Dale; IT's weighted in such a way, that the weights change ,
say ONLY GE goes up to keep it simple, it has a big weight to start with, and will send the index up more per dollar move..( but reduce the weighting of the other stocks. ) if your tracking and with
no inflow or out flow, you will still need to re-allocate your
dollars to stay in step with the index weight change, or you
will fall out of step. It's forced on you, by the way the
internals of the index works, some outside force ( none index )
(a regular fund or institution likely did the first buy or sell )
Still it changed not just the price of the index, but the weighting
of the amount of shares needed of each issue , as well. Hence the more index funds that come on line the more
of a momentum market we wind up with. The dynamic re-weighting is
complex but computer models do track it. They mostly play this off a system that buys and sells futures on the S&P..exchanging the cash
value balance in the futures back and forth with baskets of stocks
in order to reallocate their weightings.
----------------
In the long run its a system that spells trouble. What if every one
was to just buy an index fund. How in heavens name could earnings
mean anything. The HUGE proliferation of these funds since 1996 has,
and is changing the way the market works, and is reducing the
effectiveness of any FA analysis.
---------------
Sharp CEOs understand the value of cap size now days, and many are
able to take advantage of this using their stock to buy out smaller
companies, or at times using leverage to raid a bigger corporation,
getting their market cap up by hook or crook is all part of the
standard orgy on wall street now days. Often it is more a focus
than growing internal profits, as the insiders get handsome rewards
just for market cap growth..damm the profits, who cares anyway
other than a bunch of suckers willing to believe anything. <G>
----------------------------
But back to market cap indexes, if you own all the stocks in it
and don't re-weight you will get eaten alive. This re-weighting
is in the nature of the relative amount of shares you own of each
issues as the stocks move not just the amount of dollars,
because the index is effecting not just by
the price changes, but the weighting changes as well.
It's enhanced, and will always favor the gainer's it were
dollar weighted then the actual percentage moves each stock made
would effect the index the same, Market cap weighting is a trick.
All things equal it favors BIG CAPS, but as seldom are all things
equal, it favors fast runners, and produces momentum.
Momentum players know well how this works.
-------------------------
I picked 10 runners SEPT 4th, and for safety left out the internuts,
(except for csco if you want to call her a NUTZ ) anyway
those lack luster picks are up 40%.
---------------------
This is not back stepping to create a list of runners from
history..
I posted these on the BK thread when first picked them & that's
a matter of record.
Scroll over >>>
Symbol Last Trade Change Volume Value Value Change Gain Mkt Cap Trade Date Notes
^SPX Dec 24 1226.27 -2.27 -0.18% N/A $12.26 -$0.02 -0.18% $2.52 +25.91% N/A 4-Sep-98 -
MSFT Dec 24 141 3/4 -1 13/16 -1.26% 3,458,900 $2,835.00 -$36.25 -1.26% $902.50 +46.70% 353.5B 4-Sep-98 -
PFE Dec 24 119 3/8 -1 -0.83% 695,200 $1,790.62 -$15.00 -0.83% $360.00 +25.16% 154.9B 4-Sep-98 -
CSCO Dec 24 94 3/16 -2 5/16 -2.40% 7,022,600 $1,412.81 -$34.69 -2.40% $524.06 +58.97% 148.7B 4-Sep-98 -
LU Dec 24 107 1/2 -2 1/4 -2.05% 2,318,000 $1,075.00 -$22.50 -2.05% $322.50 +42.86% 141.8B 4-Sep-98 -
DELL Dec 24 74 9/16 -7/8 -1.16% 6,519,200 $1,491.25 -$17.50 -1.16% $396.25 +36.19% 94.862B 4-Sep-98 -
SGP Dec 24 54 15/16 -1/4 -0.45% 859,800 $549.38 -$2.50 -0.45% $93.12 +20.41% 80.737B 4-Sep-98 -
WMT Dec 24 81 1/8 -5/16 -0.38% 892,300 $1,622.50 -$6.25 -0.38% $452.50 +38.68% 180.4B 4-Sep-98 -
F Dec 24 58 7/8 +1/2 +0.86% 1,908,300 $588.75 $5.00 +0.86% $170.00 +40.60% 67.068B 4-Sep-98 -
TWX Dec 24 62 3/8 +1 +1.63% 818,000 $311.88 $5.00 +1.63% $103.75 +49.85% 69.413B 4-Sep-98 -
HD Dec 24 60 0 0.00% 1,152,800 $600.00 $0.00 0.00% $216.88 +56.61% 93.787B 4-Sep-98 -
11 symbols
Totals(USD): $12,289.45-$124.71-1.00%
They dropped more today than the index,
but since SEP 4th they are up +40.53%
Time for me to make up a new list. <G>
Both Cap size and momentum were the
only two considerations given. PE/ meant nothing.
Jim
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