Your 1st issue is a real issue for SP500 index fund.

However, since sp500 index was calculated by market value of each company, for a new one to be added into SP500, it's share in the index is too small. definitely smaller than 1/500. Therefore, if a 20% increase on the share of the new company because of some investors know the trick, then, the influence is less than 1/2500. For a long-term investor, how big this is?

2nd issue, yes, historically, smaller has higher return because of higher risk. What puzzles me is that is everybody invest on small company, what will happend? We all know the demand/supply rule, right? There are a lot of secret investor strategies in the history. Once they were revealed, there is no way to earn more money. By the way, a balanced portfolio should have "extended market index fund", available in many brokers.

3rd issue: if the money managers of mutual funds can not constantly beat an index, what can we expect.



Agree one thing with you--SP500 is not the only index to invest.

所有跟帖： 

• thanks for your thoughtful discussion, -longtermInvestor- ♂ (2216 bytes) () 06/20/2007 postreply 09:16:35

• 回复：thanks for your thoughtful discussion, -yppsilence- ♀ (755 bytes) () 06/20/2007 postreply 09:38:55

• As far as I understand, when investor picks an actively managed -A-mao- ♂ (690 bytes) () 06/20/2007 postreply 09:40:13