They might but changing the rules for a highly controversial company would do more harm in lost trusts than gain for investors.

Exactly. There is this undercurrent of The End Times everywhere, that this is it. This is the end of ... everything that was. When in fact it is not the end times, and the people at those indexes want to exist longer than SpaceX.

Index investors often believe that indexes work well because they average everything out.

The reality is something like 96% of public companies underperform treasuries.

ref: https://paretoinvestor.substack.com/p/why-96-of-stocks-are-d...

That blog post is garbage and fails to accurately convey the paper it is based on.

>I rely on the Center for Research in Securities Prices (CRSP) monthly stock return database, which contains all common stocks listed on the NYSE, Amex, and NASDAQ exchanges. Of all monthly common stock returns contained in the CRSP database from 1926 to 2016, only 47.8% are larger than the one-month Treasury rate in the same month. In fact, less than half of monthly CRSP common stock returns are positive. When focusing on stocks’ full lifetimes (from the beginning of the sample in 1926 or first appearance in CRSP through the 2016 end of the sample or delisting from CRSP), just 42.6% of common stocks, slightly less than three out of seven, have a buy-and-hold return (inclusive of reinvested dividends) that exceeds the return to holding one-month Treasury Bills over the matched horizon. More than half of CRSP common stocks deliver negative lifetime returns. The single most frequent outcome (when returns are rounded to the nearest 5%) observed for individual common stocks over their full lifetimes is a loss of 100%.

>Individual common stocks tend to have rather short lives. The median time that a stock is listed on the CRSP database between 1926 and 2016 is seven and a half years. To assess whether individual stocks generate positive returns over the full ninety years of available CRSP data, I conduct bootstrap simulations. In particular, I assess the likelihood that a strategy that holds one stock selected at random during each month from 1926 to 2016 would have generated an accumulated 90-year return (ignoring any transaction costs) that exceeds various benchmarks. In light of the well-documented small-firm effect (whereby smaller firms earn higher average returns than large, as originally documented by Banz, 1980) it might have been anticipated that individual stocks would tend to outperform the value-weighted market. In fact, repeating the random selection process many times, I find that the single stock strategy underperformed the value-weighted market over the full ninety years in ninety six percent of the simulations. The single-stock strategy underperformed the one-month Treasury bill over the 1926 to 2016 period in seventy three percent of the simulations.

>The fact that the overall stock market generates long term returns sufficiently large to be referred to as a puzzle, while the majority of individual stocks fail to even match Treasury bills, can be attributed to the fact that the distribution of stock returns is positively skewed. Simply put, large positive returns to a few stocks offset the modest or negative returns to more typical stocks.

https://obj.portfolioconstructionforum.edu.au/articles_persp...

Compare this to the blog post:

>The implication is devastating for index fund orthodoxy: When you own a broad market index, you’re mathematically forcing yourself to hold the 96.6% of stocks that create no value while simultaneously diluting your exposure to the 3.4% that generate all returns.

The professor just told you that investing in any individual stock is a terrible decision and that investing in more stocks means having greater exposure to the stocks that do net a return, creating a puzzle, where diversification doesn't reduce yields, in fact it did the opposite: it increases the yields.

There's also a general fallacy that any index (directly referred to as index orthodoxy) has to be a "broad market index", when in reality there are many competing indices. If someone came up with an index that would follow any investment strategy the blog post suggests and it turns out to work reliably, then people would switch part of their portfolio to that index. "Index othrodoxy" would prevail, because people just need a better index rather than abandoning the idea of an index altogether.

It's also difficult to reconcile with the fact that after fees, most active funds have failed to net higher returns to their investors. This random blog post is basically delivering an active investment strategy on a silver platter that will make fund managers and the people investing into it rich, is this believable? Consider that it's written in a "shocking" AI style, trying to sell you something.

Funnily enough, the ad in the middle of the blog post "The U.S. Treasury collapse is HERE!" is incompatible with the premise of the article, that 96% of stocks are worse than treasuries.

>But even if we use the more moderate 80/20 framing, the strategic implication is identical: If 80% of market returns come from 20% of stocks, why would you construct a portfolio that treats all five hundred stocks in the S&P 500 equally?

The thing is, you don't have to do that, like at all. There are indices like the S&P 500 Pure Value and S&P 500 Enhanced Value that are known to outperform the regular S&P 500. The problem is that they have done so over the long term and long term really means long term. There have been decades where they underperform.

Also, the article is three times as long as it needs to be, it's clearly AI generated.

Edit: Invesco renamed their ETF to S&P 500 Concentrated QVM.

The appearance impropriety is almost always just as deferential as actual impropriety. Missing out on Gains will do a lot less damage than getting caught in a pump and dump scheme

Profitability was an index rule removing it adds garbage to the portfolio

A long time ago, 500 was about the largest nice round number that could be calculated in a reasonable amount of time.

No longer. But it has an extremely valuable brand - did you know S&P has hundreds of indexes? Do any others readily come to mind?

It was originally supposed to be “close enough” to the entire market. We don’t need to do that anymore. But they want to, to milk that valuable brand. Profitability is an arbitrary rule for an antiquated index. Let it die.

There are other s&p indexes. You can get total market index of you want. If you go too large you pick up companies that are too small you might as well pick the Russel or similar. The 500 is/was a good balance. Companies big enough to have government influence but not just the bloated top.

It’s generally a good idea to bet against that guy

That extra decade might provide almost no revenue. The long tail isn’t profitable

It’s true once built the data center can operate right up to a financed data center value of zero. The investors will loose money but the costs of AI will go down as they do

The episode was excellent

Apple was a pretty crappy stock till the late 90s so you would have had to wait almost 2 decades to make decent money

Dimension funds aren’t bad

Yeah but if you price it in steam decks you probably lost money

How do you compete with China? You loose on regulatory costs before you even consider anything else.

Don't compete with China. They're merchantilist for one, and if you want environmental standards in manufacturing, you can't negotiate free trade agreements with one party states.

TPP was an attempt at this.