If you’ve ever wondered why the numbers behind market indices sometimes don’t quite match up with what you’d expect from just adding up all the companies’ values, it’s often because of something called float adjustment, which basically means that not all shares are counted equally—especially when some are locked up by governments or insiders—so it’s…
If you’ve ever wondered why your investment returns sometimes seem to fall short of what you expected, it might help to look at how frequent buying and selling in a portfolio can quietly chip away at your gains through taxes, which is why sticking with a simple, passive index approach can make it much easier…
If you’ve ever wondered how equal-weight index funds work behind the scenes, it’s actually pretty interesting, because the way they rebalance can take advantage of the market’s ups and downs to potentially boost returns, although there are some trade-offs to consider along the way.
I wanted to see what was really going on with these Smart Beta ETFs, so I dug into the numbers and found that, when you break it down, they’re mostly just taking well-known investing ideas from textbooks, giving them a new label, and then charging extra for what is basically a simple tweak to a…
When you build a portfolio using fundamental weighting, what you are really doing is making sure your investments are based on the actual size and role of each company in the real economy, instead of just following whatever stocks happen to be popular at the moment. This approach naturally helps you avoid the kind of…
I’ve been looking at how passive investing has changed the way smaller companies in the S&P 500 trade, and it seems like it’s making it harder for people to buy and sell these stocks easily or figure out what they’re really worth, especially when you look at how the gap between what buyers want to…
When money flows into passive funds, it tends to get funneled into the biggest companies just because they are already big, which means their stock prices can keep rising for reasons that have little to do with how well those companies are actually performing, and over time, this can make prices drift away from what…
When index funds use capitalization weighting, they end up buying more of the tech stocks that have already gone up the most, which means they are often buying at the worst possible moment, and this habit quietly chips away at returns over time because it locks in the cost of chasing momentum.
When Nasdaq quickly adds huge new companies like SpaceX to its indexes, even though only a small number of shares are actually available to trade, it sets up a situation where index funds have to buy at whatever price they can get, which almost always means paying more than they should. If you look at…
Why the S&P 500 cap-weighted index has silently become a momentum strategy, and the mathematical cost of equal-weight downside protection.
AI Software Engineer at Google | PhD in AI & Engineering | Writing about AI, Engineering, Investing, and Personal Finance.