RE: I wonder what this graph would look like if the data was weighted by the market capitalization of the different indexes represented.
Here’s my question. From the point of view of whether you are making or losing money, would the market capitalization weighing make any big difference if you were heavily invested in the S&P on or before 2000 ?
Isn’t that the bottom line for investors ? Whether my capital investments are safe and making a profit ?
“would the market capitalization weighing make any big difference if you were heavily invested in the S&P on or before 2000 ?”
All I can tell you is this:
When I once asked the person I trust the most on these matters - the man who was the Chief Investment Officer for a big pension & insurance outfit that I worked with - how he felt about some of the high-flying Asian stock indexes, he said:
Well, if you look at market capitalization, how big are they?
I said, why do you care?
He said: let’s assume a particular market is “doing better” but, if you look at markets as though they were ponds, and one is a very big pond and one is a very small pond, does “spectacular” stock performance REALLY AND COMPLETELY represent SPECTACULAR VALUE, in the long run, or is a certain amount of that “performance” derived from the number of players trying to get into a small pond, versus the number of players playing in the big pond. And he added, if you are looking to keep your universe of “invested assets” diversified, keep in mind also that the bigger pond might have a certain “AVERAGE” performance, it also represents a larger number of possibilities one can invest in, which, although part of that “average” performance, may in fact, exceed that average on their own.
Like an old philosopher who presents as many questions as answers to the student, I didn’t come away with a definite idea of whether or not one should be wholly invested in the current “high flying” Asian markets or not.
What I did observe, with that pension fund, from that time and up till now, is: (a)it continues to invest a portion of the portfolio in some Asian stocks and some Asian stock indexes, however (b) that portion has never been a majority of the total portfolio and yet (c) it has continually outperformed the major U.S. stock indexes, even though the majority of the portfolio IS in stocks that are traded within those indexes.