to exploit market inefficiencies. This is less so with funds and ETFs because when they outperform consistently they tend to suffer asset glut and overgraze their alpha source. The personal circumstances of each investor may, as others have stated ,rationally tilt his/her portfolio away from the market index but these tilts may also cancel out to some degree on either side of the market portfolio. It's up to each investor whether to choose active, factor, or market approaches or some combination of them. Lots of strong opinions on these approaches, but little certainty about future outcomes. In the face of all this controversy, I believe the market portfolio is a great default position for most of us. Departing from it you need to have a good understanding of how markets operate and choose wisely. Many investors fail on both these counts.

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GAAP
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Re: SP500 is very top heavy right now

Post by GAAP » Tue Nov 19, 2019 2:23 pm

willthrill81 wrote:
Tue Nov 19, 2019 12:35 pm
It's very hard for me to describe why, but this is part of the reason why the EMH 'rubs me the wrong way'. How can the market price accurately reflect all available information when virtually all market participants have such disparate time horizons, goals, risk tolerances, etc.? Maybe I'm just too dense to understand how.
No, you're just differently rational from the "average" market participant. In a perfectly rational market, there would be no buyers or sellers unless there were no transaction costs -- otherwise, the transaction would not be rational from at least one perspective.

I put EMH in the class of "True in theory, but meaningless in practice".
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

Scooter57
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Re: SP500 is very top heavy right now

Post by Scooter57 » Tue Nov 19, 2019 3:24 pm

fennewaldaj wrote:
Mon Nov 18, 2019 5:51 am
willthrill81 wrote:
Mon Nov 18, 2019 12:11 am
sharppencilinvestor wrote:
Sun Nov 17, 2019 11:46 pm
These conditions make it tempting to invest in an equal-weight fund like RSP ("Invesco S&P 500® Equal Weight ETF").
It's cheaper and has been just as effective to put 1/3 each into large-caps, mid-caps, and small-caps.
Though RSP is not that expensive nowdays (ER 0.2) so its not like its a huge deal to do that instead of large, mid small.
There are two problems with RSP. One is that they rebalance frequently, so you miss out on the gains when one of the stocks really takes off because they will have to keep on selling it off to keep its share of the index equal to that of other, sluggish stocks.

The other problem is that if you observe it in real time (which I've done) the share price can get pretty far away from the NAV, especially during market canniptions. I'm not sure why this happens, but I saw its price take a huge dive way out of proportion to its holdings during one of those days when the market tanked suddenly. That kept me away from investing in it.

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Phineas J. Whoopee
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Re: SP500 is very top heavy right now

Post by Phineas J. Whoopee » Tue Nov 19, 2019 4:16 pm

willthrill81 wrote:
Tue Nov 19, 2019 12:35 pm
...
It's very hard for me to describe why, but this is part of the reason why the EMH 'rubs me the wrong way'. How can the market price accurately reflect all available information when virtually all market participants have such disparate time horizons, goals, risk tolerances, etc.? Maybe I'm just too dense to understand how.
If that were what the EMH says I would agree with you, but it is very much not what the hypothesis says.

Here's my write-up from several years ago.

PJW

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Market Concentration

Post by rich126 » Fri Jan 24, 2020 3:10 pm

I've mentioned this before but cap weighted indexes (as most are) are often concentrated in a few stocks. Assuming this article is correct, it states -
The two companies [Apple and Microsoft] didn’t just dominate. They actually intensified their hold over the past decade, moving from a share of 8.45% of the total S&P 500 SPX, -0.89% return over the decade to 14.8% over the last 12 months through Dec. 27, according to data compiled by Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
https://www.marketwatch.com/story/these ... 2-31/print

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Re: SP500 is very top heavy right now

Post by LadyGeek » Fri Jan 24, 2020 3:32 pm

^^^ I merged rich126's post into the on-going discussion (bumped from Nov 19, 2019).
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Re: Market Concentration

Post by Taylor Larimore » Fri Jan 24, 2020 3:35 pm

rich126 wrote:
Fri Jan 24, 2020 3:10 pm
I've mentioned this before but cap weighted indexes (as most are) are often concentrated in a few stocks. Assuming this article is correct, it states -
The two companies [Apple and Microsoft] didn’t just dominate. They actually intensified their hold over the past decade, moving from a share of 8.45% of the total S&P 500 SPX, -0.89% return over the decade to 14.8% over the last 12 months through Dec. 27, according to data compiled by Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
https://www.marketwatch.com/story/these ... 2-31/print
rich126:

I am happy that I have 14.8% of my money invested in Apple and Microsoft.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "I regard the jealous criticism of indexing by some money managers as self-serving and callow, not worthy of a serious response."
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Market Concentration

Post by guyinlaw » Fri Jan 24, 2020 3:48 pm

Taylor Larimore wrote:
Fri Jan 24, 2020 3:35 pm
rich126 wrote:
Fri Jan 24, 2020 3:10 pm
I've mentioned this before but cap weighted indexes (as most are) are often concentrated in a few stocks. Assuming this article is correct, it states -
The two companies [Apple and Microsoft] didn’t just dominate. They actually intensified their hold over the past decade, moving from a share of 8.45% of the total S&P 500 SPX, -0.89% return over the decade to 14.8% over the last 12 months through Dec. 27, according to data compiled by Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
https://www.marketwatch.com/story/these ... 2-31/print
rich126:

I am happy that I have 14.8% of my money invested in Apple and Microsoft.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "I regard the jealous criticism of indexing by some money managers as self-serving and callow, not worthy of a serious response."
IMO, in 10 years Apple will not be one of the top 10 stocks in S&P 500.
Top 5 in SP500
Microsoft
Apple
Amazon
Facebook
Berkshire
"Equity markets could get worse if the slowdown extends further, but also realize that the markets will rebound far before economic data improve."

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Re: Market Concentration

Post by Broken Man 1999 » Fri Jan 24, 2020 3:55 pm

Taylor Larimore wrote:
Fri Jan 24, 2020 3:35 pm
rich126 wrote:
Fri Jan 24, 2020 3:10 pm
I've mentioned this before but cap weighted indexes (as most are) are often concentrated in a few stocks. Assuming this article is correct, it states -
The two companies [Apple and Microsoft] didn’t just dominate. They actually intensified their hold over the past decade, moving from a share of 8.45% of the total S&P 500 SPX, -0.89% return over the decade to 14.8% over the last 12 months through Dec. 27, according to data compiled by Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
https://www.marketwatch.com/story/these ... 2-31/print
rich126:

I am happy that I have 14.8% of my money invested in Apple and Microsoft.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "I regard the jealous criticism of indexing by some money managers as self-serving and callow, not worthy of a serious response."
Better to hold companies whose products are desired by the masses. My Apple stock, all sold now, gave our portfolio a nice bump. As Microsoft has done.

I'm still holding some Microsoft, but very little $$$ amount compared to overall portfolio. Truthfully, I have never desired to even hold the 5% Mr Bogle suggested as a cap, that is a bridge way too far with our portfolio at today's level! :shock: Nope!

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain

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Re: Market Concentration

Post by 1789 » Fri Jan 24, 2020 5:37 pm

guyinlaw wrote:
Fri Jan 24, 2020 3:48 pm
Taylor Larimore wrote:
Fri Jan 24, 2020 3:35 pm
rich126 wrote:
Fri Jan 24, 2020 3:10 pm
I've mentioned this before but cap weighted indexes (as most are) are often concentrated in a few stocks. Assuming this article is correct, it states -
The two companies [Apple and Microsoft] didn’t just dominate. They actually intensified their hold over the past decade, moving from a share of 8.45% of the total S&P 500 SPX, -0.89% return over the decade to 14.8% over the last 12 months through Dec. 27, according to data compiled by Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
https://www.marketwatch.com/story/these ... 2-31/print
rich126:

I am happy that I have 14.8% of my money invested in Apple and Microsoft.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "I regard the jealous criticism of indexing by some money managers as self-serving and callow, not worthy of a serious response."
IMO, in 10 years Apple will not be one of the top 10 stocks in S&P 500.
Top 5 in SP500
Microsoft
Apple
Amazon
Facebook
Berkshire
Likely none of these will be in top5 in 10 years
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

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Re: Market Concentration

Post by abuss368 » Fri Jan 24, 2020 6:42 pm

rich126 wrote:
Fri Jan 24, 2020 3:10 pm
I've mentioned this before but cap weighted indexes (as most are) are often concentrated in a few stocks. Assuming this article is correct, it states -
The two companies [Apple and Microsoft] didn’t just dominate. They actually intensified their hold over the past decade, moving from a share of 8.45% of the total S&P 500 SPX, -0.89% return over the decade to 14.8% over the last 12 months through Dec. 27, according to data compiled by Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
https://www.marketwatch.com/story/these ... 2-31/print
I sleep well with 14.8% of our Total Stock fund in Apple and Microsoft. This is the market weight.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: Market Concentration

Post by TropikThunder » Fri Jan 24, 2020 7:10 pm

Broken Man 1999 wrote:
Fri Jan 24, 2020 3:55 pm
Better to hold companies whose products are desired by the masses. My Apple stock, all sold now, gave our portfolio a nice bump. As Microsoft has done.

I'm still holding some Microsoft, but very little $$$ amount compared to overall portfolio. Truthfully, I have never desired to even hold the 5% Mr Bogle suggested as a cap, that is a bridge way too far with our portfolio at today's level! :shock: Nope!

Broken Man 1999
Are you saying Apple is not a "compan(y) whose products are desired by the masses"?

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Re: Market Concentration

Post by Broken Man 1999 » Fri Jan 24, 2020 7:16 pm

TropikThunder wrote:
Fri Jan 24, 2020 7:10 pm
Broken Man 1999 wrote:
Fri Jan 24, 2020 3:55 pm
Better to hold companies whose products are desired by the masses. My Apple stock, all sold now, gave our portfolio a nice bump. As Microsoft has done.

I'm still holding some Microsoft, but very little $$$ amount compared to overall portfolio. Truthfully, I have never desired to even hold the 5% Mr Bogle suggested as a cap, that is a bridge way too far with our portfolio at today's level! :shock: Nope!

Broken Man 1999
Are you saying Apple is not a "compan(y) whose products are desired by the masses"?
Not at all. I bought Apple for less than $100/share, around $93/share. I believe the old saying, Bulls make money, bears make money, pigs get slaughtered.

I don't fall in love with my stocks. They are always for sale at the right price.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain

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Re: SP500 is very top heavy right now

Post by DoWahDaddy » Fri Jan 24, 2020 7:23 pm

The top 5 is 16% ?!?

My goodness!

You'd clearly be much safer if you stuck to the other 84%.

🙄
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