1Semana·

I have a question

Aloha @Epi

Suppose you were to create a file portfolio of 20 stocks, for example. Why on earth has no one ever come up with the idea of weighting the stocks in the portfolio according to market capitalization? Why does everyone build an equal weight for the sake of returns?

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11 Comentários

MarTheRadi@marda304

1Semana

But now I'm looking forward to Epi's answer :-D

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Epi@Epi

1Semana

Why wouldn't anyone have come up with this idea before? Are you sure about that? The normal index ETFs work in exactly the same way.

MK weighting and equal weighting each have slightly different characteristics. MK weighting quickly leads to overweighting in the portfolio in rising markets. The MK also rises with the share price. Just compare the S&P500 with the S&P500 Equalweight.

Not rebalancing normally increases the vola, but not necessarily the return. In this respect, I would not say that Equalweight is bad for returns.

However, the normal portfolio does not have an equal weighting, take a look at it here on GQ!

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Harald@Madhatter5566

1Semana

It is also for women what you could weight by market capitalization.

In my opinion, however, this is all nonsense anyway. A diversified portfolio of individual stocks is still Casino.
ETF. Index. Done. The idea of building up your own ETF is nonsense

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Matti@mattilist

@Madhatter5566 that's not nonsense at all. better 20 quality stocks with a low valuation than a highly overvalued index like sp500!

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Harald@Madhatter5566

@mattilist That in itself is a casino, especially if you invest for the long term and keep these 20 shares. The sundp sorts out losers and picks up winners, you don't.

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Matti@mattilist

@Madhatter5566 well then you will see in the next morning what it means to have overvaluated index/stocks. watch Dow Jones, S&P500....

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Harald@Madhatter5566

@mattilist Doesnt Matter, as your low picks can be down too. And we are talking long term.

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Matti@mattilist

at thw moment you buy 7 overvaluares companies when buying sp500 or nasdaq 100. if one buys it now he may be in red for years. i rather buy 100 good companies with low valuation and other indexes with lower usa exposure.

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Matti@mattilist

@Madhatter5566 but you would agree that a highflyer with P/E of 50 or 100 can be down 80% for 10 or 20 years. And a goodstock with P/E of 14 will fall much less. If your stock falls 50% it must be up 100% to get to the same level. these are basiscs. Cisco needed 20 years to get to the highs of 2000! During this time span stocks like Berkshire were up serveral hundred %.

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Harald@Madhatter5566

@mattilist Again, you are talking stocks, not etf. You should inform yourself. I say that taking stocks, regardless of diversification, and holding them, isnt good longterm.

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Jun@Ji_hyun

1Semana

I'll soon have MI6 on my back with questions like that 🥺

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