thanks for your thoughtful discussion,

yes, one company's jump is of small influence on the mighty SP500, but the effect accumulates quite a lot if every company in SP500 does the same thing.

As for small companys, the secret has been out for a long time that small companys beat larger ones, but relatively few are investing in them. Just think of big population there who has their saving in CD, bonds for a long term investment, you need not worry if small cap investment becomes a fashion.

Also small caps usually are not suit for big guys like index fund, because they are too small, if a big fund is going to buy into a small fund, that small stock would increase quite a lot. Do you like to swim with bigger fish?

Investing in small caps require passion, patience, time to do that. few people can do that for a long time without a firm belief. it looks easy but hard to practice. A lot of people may spend hours discuss a hot topic like investment in SP500, but would not spend half an hour to skim through a 10k or 10Q. I am guilty as charged as well. A hot discussion is more like an entertainment, there is nothing wrong with that, a read on 10K can kill you if you are not passionate enough to look for gold mines. Investment in SP500 has been studied by academic professors, you do not need to reinvent wheel, just pick up a book like "stocks for the long run" by Jeremy J. Siegel.

the main reason for money manager to lag the performance of general market is that they charge a management fee that are proportional to asset size every year. That is a very big number because it is based on asset size, compared to tax, tax is based on gains. That is a major hit on performance.

Secondly, the main motive for most money manager is to keep the job not maxmize the yearly return, they have tendency not to invest for a long run, but for every year or every quarter. This is an built in conflict, since business development is not a straight line. My conclusion is that you can beat the normal money manager easily if you just contribute your money to a wide selection of good small stocks consistently throughout time without trading. This is the main theme of the book by Peter Lynch "Beat the street".

所有跟帖： 

• 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