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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: LindyBill who wrote (17767)	2/12/2000 8:47:00 AM
From: StockHawk	Read Replies (1) of 54805

RE: S&P 500 and Lindy's Russian Army Bill, the information below is taken from the Standard & Poor's web site, in a section discussing the S&P 500. They are answering the question of why the index is hard to beat (by mutual funds) and their answer sounds like your Russian Army approach: Why is the S&P 500 so Hard to Beat? In a search of Standard & Poor's mutual fund data, only 14 diversified equity funds beat the index's annual return of 22.98% for the five years ending with November, 1998. Momentum effects. One of the adages of Wall Street is to cut your losses and let your profits run. If you could constantly rebalance your portfolio so that more of your money was in the winning stocks and less was in the losers, your portfolio would ride momentum higher and higher. Because the S&P 500 is capitalization-weighted that is exactly what happens. The index holds each stock in proportion to its total value, or market "capitalization," in the stock market. Therefore, if a stock surges in price, its market capitalization rises and its share in the S&P 500 climbs. Likewise, if a stock tumbles, its market value and its weight in the index both decline.

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