Comments on: Malkiel, Bogle Argue Against Non-Market Capitalization Weighted ETFs http://www.investingintelligently.com/2007/04/12/malkiel-bogle-argue-against-non-market-capitalization-weighted-etfs/ Not just another (Canadian) financial blog Fri, 05 Dec 2008 09:42:00 +0000 http://wordpress.org/?v=abc By: Dave http://www.investingintelligently.com/2007/04/12/malkiel-bogle-argue-against-non-market-capitalization-weighted-etfs/#comment-6874 Dave Fri, 13 Apr 2007 15:45:46 +0000 http://www.investingintelligently.com/2007/04/12/malkiel-bogle-argue-against-non-market-capitalization-weighted-etfs/#comment-6874 The other thing I should mention is that I no longer think market-cap weighted indexes are as evil as I once thought. I used to not like them because they would have large holdings of temporarily overpriced stocks, like the way Nortel affected the TSE in Canada and all the other tech stocks that influenced the S&P 500 in the US. If you are buying the index during a bull cycle (or a bubble rather, like in 1999-2000, for example) you're bound to be affected (no matter what you buy) but for long term investors this is no big deal. CC: "investors are going to get future returns, not the past, and who knows if the same factors will remain mispriced in the future" I totally agree, and the hoopla over fundamental indexes outperforming passive indexes just sounds like classic performance-chasing to me. Bound to fail. The other thing I should mention is that I no longer think market-cap weighted indexes are as evil as I once thought. I used to not like them because they would have large holdings of temporarily overpriced stocks, like the way Nortel affected the TSE in Canada and all the other tech stocks that influenced the S&P 500 in the US. If you are buying the index during a bull cycle (or a bubble rather, like in 1999-2000, for example) you’re bound to be affected (no matter what you buy) but for long term investors this is no big deal.

CC: “investors are going to get future returns, not the past, and who knows if the same factors will remain mispriced in the future”

I totally agree, and the hoopla over fundamental indexes outperforming passive indexes just sounds like classic performance-chasing to me. Bound to fail.

]]> By: Canadian Capitalist http://www.investingintelligently.com/2007/04/12/malkiel-bogle-argue-against-non-market-capitalization-weighted-etfs/#comment-6873 Canadian Capitalist Fri, 13 Apr 2007 14:21:58 +0000 http://www.investingintelligently.com/2007/04/12/malkiel-bogle-argue-against-non-market-capitalization-weighted-etfs/#comment-6873 Dave: John Bogle's new book Little Book of Common Sense Investing devotes an entire chapter to the drawbacks of the new fundamental indices. His argument that there is logic behind the success of traditional indexing but the reasons for why fundamental factors were mispriced by the market in the past is unknown and unexplained. Investors are going to get future returns, not the past, and who knows if the same factors will remain mispriced in the future. What if they don't? Not a wager I am willing to make. Dave: John Bogle’s new book Little Book of Common Sense Investing devotes an entire chapter to the drawbacks of the new fundamental indices. His argument that there is logic behind the success of traditional indexing but the reasons for why fundamental factors were mispriced by the market in the past is unknown and unexplained. Investors are going to get future returns, not the past, and who knows if the same factors will remain mispriced in the future. What if they don’t? Not a wager I am willing to make.

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