The perils of indexing

Horizon Kinetics has been writing about the flaws of passive index investing, and their latest quarterly report hits the nail on the head.

It reminds me of when Nortel was at one point 40% of the TSX60 index.

A solid investment screen begins with discarding the top 3 quartiles of the S&P 500 or Nasdaq 100 – or anything ascending. Due to the passive mechanism of re-balancing, stocks that gain capitalization have a momentum effect because of their higher weighting.

Leave a Reply

Your email address will not be published. Required fields are marked *