Skip to main content
This Board Has Moved

This board has been migrated to our new platform! Check out the new home page at discussion.fool.com or click below to go directly to the new Board on the new site.

Go to the New Site
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
I remember reading about weighted vs equal weighted.

Is QQQE the consensus go to index? Why this vs the S&P weighted index?
Print the post Back To Top
No. of Recommendations: 28
I remember reading about weighted vs equal weighted.
Is QQQE the consensus go to index? Why this vs the S&P weighted index?


I'm the one singing the praises of QQQE...I wouldn't call it any kind of consensus.
I'm a bit eccentric in my views.

Two reasons for my preference:

First, the statistical attractiveness of the businesses.

I use slightly different metrics for the two indexes, but I estimate that the rate of increase of old
fashioned earnings has been vastly better for QQQE for so long that some ongoing edge can be expected.
Other things being equal, you want to invest in the faster growing of two firms. (value growth, not price growth!) The same with indexes.

QQQE is equally weighted, so the median earnings yield is an excellent (and numerically stable) proxy for the average.
The median earnings (taking the median earnings yield and the no-dividend index level) has risen on trend at about inflation plus 7.2%/year to 8.2%/year since the late 1990s.
Those are astounding figures--on the order of three times the rate of GDP growth.
The earnings level dips in recessions, but (so far) promptly returns back to its prior trend.
The trend has been remarkably strong and steady since around 2005.
Since that's the trend rate of earnings growth, that's the trend rate of growth of the value of the index.
On top of that you get dividends, which average around 0.5%/year.

For the S&P, I came at the same question in a different way.
Given how much of the economy it covers, the short term variation comes almost entirely from the business cycle, not a few outlier firms.
Also, there are more data sources available.
So I just use a smoothing function on the real earnings to date.
That trend line has risen inflation plus 3.87%/year in the last 25 years.
Since that's the trend rate of earnings growth, that's the trend rate of growth of the value of the index.
On top of that you get dividends, which averaged around 2%/year in the last 20 years, only around 1.8% right now because of the high prices.

Side note: even that figure for earnings growth rate is an abnormally high rate compared to prior history...
net margins have really soared in recent years, a trend which can not continue.
Profits can't grow faster than sales indefinitely--net margins are ultimately range bound and (very weakly) mean reverting.

So, the main case for QQQE being a better asset is simply that it rises in value more quickly.
The reasoning isn't iron clad: it has in the past by a mile, surprisingly steadily and for 25+ years, so there's a decent chance it will in future.
But it's not a shocker--it has a lower representation from poor quality industries like (say) mines and construction firms.
And by construction there are no financial firms in it, so it is never hit by a financial panic.

And the second reason:
Separately, there is the issue of current valuation levels.
It's a longer discussion, but the S&P 500 equal weight set is very much more expensive compared to
its history than the Nasdaq 100 is compared to its own history.
So one should expect a significant one-time gain to be had from getting on the Nasdaq train today, because there is no overhang of overvaluation.

Jim
Print the post Back To Top
No. of Recommendations: 1
How are you valuing the index?, I cannot seem to find any P to E data on it.

And the expense ratio is higher 0.35% vs 0.2% for the invesco equal weighted S&P I guess that's small change. The invesco fund sits at 19.32 x earnings atm.
Print the post Back To Top
No. of Recommendations: 4
I remember reading about weighted vs equal weighted.

Is QQQE the consensus go to index?


Jim, per usual, has given an excellent reply. I will give a slightly different spin on QQQ vs QQQE. The cap weighted QQQ is already heavy in large cap stocks, including Apple, while QQQE has equivalent dollar amounts of all the stocks in the Nasdaq 100, regardless of cap. BRK is already pretty heavy in Apple. Buying the two Apple heavy shares increases risk due to a single stock. Some may be happy to do that, but one needs to be aware and do it intentionally.

FWIW,

IP
Print the post Back To Top
No. of Recommendations: 0
And the expense ratio is higher 0.35% vs 0.2% for the invesco equal weighted S&P I guess that's small change.

0.2% is too high. Vanguard has a few S&P index funds or etf with expense ration at 0.04%
https://investor.vanguard.com/investment-products/mutual-fun...
Print the post Back To Top
No. of Recommendations: 3
“0.2% is too high. Vanguard has a few S&P index funds or etf with expense ration at 0.04%”

It costs a lot more to do all that trading when they reset back to equal weight each quarter.

QQQE is only 100 firms, so you could probably do it yourself. Be tempting to weed some “obviously” bad firms out, though. And that way lies madness…
Print the post Back To Top
No. of Recommendations: 0
QQQE is only 100 firms, so you could probably do it yourself. Be tempting to weed some “obviously” bad firms out, though. And that way lies madness…

Most brokerage firms now offer commission-free stock trade. So that's feasible.
Print the post Back To Top
No. of Recommendations: 0
Most brokerage firms now offer commission-free stock trade. So that's feasible.

You also need to be able to trade fractional shares -- unless you have like a 7-digit portfolio.
M1Finance.
Or maybe IBKR (Pro?). Seems easier to just pay the 0.35% E/R.
M1 can do fractional and rebalance, easy and for free.
Print the post Back To Top
No. of Recommendations: 4
Has anyone considered/had experience with the iShares MSCI USA equal weighted index (EUSA)?

Focused on large and madcap companies (over 600 in portfolio now), it has a lower expense ratio (.09% vs .35% QQQE) and higher distributions (1.5% vs .5% QQQE). Has returned over 12% annually since inception in 2010.

https://www.ishares.com/us/products/239693/ishares-msci-usa-...

Would this be a worthy contender with QQQE or RSP?
Print the post Back To Top
No. of Recommendations: 11
0.2% is too high. Vanguard has a few S&P index funds or etf with expense ration at 0.04%

But they are essentially all capitalization weighed, and therefore they all have two problems:
* The well known problems with cap weight that makes them underperform almost any other weighting you choose for the same firms, and
* High company specific risk because of the heavy concentration in the few largest positions.

QQQE's largest single-company exposure is 1%.
QQQ's largest single-company exposure is 11.3%.
In that sense, QQQ is 11 times the risk for the same set of firms.
Remember that the sole reason to invest in any index fund is to minimize company specific risk, so that's not a meaningless metric.

It is my conclusion that the extra management fee is money very well spent to avoid those problems.
This is one instance that shaving the fees is a false, and dangerous, economy.

Separately, I hew strongly to this reasoning that suggests that nobody should invest in QQQ:
QQQ is so strongly concentrated in just a few names that the short and long run results are very much a function of how those few firms do.
The top six firms make up over 45% of that index. Top 3 are about 30%.
If you know those firms and their prospects well enough to believe in them, buy them, not an index that is heavy in them. So no QQQ.
If you DON'T know how to value the prospects of those few firms, you have no business investing in them in a heavily concentrated way. So no QQQ.

The same reasoning, to a somewhat lesser degree, applies to the cap weight S&P 500.
It's the easiest and most common way to make a poor but conventional choice, and these days one of the easiest pitfalls to avoid.

Jim
Print the post Back To Top
No. of Recommendations: 9
How are you valuing the index?, I cannot seem to find any P to E data on it.

I have access to some very high quality historical data.
Partly leftovers from my days running a hedge fund, partly thanks to the efforts of some folks at the MI board.
They are somewhere between expert and obsessive in terms of database construction.

The main input to my model is the daily figure for the median trailing-four-quarters earnings yield among the 100 stocks.
Though obviously that's cyclical, that makes a pretty good metric of valuation over time.
For an equally weighted index, median is a better representation of the average than the average itself, for subtle reasons I won't go into.

With that, and the data series for the index, I estimate the earnings of the index on each day through history.
I don't have the index level in the distant past, but I have a data series of the returns for the
Nasdaq 100 equal weight without dividends, which amounts to the same thing plus a constant multiplier.

This is a graph (about a year out of date) of what the result looks like: median real earnings through time for the 100 companies:
http://www.stonewellfunds.com/Nasdaq100_MedianRealE.png
As you can see, that's not a randomly wandering line, it's a surprisingly steady trend.

Re the flat spot: Earnings were understandably horrible in the tech bust, so I zapped those out.
This sounds like cheating, but it makes it more conservative...
if you include some very old very low values, it makes the slope of the trend line higher.
(Ignore the formula on the graph)
Plus, it will cause you to be more optimistic when you go to estimate the average long run multiple to get some idea of "normal".

Jim
Print the post Back To Top
No. of Recommendations: 1
QQQE's largest single-company exposure is 1%.
QQQ's largest single-company exposure is 11.3%.
In that sense, QQQ is 11 times the risk for the same set of firms.


A quick check shows that QQQ outperformed QQQE over the past 10 years. Do I miss something?

https://www.google.com/search?q=qqqe+stock&rlz=1C1OKWM_e...
Print the post Back To Top
No. of Recommendations: 0
This page has a chart and table for comparison:

https://www.inspiretofire.com/qqq-vs-qqqe/#:~:text=The%20mai....
Print the post Back To Top
No. of Recommendations: 7
A quick check shows that QQQ outperformed QQQE over the past 10 years. Do I miss something?

I don't doubt it.
But that doesn't change the case for QQQE, which is the fact that its value and its growth trajectory can be estimated, and to an extent extrapolated, unlike for QQQ.

Think of the returns of QQQ this way:

* The relatively predictable long run returns of QQQE
* ...plus or minus an unpredictable random number depending on the luck of half a dozen specific companies.

The random number has been positive lately.

Separately, that "random number" is very likely to be negative over the long run.
Historically, on average, the very largest firms are underperformers.
Fairly obviously, firms which are currently very overvalued are likely to be over-represented in that group of largest market cap stocks.
This means that with a cap weight grouping (or something similar to cap weight---QQQ isn't cap weight),
on any given day more of your money is allocated to the overvalued, and less to the undervalued.
This causes a long run drag to performance.

But only on average. There can be multi-year streaks that it doesn't work out that way.
See comment above about randomness.

Jim
Print the post Back To Top
No. of Recommendations: 0
Historically, on average, the very largest firms are underperformers.
Fairly obviously, firms which are currently very overvalued are likely to be over-represented in that group of largest market cap stocks.


This probably needs more studies. I think the Internet business differs from traditional business in important aspects: larger economic scale (not as much capital required), less structural bureaucracy and faster reaction to market.
Print the post Back To Top
No. of Recommendations: 4
Historically, on average, the very largest firms are underperformers.
Fairly obviously, firms which are currently very overvalued are likely to be over-represented in that group of largest market cap stocks.
...
This probably needs more studies. I think the Internet business differs from traditional business in important aspects:
larger economic scale (not as much capital required), less structural bureaucracy and faster reaction to market.


Internet companies are interesting economically, to be sure.
But beware the dangers of edging too far towards the narrative of "it's different this time".
Just because they're big and profitable and have done well lately doesn't mean they can't be overvalued some of the time.

And in any case, I'm stating a generality over time, not something one can assume to be correct about specific stocks in a specific year.
An equally weighted portfolio of the 5 largest market-cap firms underperformed the S&P 500 by 3.79%/year in the 39 years to 2017, and remarkably consistently.
And of course there was such a thing as big successful tech firms during much of this stretch.

Since then, a little over 5 years, the top 5 have beat the S&P by 13.13%/year.
Is that because the world is different this time, or just the luck of the draw of the intersection of "big" and "strong stock performance".
Is it different this time, or just one of those semi-rare stretches that the biggest happen do to well?

If I were picking an index fund to ride for the next 25 years, it wouldn't be cap weighted.
For multiple reasons, but long run underperformance is a biggie.
If something just out of the top few gets overvalued, it will get up into the top few ranked by size.
That's why it happens. And it certainly does happen--there are lots of papers on it.

Jim
Print the post Back To Top
No. of Recommendations: 0
ust because they're big and profitable and have done well lately doesn't mean they can't be overvalued some of the time.


I haven't looked at the smaller ones extensively. But those that have been mentioned on this board are more expensive than the well-known big ones, although with higher growth rate.
Print the post Back To Top
No. of Recommendations: 1
I'm the one singing the praises of QQQE...I wouldn't call it any kind of consensus.

Compartmentalization is amazing. While disparaging Index investing, hunting for ephemeral advantage within the Index universe in obscure illiquid products... go figure.
Print the post Back To Top
No. of Recommendations: 2
iShares MSCI USA equal weighted index (EUSA)?
Would this be a worthy contender with QQQE or RSP?


Doesn't look like it.
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&a...

Between EUSA, QQQE, and RSP, QQQE has the best CAGR and Sortino ratio and MaxDD.
CAGRs of 11.74%, 15.68%, 12.75%
Print the post Back To Top
No. of Recommendations: 3
Between EUSA, QQQE, and RSP, QQQE has the best CAGR and Sortino ratio and MaxDD.
CAGRs of 11.74%, 15.68%, 12.75%


The past isn't always the best guide to the future.
It's also worth looking at what it is, how it's constructed, and (yes) how much it costs.

As an example, sometimes something gets too expensive.
That makes the past look good and the future is likely to be bad.

So, probably better to look under the covers.

The obvious comparison is RSP.
Given the low volume and relatively low asset level, it might not survive?
But fees are low, and it doesn't look crazy. Seems like 626 stocks.
FWIW, recent breakdown
Information Technology 17.09%
Financials 13.42%
Health Care 13.24%
Industrials 13.22%
Consumer Discretionary 9.66%
Utilities 6.34%
Real Estate 6.03%
Consumer Staples 5.86%
Materials 5.53%
Communication Services 5.15%
Energy 4.46%

Performance seems fine based on what I could find--
https://www.msci.com/usa-equal-weighted
Jan 1999 to July 2015 (last figures I could find with a quick search)
MSCI USA (cap weight conventional version): CAGR 4.30%
Equal weight: 7.69%

Eyeballing the chart, better in good times, worse in bad times.
I suppose there are more good times than bad times over the long haul.

Needs a closer look.
But at a quick glance, I don't see a prominent reason to dismiss it.

Jim
Print the post Back To Top
No. of Recommendations: 0
So, the main case for QQQE being a better asset is simply that it rises in value more quickly.

ah! The value word. You cannot argue against it because it is what one assigns to it. Separately, I did a quick comparison of QQQE vs QQQ since inception till 2020 their performance was in lock step and since 2020 and QQQ outperformed QQQE.

So how are you coming to this conclusion besides mythical value. Anything tangible?
Print the post Back To Top
No. of Recommendations: 16
So how are you coming to this conclusion besides mythical value. Anything tangible?

Yes.
I have data back to 1997, not 2020, with and without dividends for both.
The equal weight version has done better.

The gap is quite small, largely because of the huge recent performance of the giants.
QQQ has done better by 4.6%/yr in the last five years of the recent supercap rally.
In the prior 18.3 years the equal weight version did better by about 1.3%/year.

But my previous comment is the appropriate one:
QQQE is not impossible to predict. Not perfectly of course, but a usefully good guess. It trends pretty well, and has low risk.
QQQ is best thought of as the return of QQQE, minus a very small constant, plus or minus a random number depending on the luck of the biggest few firms.
With a high multiple of the risk.

If you want low company-specific risk and you to know what kind of return you're likely to get, use QQQE.
You can get a decent handle of likely valuation level and likely growth.
If you just want the luck of the draw while flying blind, which might be better or might be worse but is likely to be a bit worse, you can buy QQQ.

As a random example, everybody's favourite firm Tesla is about 4% of QQQ versus 1% of QQQE, and is trading at about 100 times earnings.
Amazon is almost 8% at a P/E of 56.
Maybe those firms will do very well and grow into their valuation levels based on recent business results. Maybe they won't. Opinions differ.
But QQQ makes very concentrated bets, with the corresponding concentrated risk.
On average, over time, that's not a great idea. Neither for predictability nor empirically for returns.

Jim
Print the post Back To Top
No. of Recommendations: 0
I have data back to 1997

I was able to get data from 2012, and that is showing QQQ outperformance very slightly hence I called lock-step.

If you want low company-specific risk and you to know what kind of return you're likely to get, use QQQE.

OK. I see, assuming company specific risk is random and evenly distributed across the 100, Apple getting hit has a bigger impact on the Index performance vs splunk or OKTA. The random events, should also factor positive surprises right? Won't the positive surprises will have bigger impact on QQQ vs QQQE? Statistically, it should be a wash right?

But QQQ makes very concentrated bets, with the corresponding concentrated risk. On average, over time, that's not a great idea. Neither for predictability nor empirically for returns.

OK got it. Just saying.... I thought you are in favor of concentrated bets. I thought I am bundle of contradictions, but... LOL.
Print the post Back To Top
No. of Recommendations: 21
The random events, should also factor positive surprises right? Won't the positive surprises will have bigger impact on QQQ vs QQQE?
Statistically, it should be a wash right?


No, as it turns out. Perhaps surprisingly.

The odds of a company being overvalued are not random...very large caps are far more likely to have that situation.
That's because overvaluation drives up market cap.

Take the numbers 1 through 100. (companies of a range of sizes ranked by the size of their actual true values rather than market valuations).
For each one, adjust its number by a random amount in the range -20% to +20% of its current level. (transient over- or under-valuation).
Now sort the revised numbers. (cap weighting).
What are the chances that the ones that sort to the "biggest" end the list are ones that just had a number added rather than subtracted?
Pretty high.

Now sum all the numbers. (the portfolio)
What percent of the total is allocated to those that just had their numbers increased (temporarily overvalued), versus decreased (temporarily undervalued)?
Considerably more than half.

I thought you are in favor of concentrated bets. I thought I am bundle of contradictions, but...

Well, nice troll by straw man, but of course there is a big difference between a concentrated
bet on something you analyze in depth and a concentrated bet on something random you aren't even aware of.
The latter is the situation with most index investors.
As demonstrated above, at any given time they have a disproportionate fraction of their portfolios allocated to large temporarily overvalued stocks.
Big single stock risk, and on any given day those same biggest positions are most likely to be overvalued ones.
That's why cap weight indexes do so badly compared to almost any other weighting you might choose.
https://jpm.pm-research.com/content/39/4/91

Jim
Print the post Back To Top
No. of Recommendations: 0
I can't make sense of two ideas that are seemingly at odds with one another.

On the one hand Jim linked to research that cap weighted indicies lead to a risk of the largest holdings being overvalued.

On the other hand just a tiny number of stocks deliver the bulk of the gains in the stock market. See:
https://www.irishtimes.com/business/personal-finance/most-st...

This would seem to favor a cap weighted index.

Is it possible for both of these things to be true at the same time?

Todd
Print the post Back To Top
No. of Recommendations: 0
The odds of a company being overvalued are not random...very large caps are far more likely to have that situation. That's because overvaluation drives up market cap.

Faulty logic at best. Even today, where you consider everything is still overvalued, you have a mega cap like Facebook, which is clearly not overvalued or Google. For a long time Apple was not overvalued. This is a very poor conclusion without any basis.

On the other hand many small companies that are not making any profits, but only potential, are perennially overvalued. Many grow into their overvaluation, many die. But overvaluation driving market cap therefore big companies are overvalued is a circular logic with no basis.

companies of a range of sizes ranked by the size of their actual true values rather than market valuations

What is true value??? Just an imaginary number, that fits your narrative? When you are comparing the performance of the Index, which is the measurement of market price movement and then suddenly saying let us not use market valuation is... what kind of a logic is that?

Well, nice troll by straw man

Are you saying you didn't disparage Index investing? or you are in favor of concentrated bets? You recommended 80 year old to make a single stock bet of Berkshire, nothing can be concentrated bet.

Anyways...

big difference between a concentrated bet on something you analyze in depth and a concentrated bet on something random you aren't even aware of.

How much anyone truly knows about Berkshire? I have seen infinite discussions about price to book discussions, how it trended in the past, etc. Great, hindsight analysis, done to death. But how does it really make anyone smart about Berkshire subsidiary operations? My ability to forecast a REIT growth is far superior than your understanding of Berkshire. For all the fault of Saul and his board's, they analyze their business far more in depth, obsessively. What is this board and you are obsessed about? price to book multiple. And obsession on past performance. Period.

Never a single discussion on any business. I am not saying you need to or it is feasible for a conglomerate like Berkshire, but if you claim that you have in-depth understanding of gazillion Berkshire subsidiaries and analyzed them to arrive Berkshire valuation and feel confident, Power to you. To be brutally honest, you are just lying to yourself.

Investing in Berkshire is closest to investing in Index. Both in the case of Berkshire and Index the composition of companies/ industries that goes into are determined by someone passively. Simple example, you railed about how inferior US banks and Bank of America in particular, and how much WFC is a better bank than others, guess what???? WFC is not part of Berkshire holdings and BAC is a pretty big position. Actually I got that one correct. So much for your understanding of Berkshire or Buffett.

My friend on Buffett's teaching you got his letters and not the spirit of his teaching. If you have you would have embraced Index investing.


As demonstrated above, at any given time they have a disproportionate fraction of their portfolios allocated to large temporarily overvalued stocks. Big single stock risk, and on any given day those same biggest positions are most likely to be overvalued ones.

You have demonstrated nothing. Actually you do a decent back test with numbers, why don't you do that? pick any "valuation" metric and do that. The randomness is just random. When a big market cap takes a hit we see, in smaller ones it is just a tree falling in forest. The randomness, and the impact on the market cap are same and it has nothing to do with overvaluation.

What you perceive as "overvaluation" at least on big business are often "rational" reaction by a large set of market participants. It is the "cheap stocks" that are actually far riskier, stocks on their way to bankruptcies often pretty cheap on many metrics.

Value investing is not applying mechanically some multiple on some GAAP numbers. Valuing is far more than that.
Print the post Back To Top
No. of Recommendations: 6
"As demonstrated above, at any given time they have a disproportionate fraction of their portfolios allocated to large temporarily overvalued stocks. Big single stock risk, and on any given day those same biggest positions are most likely to be overvalued ones."

You have demonstrated nothing.


I think Jim's comments make sense. In a cap weighted index, the biggest cap stocks dominate the index. Consider a toy universe where the largest 10 companies within an index all have the same true market value, but they can vary widely in market cap because of varying public moods over the years: at the peak of a market craze a particular one of the ten is up 50% in its stock price, while another is far out of fashion and is down 50%. In a cap weighted index now the popular, overvalued stock stands at the top weight in the index above all others, while the unpopular one, the one that is the best value has seen its weight in the index shrivel.

In an equal weight index, the over-valued one has been sold off as it rises and the under-valued one is bought.

As long as the fad driving the over-valuation continues, the cap weighted index does better, but when market values begin to revert to actual values, the equal weight does better and should do better over time.

I know that's overly simplistic, but it makes sense to me.
Print the post Back To Top
No. of Recommendations: 0
As long as the fad driving the over-valuation continues, the cap weighted index does better, but when market values begin to revert to actual values, the equal weight does better and should do better over time.

I think both cap-weighted and equal-weighted have problem. Cap-weighted has the above mentioned problem. On the other hand, I wouldn't want to put in equal amount of money into Google and an unknown small-cap. Perhaps setting a maximum share threshold on any one company would be an improvement on the cap-weighted index.
Print the post Back To Top
No. of Recommendations: 0
I think Jim's comments make sense...I know that's overly simplistic, but it makes sense to me.

Demonstrating is providing numbers, statistics, an scientific evidence for a thesis.

What you and Jim are saying is your hunch. Because your favorite author has a hunch doesn't mean that theory is valid.

In fact, I would argue, when the big cap names raise, they lift all boats. How can we separate the overvaluation of the market cap is not seeping into lower names?

Separately, take any of your favorite valuation measurement and use it, you will be surprised to see the big cap's are generally lot cheaper, be is PE, Price to sales, ROE or ROA, risk adjusted return.
Print the post Back To Top
No. of Recommendations: 0
I wouldn't want to put in equal amount of money into Google and an unknown small-cap.

Yeah, equal weighting might not be the best idea for a total stock market index, but the ones it's found as an option for: the S&P500 and the Nasdaq 100, these are all mid-sized to large companies.
Print the post Back To Top
No. of Recommendations: 8
On the other hand, I wouldn't want to put in equal amount of money into Google and an unknown small-cap.

Why not?
(not being argumentative, that's a serious question--think about it)

First, remember that there is a price for everything.
The biggest company isn't necessary the one that makes the best investment prospect.
Statistically it's unlikely to be as good as the average one, both theoretically and empirically.

But also: if you know that Google is at an attractive valuation level, buy it.
But if so, you're not the target audience for index funds, which is people who don't know how to
value individual firms, nor to determine whether they are over- or under-valued.
For that audience, they do indeed want equal amounts of Google and an unknown smaller cap firm.
Or at least they *should* want that.

As an aside, it would probably be a stretch to call the smaller firms among the Nasdaq 100 "unknown small caps".
I think the smallest by market cap is Docusign at around $13bn, trading around $370m/day.

Jim
Print the post Back To Top
No. of Recommendations: 31
On the one hand Jim linked to research that cap weighted indicies lead to a risk of the largest holdings being overvalued.
On the other hand just a tiny number of stocks deliver the bulk of the gains in the stock market. See:
https://www.irishtimes.com/business/personal-finance/most-st...



That's quite a well known study. And probably one of the most misleading studies ever done.
It's particularly misleading (even to its authors) because the study is well constructed and presumably mathematically correct.
The problem is that the construction method contains a quirk that makes the obvious conclusion the wrong one.

To start with, bear in mind that the average company in the average year rises in value.
A "monkey with a dartboard" strategy that picks (say) 100 stocks, holds them for a year, and repeats, will do extremely well over time.
It is also a near certainty that it will beat a cap weight index over time. (roughly 99% chance, in one study)
Yet, having only 100 positions, it's also pretty unlikely that portfolio will contain one of the tiny number of "long term winners" identified by the study.

So how to reconcile it:

Think about the lifetime of a public company.
A simple model would be something like this: the business lasts for a pretty unpredictable number of years.
Ignore the ones that are bought out, since those aren't on average a problem for long run returns.
The remainder are generally profitable and have a positive real total return (on average) from the market for most of that life, however long it may last.
Then they fade and fail in a comparatively short time span, which is by comparison pretty constant.
The key bit here is "comparatively short".
Let's say the averagely prosperous lifespan is a random number 2-100 years, followed by 1-4 years of fade and death, as a mental model.

So what's the subtle quirk in that study that leads people astray?
It held all positions for their entire lifetime...all the way through the fade and death step.
In our toy universe, it's clear that most stocks will be a total loss during that end stage.
Yet we know that on any given day, most firms are not in that category at the moment.

A random selection of firms in a random finite time interval will have a strongly positive expected return,
because most picks, being chosen at random points in their lifetimes, will not be in their fade-and-die stage.
There is no need at all to be an owner of one of the few long term big winners.

It's peach season here. Perhaps you have noticed that individual peaches ripen and rot at very different rates.
Imagine buying a basket of peaches, most good and a few rotten.
One person buys those for consumption within three days. Most will be fine, and very enjoyable.
Another person holds the original peaches forever, and observes that they all eventually go rotten.
He concludes that all peaches are a waste of time and can never offer enjoyment.

A separate observation:
That study is also an interesting philosophical mirror.
Most industry participants who chose to comment on it used it to bolster their own pre-existing biases.
The Bogleheads used it as proof that it's necessary to own everything because otherwise it's very unlikely you'll be an owner of one of the few firms that will make you money.
The stock pickers used it as proof that it's necessary to show judgment, because the only way to succeed is to own the few obvious winners.
I just concluded it was a study constructed in a way that can't give a useful conclusion.

Jim
Print the post Back To Top
No. of Recommendations: 4
Demonstrating is providing numbers, statistics, and scientific evidence for a thesis.

What you and Jim are saying is your hunch.


It's not just a hunch, it's based on long-standing research that small stocks and value stocks tend to outperform over the long term. As the journal article Jim linked to upthread mentions, surprising 'strategies' for picking stocks, like throwing darts at the stock listings in the newspaper (lol, when is the last time anyone here looked at the stock listings in an actual newspaper?!?), will often outperform a cap-weighted index because the strategy provides a small-cap and value tilt to the selections compared to the cap weighted index.


In fact, I would argue, when the big cap names raise, they lift all boats. How can we separate the overvaluation of the market cap is not seeping into lower names?

Your question seems a bit unclear. There are obviously correlations across the various sectors of the stock market and a rising tide lifts all boats, but not equally. Different sectors come into and fall out of fashion. Among the biggest companies, which will naturally have the largest market capitalization, some will be more in fashion than others, more overvalued than others, and so will tend to have the largest market caps and weight in the index than others. This won't be a hard and fast rule: there may be times when large cap stocks have been out of favor for years and the top companies by market cap will be mostly a good value, but that's probably fairly uncommon.

Separately, take any of your favorite valuation measurement and use it, you will be surprised to see the big cap's are generally lot cheaper, be is PE, Price to sales, ROE or ROA, risk adjusted return.

A quick check on this proves you wrong: per Vanguard's info, average PE of the S&P 500 is 20.2, while average PE of the Vanguard Small Cap Index is 13.6.

PE of the top 5 stocks within the S&P500: AAPL: 23, MSFT: 28, GOOG/GOOGL: 21, AMZN: 56, TSLA: 100. Every one of them is higher PE than the average for the index.
Print the post Back To Top
No. of Recommendations: 0
But also: if you know that Google is at an attractive valuation level, buy it.
But if so, you're not the target audience for index funds, which is people who don't know how to
value individual firms, nor to determine whether they are over- or under-valued.
For that audience, they do indeed want equal amounts of Google and an unknown smaller cap firm.


Agree that from blind statistical point of view, there is no reason to buy one more than the other. However there is a side effect, if such index become popular, it will also artificially push up the value of smaller firms as demand out-weights supply.
Print the post Back To Top
No. of Recommendations: 0
equal weighting might not be the best idea for a total stock market index

This is true from a simple practicality standpoint. Theoretically it would make a very good investment, with a heavy micro-cap tilt, but managing it would be a nightmare. Cap weight was the choice by Bogle for the original Vanguard S&P 500 index fund because it involves minimal trading and management expenses. Buying/selling microcaps on the regular would run into problems if the fund gained any real size.
Print the post Back To Top
No. of Recommendations: 0
A quick check on this proves you wrong: per Vanguard's info, average PE of the S&P 500 is 20.2, while average PE of the Vanguard Small Cap Index is 13.6.

PE of the top 5 stocks within the S&P500: AAPL: 23, MSFT: 28, GOOG/GOOGL: 21, AMZN: 56, TSLA: 100. Every one of them is higher PE than the average for the index.


Is this true in Nasdaq, not S&P500? I thought these stocks are in Nasdaq
Print the post Back To Top
No. of Recommendations: 3
On the other hand, I wouldn't want to put in equal amount of money into Google and an unknown small-cap. Perhaps setting a maximum share threshold on any one company would be an improvement on the cap-weighted index.

Or, buy the equal weighted index, and let it act like an index fund which tracks the Nasdaq 100 in an unskewed manner, then buy shares of the stocks you have conviction on.

IP
Print the post Back To Top
No. of Recommendations: 1
"A quick check on this proves you wrong: per Vanguard's info, average PE of the S&P 500 is 20.2, while average PE of the Vanguard Small Cap Index is 13.6.

PE of the top 5 stocks within the S&P500: AAPL: 23, MSFT: 28, GOOG/GOOGL: 21, AMZN: 56, TSLA: 100. Every one of them is higher PE than the average for the index."

Is this true in Nasdaq, not S&P500? I thought these stocks are in Nasdaq


S&P500 takes stocks from both Nasdaq and the NYSE, it's exchange agnostic.

A quick look at QQQ's info, I find Invesco says the PE of the index is 37. I couldn't find the same figure for QQQE.
Print the post Back To Top
No. of Recommendations: 0
Or, buy the equal weighted index, and let it act like an index fund which tracks the Nasdaq 100 in an unskewed manner, then buy shares of the stocks you have conviction on.

That’s a good idea. I would put 50% buying QQQE, another 50% buying the top 10 picks except Tesla of QQQ
Print the post Back To Top
No. of Recommendations: 5
Agree that from blind statistical point of view, there is no reason to buy one more than the other.
However there is a side effect, if such index become popular, it will also artificially push up the value of smaller firms as demand out-weights supply.


Almost every strategy fails in one way or another if everyone does it.
The same complaint, perhaps more serious, applies to cap weight indexes when they become too popular.

Institutions with $100bn to invest have to be stick with near total concentration in the very largest firms.
Most of us don't have that problem. Let's leave them to it.
They have the money to fill that gap, and we don't, whether we like equal weight or not.

Jim
Print the post Back To Top
No. of Recommendations: 10
A quick look at QQQ's info, I find Invesco says the PE of the index is 37. I couldn't find the same figure for QQQE.

The P/E of QQQE is 24.52 as of Friday close.

Calculated as:
1 / (Average trailing four quarter earnings yield)
Never try to do math with P/E ratios : )



Median P/E among the 100 stocks is currently 26.32
The average across all days of that median-within-the-100 is a P/E of 25.6 since 2005.
The median among all days of that median-within-the-100 is a P/E of 26.9 since 2005.
So, to the extent that that's a reasonable era to consider, it's basically at an average valuation level.
(you get a very slightly different result by adding a cyclical adjustment to earnings, but they aren't far off trend right now)

FWIW, median ROE among the 100 stocks is 23.2
Pretty impressive.

Jim
Print the post Back To Top
No. of Recommendations: 2
The P/E of QQQE is 24.52 as of Friday close ... Median P/E among the 100 stocks is currently 26.32. The average across all days of that median-within-the-100 is a P/E of 25.6 since 2005.


Thanks, Jim, great info. Slightly above average valuation currently, and in the throes of a steep bear market, currently down 28.5% from peak. Who knows what will happen, but it appears likely the bear will continue. Recent lows have not seen any kind of dramatic volume that looks like a major bottom.

I'll keep an eye on this one and aim to buy when its valuation is significantly better than average.
Print the post Back To Top
No. of Recommendations: 18
Demonstrating is providing numbers, statistics, and scientific evidence for a thesis.

The following is based on the backtester GTR1 and is from March 1, 1957 to present, with rebalance every 3 months using S&P 500 stocks

CAGR for S&P 500 weighted by market cap: 10.2%


http://gtr1.net/2013/?h63::sp500.a:et1:MktCap:tn500:MktCap:b...

CAGR for S&P 500 equally weighted: 12.12%


http://gtr1.net/2013/?h63::sp500.a:et1:MktCap:tn500:MktCap:b...

CARG for S&P 500 remove top 20 market cap and equally weight remaining 480: 12.21%

http://gtr1.net/2013/?h63::sp500.a:et1:MktCap:tn500:MktCap:b...

Regards

Craig
Print the post Back To Top
No. of Recommendations: 3
CAGR for S&P 500 equally weighted: 12.12%
CAGR for S&P 500 weighted by market cap: 10.2%


First thought: what about implementation costs?

Actual ETF results from portfoliovisualizer.com May 2003 - May 2022:
RSP: 10.02%
SPY: 9.47%

Not as advantageous but still useful.
RSP a little more volatile.
Print the post Back To Top
No. of Recommendations: 0
It's not just a hunch, it's based on long-standing research that small stocks and value stocks tend to outperform over the long term

Now you are confusing stock performance with valuation. Out performance happens because they grow faster, but they are still overvalued. Remember, the discussion, the thesis is mega caps' are overvalued, hence you should do equal weightage.

The best example for you is, take a look at MSFT, WMT or SBUX or any number of firms, while they were growing they had much higher valuation and as they matured in their growth (their market cap raised) their valuation moderated.

I am not sure how exactly that article proves that mega caps were overvalued. Jim is great in deflection, using confusing but superficially convincing arguments that people eat out of his hands. I will never forget when he mentioned debt is not part of market cap and it is irrelevant and got 100 rec's. He happily indulges in financial slight of hand. But I digress, still show me where in that article you come to the conclusion that mega caps' are perennially overvalued.

Your question seems a bit unclear
Typically when growth outperforms therefore gets expensive, value doesn't follow suit. OTOH when megacap value joins the party except few times growth gets further boost. Now, to begin with growth/ lower cap names are typically more expensive than the megacap (except the recent few years, primarily due to AMZN, GOOGL's of the world and recently Apple and Softy joined the party). Historically the top of the index is not expensive but they carried higher weightage. When the mega caps raise they lift all boats further, but when small caps raise they make no impact on megacap's.

A quick check on this proves you wrong: per Vanguard's info, average PE of the S&P 500 is 20.2, while average PE of the Vanguard Small Cap Index is 13.6
Pretty lazy attempt. For one to switch from market-cap weighted index to equal-cap weighted index, you cannot take one point in time, but you have to have demonstrated outperformance, something like multi-decade. Go back and see historically you will see surprising results. I could be wrong, but I think if a firm is not making any profit that is not included in the PE calculation. Check it out.

I have data only from 2012 and clearly QQQE is not outperforming QQQ from that period. Jim, says he has data that goes to 1995, may be he can share it. He has access to some amazing database, I would happily take back my position if there is a data that shows equal cap outperforms mega cap. I haven't see it yet.
Print the post Back To Top
No. of Recommendations: 0
"So, the main case for QQQE being a better asset is simply that it rises in value more quickly."

How difficult would it be to put together a basket of the companies with the fastest rates of value growth?
Print the post Back To Top
No. of Recommendations: 0
Note that the discussion is about stock index fund, which may not necessarily be applicable to general big-cap or small-cap discussion. This is because the constituent in the index fund keeps changing, losers are removed and winners are added.

"THROUGH THE LOOKING GLASS: PREDICTING S&P 500 CONSTITUENT CHANGES"
https://insight.factset.com/through-the-looking-glass-predic....
Print the post Back To Top
No. of Recommendations: 6
RSP: 10.02%
SPY: 9.47%
Not as advantageous but still useful.
RSP a little more volatile.


Though I don't doubt your figures, do remember the endpoint...the cap weight S&P has just had one of its rare great runs, like the late 1990s.
As in 1999, anything but SPY looked silly lately.

The equal weight beat the cap weight for the S&P 500 and cap-weight predecessors 68.9% of rolling five year periods since 1930.
Observation: it's far from certain that equal weight will win.
Median advantage among those rolling 5-year periods 1.64%/year.
Observation: it's still the better bet.

Both without fees.

Note, as always: price volatility isn't a useful proxy for risk.
The S&P 500 is far riskier because it has vastly more company specific risk.
What can that result in?
In those rolling 5 year returns, the worst for RSP was lagging the cap weight by 8.9%/year.
The worst for cap weight was lagging the equal weight by 25.0%/year.
And presumably a greater risk of making less money over time than you might need.

Jim
Print the post Back To Top
No. of Recommendations: 7
How difficult would it be to put together a basket of the companies with the fastest rates of value growth?

Interesting question.
It's easy to build a basket that has an edge in growth rate.
But it's probably hard to do in a way that gives a big edge in returns over the long run.
So many people are looking for growth at any given time that more often than not those firms are overpriced relative to their eventual realized future values.
For two otherwise similar firms, imagine the faster growing one being worth 50% more but costing twice as much.
Knowing that its true value is growing very quickly might not be sufficient information.

So you might want to add the criterion "while not overpaying for that growth", which gets tough.

I've tried all sorts of things.
Some tests make more sense than others, but empirically the most effective seems to be five year rate of growth of sales per share.
From among the Value Line 1700 set, an equally weighted portfolio of the 40 fastest growers on that metric would have beat the S&P 500 by 8.5%/year in the last 25 years, after trading costs.
68% chance of beating the S&P in any rolling year.

I did add a tweak to cut down on trading:
Each month, if a currently held stock is no longer in the top 45 by growth rate, replace it with the highest growth stock not already owned.

If 40 stocks is too many for you, unsurprisingly narrowing it down by momentum works pretty darned well.
I like to use ratio of stock price to 52 week high.
A 15-stock portfolio done that way adds a further 4.3%/year after trading costs. In backtest, anyway.
(find 40 by sales growth, then among those top 15 by "off high". Checking monthly, replace anything no longer among the top 25)
24.9 year CAGR 21.9% versus CAGR 9.1% for SPY.

Congratulations, you're now a pure growth investor. No value criteria at all.

Jim
Print the post Back To Top
No. of Recommendations: 1
"Congratulations, you're now a pure growth investor. No value criteria at all."

Too funny. OK. Let's add a value criterion. And maybe a profitability criterion, too. It's impossible to find the best 20 or 40 companies, for five years or thirty five years, but I think that we can probably do a little bit better than an index.

I apologize for taking the thread off topic, which was index funds.
Print the post Back To Top
No. of Recommendations: 0
find 40 by sales growth, then among those top 15 by "off high".

This is highest by sales growth and nearest to 52-week high, right?
Print the post Back To Top
No. of Recommendations: 2
This is highest by sales growth and nearest to 52-week high, right?

Yup.
Highest sales growth 40, then among those, the 15 with the highest ratio of price to 52 week high.*

Though it's only a backtest--reality is never the same--it's a shocking amount of extra performance for such a stupidly simple screen even without the momentum check.

It wouldn't be surprising to me if, for example, all the performance were in the last 5 years while sales growth was almost everything.
But, again merely in the backtest, it beat SPY in 79% of rolling years in the version with the momentum check.
It made amazing money in 1998 and 1999 during the tech bull, no surprise, but also made decent money in 2000 and 2001 during the tech bear.

Jim


* Geek note:
Value Line calculates their 52 week high only once per month, end of calendar month, released on the first Monday that is at least a few days later.
So, it's actually more like the ratio of current price to highest price in the interval 1-53 weeks ago or even 2-54 weeks ago.
This makes quite a difference: an even more "stale" 52 week high figure works even better, in general.
It pays to be lazy.
So bear in mind that the ratio of price to 52-week high can be greater than 1.
You only need to worry about this obscure detail if you use a data source other than Value Line for the 52 week high field.
Print the post Back To Top
No. of Recommendations: 9
I wrote and Kingran rebutted: "It's not just a hunch, it's based on long-standing research that small stocks and value stocks tend to outperform over the long term"

Now you are confusing stock performance with valuation. Out performance happens because they grow faster, but they are still overvalued. Remember, the discussion, the thesis is mega caps' are overvalued, hence you should do equal weightage.


I'm not confusing stock performance with valuation, I'm pointing out that there is a long history of research showing that when you divide the stock market into categories like large cap/small cap and value/growth, small cap stocks tend to deliver better returns than large cap in the long term (that is by itself a reason to prefer equal weight indexing over cap weight), and value stocks tend to deliver better returns than growth stocks in the long term, which also is a reason to lean toward equal share indexing over cap weight, because as a rule growth stocks are more popular and have higher price/cap for the realistic growth you can expect, and that goes right up to the biggest cap stocks.

This chart of the largest cap stocks in the US over time is interesting: https://americanbusinesshistory.org/most-valuable-companies-...

Growth stocks dominate the top spots most of the 25 years covered, with the exception of several years after the tech bust in the early 2000s when Exxon had the lead.


Kingran wrote, incorrectly: take any of your favorite valuation measurement and use it, you will be surprised to see the big cap's are generally lot cheaper, be is PE, Price to sales, ROE or ROA, risk adjusted return.

I took an easy shortcut to show that was wrong, at least right now, by comparing the PE of Vanguards Small Cap Index (13.6) to their SP500 Index (20.2). Big caps are more expensive by PE than small caps in this example. I also pointed out that every one of the top 5 companies by market cap in the S&P 500 have PE over the index's average, some grossly so. Here are those PEs: " AAPL: 23, MSFT: 28, GOOG/GOOGL: 21, AMZN: 56, TSLA: 100." And that is after Tesla and Amazon have already dropped by 38-40% within the last year!
Print the post Back To Top
No. of Recommendations: 0
five year rate of growth of sales per share ... equally weighted portfolio of the 40 fastest growers ... 8.5%/year
......
ratio of stock price to 52 week high. A 15-stock portfolio...


Jim, as you did all kinds of variations maybe you have the results at your fingertips available for:

A) 15 or so stocks instead of 40 for the 5-year-sales-growth criterion only?

B) Rebalancing once per year only (monthly seems to be your standard), for 40 stocks and for 15 or so?
Print the post Back To Top
No. of Recommendations: 14
A) 15 or so stocks instead of 40 for the 5-year-sales-growth criterion only?
B) Rebalancing once per year only (monthly seems to be your standard), for 40 stocks and for 15 or so?


As requested, all figures below are purely ranked on five year sales growth, no momentum test.
Some other hidden criteria:
* It has to have been a stock covered by Value Line;
* It has to have been listed in the US, or the database I'm checking wouldn't have the price data;
* It has to be at least 5 years old at the time (because it's a 5-year sales growth rate);
* ...and there are no banks, thrifts, or funds allowed.
The meaning of revenue for a bank is not the same as revenue for a product or service firm: it's more like gross margin.
As a reminder to investors of this, Value Line does not publish revenue or revenue growth numbers for banks.
So they can never appear on this screen.

One other quirk: the rate of sales growth is calculated for each stock only once per year, using the annual statements I believe.
So the figure is often quite stale. Surprisingly, this isn't a big problem; it cuts down on pointless trading a lot.
I think (?) the figure might also be smoothed a bit.

Period of analysis is 1997-05-05 through 2022-04-04, a hair under 25 years.
All figures include dividends (reinvested in the stock in question on the ex-date)
and trading costs estimated at 0.4% round trip per trade. No provision for tax.

S&P 500 total return 9.11%

40 stocks monthly with trading costs 17.51%
15 stocks monthly with trading costs 15.08%

40 stocks monthly with trading costs, replacing only those ranked below 45 17.56%
15 stocks monthly with trading costs, replacing only those ranked below 25 15.46%

40 stocks quarterly with trading costs 18.74%
15 stocks quarterly with trading costs 16.59%

40 stocks each 6 months with trading costs 19.39%
15 stocks each 6 months with trading costs 17.24%

40 stocks annually with trading costs 19.19%
15 stocks annually with trading costs 19.29%


Note: as the hold period lengthens, the statistical strength of this test falls.
So the progression of returns with hold period length is only indicative, not definitive.
It is one possible set of trades, out of many many possible such sets of trades.
Add grains of salt in proportion to the number of months held : )

If you decided to go with annually, don't buy them all the same day.
e.g., buy several each month or two or three, and hold those for a year.
So, it's like a few mini-portfolios, each one with annual holds, but staggered through time.
You don't want all your trading to take place on a single day each year that might be very atypical,
with (for example) growth stocks wildly out of fashion or right on the cusp of a leadership rotation.

Jim
Print the post Back To Top
No. of Recommendations: 3
Jim, thank you so much!!!


15 stocks annually with trading costs 19.29%

With the caveat you mentioned. Nevertheless especially those last "A system for lazy people" numbers lead to the heretical question: Why Berkshire?

Why do I hold it?
(Not having known your findings)

Or you, for that matter?
Print the post Back To Top
No. of Recommendations: 8
"A system for lazy people" numbers lead to the heretical question: Why Berkshire?
Why do I hold it?
Or you, for that matter?


Because backtests aren't reality.
Nothing returns 19%/year over the long haul.

The subtlety is trying to decide how much of any quant approach is "real"--how predictive it will be in future.
There are lots of things one might look at to make an educated guess.
How simple is it? How evenly spread through time is the performance advantage?
It it finding just 3 stocks it says are great, or 30?
Did you test just one set of purchase dates per year, or 12, or 252?

One of the best checks is how well it has done since it was published.
I used to suggest (partly tongue in cheek) that the best way to choose a quant screen is to find the one with the highest product of:
[how much it has beat the market post publication] times [months since then].

Jim
Print the post Back To Top
No. of Recommendations: 0
[how much it has beat the market post publication] times [months since then]

Jim, I just had a quick look at my own screen which I created in 2001, backtested it with data from 1994-2000, and used in the following 8 years.

The yearly numbers are roughly ("2001/02" because I rebalanced in the middle of each year):

2001/02: +11.7%
2002/03: +9.8%
2003/04: +60.6%
2004/05: +45.5%
2005/06: +0.7%
2006/07: +12.7%

"Roughly" as I just simply looked at my chronological list of buys/sales over those years, using "Stocks sold in year X" as a proxy for the portfolio performance in that year (not really correct as that stock or part of it might have been bought in one of the previous years already) instead of looking at my yearly huge and complex workbooks (It would take me a while to understand them again).

Another quick look seems to confirm that: Alltogether there were 184 complete transactions (share bought+sold) in the years 2001-2007, resulting in an average of +30%/sale, which SHOULD approximate the yearly returns.

Not too shabby? As I have no comparison (I never used any other screen than my own one) I have no idea how you, Jim, would rate those results (If interested I could email you the buy/sold list; but I won't post it)???


P.S.: Why did I stop using it? Because in 2008 according to that quick look it resulted in -25% which was devastating for me --- and not the full story as I stopped using my system but hoped for a few years WM, Beazer, Radian and others would recover - which they did not, so my system's 2008 decision actually resulted in worse than -25%.

P.P.S.: Looking at the whole picture now, from a distance --- and knowing that NO system could have been in 2008 as successful as before --- maybe I should have continued using it. Too late now. Although the principle it's based on is super-simple the whole automated system is so complex I am not sure I could still work my way into it anymore, and after all those years all the data fetching from websites would have to be coded from scratch anyway, and probably much more.
Print the post Back To Top
No. of Recommendations: 1
P.P.P.S.: On the other hand once a year that system then did run for many days, day and night, connected to the Internet via 56k modem. With me first thing in the morning always checking whether it's still running or did stop with a run time error not yet properly handled.

With now having 100x that speed and more, mhmm, that would be interesting :-)
Print the post Back To Top
No. of Recommendations: 8
Not too shabby? As I have no comparison (I never used any other screen than my own one) I have no idea how you, Jim, would rate those results

Outstanding.

They're impressive for a backtest, but *really* impressive for a real world result.

The only thing to remember is that the date range was almost entirely one long bull market.
Not losing your shirt is a bear market is a good property to have.

I once proposed this as a method for picking what quant screens to use.
* Pick a broad range of long-only quant screens that seem doable--a very long list.
* Hand pick a bunch of market tops and bottoms in the past, dividing history in to good times and bad.
* Check to see the rate of return of all your candidate screens in all those good and bad periods.
* For each screen, give it an overall score for rate of return in bull markets, and rate of return in bear markets.
* Forget the bull markets! Just use a mix of the several screens that did best in bear markets.
The good times will take care of themselves : )
And you don't need a market timing system.

Jim
Print the post Back To Top
No. of Recommendations: 0
I'm not confusing stock performance with valuation...Growth stocks dominate the top spots most of the 25 years covered, with the exception of several years after the tech bust in the early 2000s when Exxon had the lead.

Did I miss it? Where is the argument that mega cap's are typically overvalued???

Kingran wrote, incorrectly: take any of your favorite valuation measurement and use it, you will be surprised to see the big cap's are generally lot cheaper, be is PE, Price to sales, ROE or ROA, risk adjusted return.

I took an easy shortcut to show that was wrong, at least right now,


Again, respectfully, where is the data that shows megacaps are perennially overvalued?

Let me remind you the argument for the equal weighted is megacap's are overvalued, hene you want to spread the bet on lower valued names.

So far I haven't seen any evidence.

In this board, if I say 1+1=2, and you argued it is actually 4, you will get 100 rec, shame on me. But that still doesn't make your argument is right. I am waiting to see the evidence.

I am not really good at running back-test, but there are others here good at it. So, if they can do a back-test that shows over 10, 15, 20 year period equal weighted index outperforms the cap weighted, I am happy to accept it. So far attack the person asking the question is what I have seen, If you cannot provide any evidence, I can understand. It is a long-list of assertions that have willing audience and damn the guy who is "challenging it'.
Print the post Back To Top
No. of Recommendations: 2
So, if they can do a back-test that shows ... equal weighted index outperforms the cap weighted, I am happy to accept it.

You can backtest over any time period and get the answer for free at portoliovisualizer.com.

Over the past 10 years, the regular S&P 500 (SPY) beat the equal weight version (RSP).

May 2012 - May 2022 (10 years)
Max
CAGR Drawdown
SPY 13.5% -19%
RSP 12.9% -27%

Not only did SPY beat RSP, the RSP investors suffered a much worse max drawdown (-27%) compared to the regular SPY investors (-19%). There's no safety in equal weight.

What about QQQ versus the equal weight QQQE?

May 2012 - May 2022 (10 years)
Max
CAGR Drawdown
QQQ 17.5% -22%
QQQE 14.5% -20%

QQQ absolutely trounced QQQE over the past 10 years. $100K invested in QQQ in May 2012 would have grown to $508K today versus only $392K if invested in QQQE. The max drawdowns were again about the same, so there was no safety in QQQE either compared to QQQ.

"Just the facts, ma'am."
Print the post Back To Top
No. of Recommendations: 21
In this board, if I say 1+1=2, and you argued it is actually 4, you will get 100 rec, shame on me. - kingran

So all the ranting all the time is just about not being loved? :-(
Print the post Back To Top
No. of Recommendations: 0
So all the ranting all the time is just about not being loved?

Yeap, it is all about me, me, me... :) LOL
Print the post Back To Top
No. of Recommendations: 26
"Just the facts, ma'am."

"Just the selective facts"?

Re the S&P versus the S&P equal weight, for example--
Yup, the S&P beat the equal weight in the last decade.
Not by a lot though--despite the roaring market for some supercaps, the cap weight won by only +0.40% in the ten years to June 17.

But more importantly--
Have you thought deeply about the reasons behind the short term result you report?
Which effects are the cycle, which are structural?
Which can be generalized and extrapolated, and which should be seen as ripe for mean reversion?

For the conventional float-adjusted cap weighted S&P 500 versus the equal weight version,
the odds of the conventional S&P beating the S&P in a ten year period are 21% based on history.
(using daily dividend- and inflation-adjusted daily data from 1930).
So, it definitely happens. Just not often. So, it's not what one should have as a central expectation.
The S&P 500 didn't win over the equal weight in any rolling 10 year interval with daily end dates from mid 2001 to mid 2019.

In the daily-start rolling ten year stretches since 1930, the equal weight won an average of by 2.13%/year.
In ten year stretches following a decade that the S&P did better, the equal weight won by an average of 2.70%/year: some mean reversion.
So, knowing nothing, one ought to expect the equal weight to do better.
Knowing that the cap weight has done better in recent years, you should expect the equal weight to win by an unusually large amount.

What about risk?
The max drawdown figures are not useful proxies for risk, of course.
The only purpose of investing in an index is to diversify away from company specific risk and having to know the valuation and prospects of specific firms in detail.
So the cap weight indexes are far riskier, since they have around 6-11 times the company specific risk.
Risk isn't short term price squiggles, risk is losing money. Or not making the money you needed.
Using a more sensible metric of risk, rolling ten-year real downside deviation with MAR=8%,
the risk of owning the equal weight is less than 59.84% of the risk of owning the S&P 500 and its cap-weight predecessors.
(This is a measure of how often returns fell below inflation + 8%/year in any ten year stretch, with a squared penalty on the size of the shortfall below that figure)

But, speaking of drawdowns--this recent result is a wonderful demonstration of the randomness of the S&P 500 because of its high concentration risk.
Think about *why* the max drawdown was lower with SPY in the specific stretch you looked at. Is it meaningful?
A cap weight index has a huge concentration in a few names.
In a panic, almost everything sells off, but not everything.
Sometimes the gigacaps are unusually bad performers during that stretch, sometimes unusually good.
It's pretty random--they're only a few companies, after all.
We recently had a pandemic, and the ones that happened to be at the top at the time were seen as winners during lockdowns and did very well.
The best way to think of the returns of the S&P 500 are like this:
The returns of the S&P 500 equal weight (what the typical firm is managing),
minus a small constant,
plus or minus a big random number depending on the luck of who's biggest and overweighted right now.

A possible moral for the story:
Never mistake the cycle for the trend.

Jim
Print the post Back To Top
No. of Recommendations: 0
In the daily-start rolling ten year stretches since 1930, the equal weight won an average of by 2.13%/year.
In ten year stretches following a decade that the S&P did better, the equal weight won by an average of 2.70%/year: some mean reversion.


I have a feeling this can’t be explained by statistics (expected return, not the probability of very bad return) unless smaller-cap inherently outperform bigger-cap.
Print the post Back To Top
No. of Recommendations: 18
I have a feeling this can’t be explained by statistics (expected return, not the probability of
very bad return) unless smaller-cap inherently outperform bigger-cap.


Yes and no.

It's not so much that "smaller firms do better on average". They don't, really. Not by that much, anyway.
A better characterization is that "the stock prices of the few truly giant firms tend to do particularly badly".

So how does equal weight outperform?

First, there is a small effect from the pure rebalancing process itself.
Consider a simple case: if all stock prices move by a random amount each quarter but were otherwise flat long run,
a cap weight index would be forever net flat and an equal weight one would have a small long run profit.
Each quarter the equal weight index would sell a bit of something that (randomly) rose in price the prior quarter,
and buy a bit more of something else that (randomly) fell in price. The next quarter those returns would (on average) reverse.
This price rebound effect isn't that large, though...it can be measured.

Rather, the biggest contribution simply comes from avoiding an over-concentration in the very few very largest firms by current market value.
They are, statistically and for fairly clear reasons, more likely than the average firm to be overvalued at any given time.
(Not always leading to underperformance, just on average over time)
The problem is multiplicative: these are usually the worst performers, and a cap weight index has a very large allocation to them.
Imagine reading the prospectus of a fund that described its strategy that way--would you invest?
An equally weighted portfolio of the five largest US-listed firms by market cap 1997-2016 returned 4.05%/year.
The S&P 500 returned 7.68%/year.
The S&P equal weight returned 9.47%/year.

That's why there is nothing particularly magic about the equal weight strategy.
A huge part of the benefit can be accomplished by using any reasonably diversified weighting scheme based on a metric other than market cap.
So, it's not about moving to equal weight, and it's not about smaller firms doing better than larger firm. It's about "anything but cap weight".
Have a look at PRF using the RAFI methodology. It weights positions based on the size of the business, rather than the market cap of its stock.
They are similar in practice--PRF's current largest posistions are Apple, Microsoft, JP Morgan, Berkshire and Exxon.
But there is no overweighting of a position merely because its price goes up.
(they measure company size based on proxies like revenues, cash flow, book value, and total dividends paid)
Long run performance of their index has been good, though not exciting, despite the tendency of long
run underperformance of asset heavy businesses resulting from including book value in that list.

I note that the net five year returns for PRF (concentrated in big firms but NOT based on market cap)
and for RSP (equal weight, so smaller average business size) are virtually identical, despite shorter term variation.
Of the hundreds of different schemes that have been used, the outlier for long run performance isn't equal weight, but cap weight.

Remember that cap weight indexes were not designed as investment vehicles.
They were designed as information tools for watching the progress of markets.
Only later did someone suggest investing in them as such.
The attraction for the fund company is obvious: almost no trading.

Jim
Print the post Back To Top
No. of Recommendations: 4
Wow, Jim. You are patient. So very much appreciated.

IP
Print the post Back To Top
No. of Recommendations: 0
Jim, thanks for the detail explanation, it makes sense.
Print the post Back To Top
No. of Recommendations: 1
I would like to add that besides better return long term, the equal weight also has lower risk of very bad return. Suppose Tesla went to zero and the cap-weighted index had 5% of the index in Tesla, the the index would lose 5%, while the equal weight would only lose 1%
Print the post Back To Top
No. of Recommendations: 14
Wow, Jim. You are patient. So very much appreciated.

They're very complicated issues.
I have the tailwind of some very good data sets.

Note, nothing in what I've said suggests that the current super-large firms are going to do badly as business, nor even that their stocks will do badly from here.
I'm not even arguing that QQQE will beat QQQ or that RSP will beat SPY in the next few years.
Maybe yes, maybe no.
The outcome of the race depends on the fortunes of a very small number of very big firms.
But that's rather the point--
The cap-weight returns should be thought of as the somewhat predictable equal weight returns, plus or minus an unpredictable random number.

My stance is this:

If you know this year's huge giants well and can value them and make a sensible estimate of their likely returns, invest in them, not a cap weight index.
You're not the target audience for index investing.

If you ARE the intended audience for index investing and don't know how to value them or their individual prospects,
don't make a hidden huge concentrated bet on them with a cap weight index.
On average the giants of the day are substantial underperformers, so it's not what you want to bet heavily on.
And even without that knowledge, you're not a stock expert, so you don't want to be big on *anything*.
Take a choice that has the vastly lower risk and usually better returns.

There are many such choices, not just a fund that gives you everything equal weighted.
Personally, I like the "monkey with a dartboard" approach.
Pick 30-50-100 stocks at random that are included in a major index, buy equal dollar amounts of each.
Hold each position for a year or two, selling each at a predetermined time, and replace it with something else.
Your chances of beating the S&P are very very good.
And you can eliminate from consideration a few firms you might find odious, so it is more ethically defensible than index investing.
If your dartboard happened to be just a little bit biased towards the 10% of companies with the highest ROE, it probably wouldn't hurt : )

Jim
Print the post Back To Top
No. of Recommendations: 21
I would like to add that besides better return long term, the equal weight also has lower risk of
very bad return. Suppose Tesla went to zero and the cap-weighted index had 5% of the index in Tesla,
the the index would lose 5%, while the equal weight would only lose 1%


This reasoning also works in mild cases.

For example, I think Microsoft is probably a bit overvalued at present. Maybe I'm wrong about that.
But if it's true, then maybe they will have no return for the next 2-4 years, even if the business continues to do well.
Microsoft is over 10% of QQQ and 5.6% of SPY.
But of course only 1% of QQQE and 0.2% of RSP.
Would you rather have a flat return from 10% of your portfolio because of the idiosyncrasies of a single stock, or 1%?

On any given day, some stocks are temporarily overvalued, to widely varying degrees.
On that day, every cap weight index is overweight every one of those stocks, and underweight all the undervalued ones.
The overweight of each is in proportion to the degree they are overvalued that day, times the size of the firm.

So, the main drag is big firms that have unreasonably high prices.
Tesla was quite richly valued when it was added to the S&P in December 2020 replacing AIV.
The S&P 500 index was an amazing 0.41% lower six months later than it would have been without that single replacement.
The drag from that event in the equal weight S&P index was under 0.05%.

For me the moral is this:
Never take big positions in things you don't have a good reason to want a big position in.
That reason can only be a justified expectation of some mix of above average prospective returns from current prices and below average likelihood of permanent capital loss.

Jim
Print the post Back To Top
No. of Recommendations: 1
Pick 30-50-100 stocks at random that are included in a major index, buy equal dollar amounts of each.
Hold each position for a year or two, selling each at a predetermined time, and replace it with something else.
Your chances of beating the S&P are very very good.


Equal weight portfolios of 50-100 stocks picked at random from an index will result in a normal
distribution -- about half will do better than the index and about half do worse. Results will
also depend on how the major index itself does vs the S&P.

Ears
Print the post Back To Top
No. of Recommendations: 7
This has been a fascinating and informative conversation.

If you ARE the intended audience for index investing and don't know how to value them or their individual prospects, don't make a hidden huge concentrated bet on them with a cap weight index.

This point resonated with me particularly well. I spend some time re-balancing my 403-b last fall because I was concerned about the heavy concentration in a few big name stocks in my funds. For example, the top five holdings in VINIX are Apple, Microsoft, Google, Amazon, and Tesla for a total of 20.6% of the fund. It was even higher last fall before prices started falling. I was not comfortable with this level of concentration, but my company does not offer a ton of equal weight options. I ended up having to shift to mid cap and international funds to balance out the concentration risk.

PP
Print the post Back To Top
No. of Recommendations: 0
despite the roaring market for some supercaps.

Hmmm I thought everything was overvalued, now the narrative is only supercaps were overvalued??? Selective reading?


The max drawdown figures are not useful proxies for risk, of course. The only purpose of investing in an index is to diversify away from company specific risk and having to know the valuation and prospects of specific firms in deta

Why not? Of course drawdowns are not measure of risk, because it is quantifiable and used by everyone in industry.

The only purpose of investing in an index is to diversify away from company specific risk and having to know the valuation and prospects of specific firms in detail.
So the cap weight indexes are far riskier, since they have around 6-11 times the company specific risk.


Hmm pretty faulty logic. No one needs to know the valuation or risk profile, even if they are cap-weighted. Arguing against straw-man.

But, speaking of drawdowns--this recent result is a wonderful demonstration of the randomness of the S&P 500 because of its high concentration risk.
Think about *why* the max drawdown was lower with SPY in the specific stretch you looked at. Is it meaningful?


Again, why not? May be the market assigns higher valuation to the biggest firms and ones with less risky. But is this argument even true?? NO. Here are the big caps' that suffered far higher drawdown than the Index itself!!!!


AMZN GOOGL TSLA META SPY
189 3030 1243 384 480
110 2248 680 164 381

42% 26% 45% 57% 21%



Selective reading, faulty logic. It is still not clear that data is convincing, rather, data seems to be selected based on one's hunch.

If the equal weight provides outsized return or sustained advantage, why is that product not popular? After all the fees are higher for that.

The best I could see is, the differences are on a given year is low, but over time could add up. Will I choose a strategy, without clearly understanding why it is superior, and pay higher fees, and suffer lesser liquidity? I don't know.

But there are many who likes passionate, often very wrong, arguments. Good luck.
Print the post Back To Top
No. of Recommendations: 0
Suppose Tesla went to zero and the cap-weighted index had 5% of the index in Tesla

Before it goes to zero, the weightage would automatically go down, do you realize that?
Print the post Back To Top
No. of Recommendations: 8
Jim: The only purpose of investing in an index is to diversify away from company specific risk and having to know the valuation and prospects of specific firms in detail. So the cap weight indexes are far riskier, since they have around 6-11 times the company specific risk.

King: Hmm pretty faulty logic. No one needs to know the valuation or risk profile, even if they are cap-weighted. Arguing against straw-man.

Faulty logic?

A) Investing in single companies => Company specific risk. Imagine having 100% of your portfolio in one company. Handling that requires knowing the valuation and risk profile of that specific company - which logically is what correctly Jim said when he inverted that and said the purpose of investing in an index is the opposite.

B) Cap weight indexes by definition are dominated by the largest companies => That's countering and contrary to diversifying away from single companies, sabotaging that purpose of an index, as you again need to know the valuation and risk profile of those few companies dominating the index to assess the index as a whole.


But there are many who likes passionate, often very wrong, arguments.
Seems I am one of them, one of those poor souls who often rec Jim's posts with their faulty logic.
Print the post Back To Top
No. of Recommendations: 1
Before it goes to zero, the weightage would automatically go down, do you realize that?

It's all depending when do you buy in. The difference between buying when Tesla is at the top and buying when it's at the bottom is significant. I think statistics over long term would cover those up and down events. There is another subject: since QQQE requires frequent balancing, selling more of the winners and buying more of the losers, the capital gains would pass to investors at year end and requiring paying more tax, right?
Print the post Back To Top
No. of Recommendations: 6
Pick 30-50-100 stocks at random that are included in a major index, buy equal dollar amounts of each.
Hold each position for a year or two, selling each at a predetermined time, and replace it with something else.
Your chances of beating the S&P are very very good.
...
Equal weight portfolios of 50-100 stocks picked at random from an index will result in a normal
distribution -- about half will do better than the index and about half do worse. Results will
also depend on how the major index itself does vs the S&P.


Yes, but one clarification is needed:
Equal weight portfolios of 50-100 stocks picked at random from an index will result in a normal
distribution -- about half will do better than the
equal weight index...

Which is why it's almost guaranteed to outperform the cap weight index.

I've read the papers, and redone the tests myself. The returns are good.
As you note, they're tightly clustered just above and below what an equal weight index will give.
It's a fair bit of typing once every year or two, and you have to buy a dartboard.
But the fund management fee is zero, and you have the control to skip firms that make (say) nerve gas if you like.

As yoy note, it does also depend what index or list of eligible stocks you start with.
If it's the S&P 500 list your returns will cluster very tightly around that of RSP.
FWIW, an equally weighted portfolio of Value Line stocks, reset to equal weight each 3 months,
beat the S&P 500 by 4.26%/year in the 22 years to 2022-Q1.
That's one main reason I use their list of 1700 as my usual hunting ground.
The S&P 1500 set would presumably give similar results.
The Value Line set seems to include a small number of hand picked very small firms they think have interesting prospects.
Maybe 25-40 of them, depending on how you define "very small".

Jim
Print the post Back To Top
No. of Recommendations: 2
the capital gains would pass to investors at year end and requiring paying more tax, right?

For some people I presume so.
Though the difference is likely to be the time value of the tax, not the tax itself.
Presumably both options are profitable over time and will eventually have a tax bill due.

Jim
Print the post Back To Top
No. of Recommendations: 0
A big question that looms for me and many others in the BRK sphere is how much BRK is too much? And when (if ever) should you diversify (diworsify?) into equal-weighted index ETFs?
Print the post Back To Top
No. of Recommendations: 0
That's countering and contrary to diversifying away from single companies,

First of all understand, there is still 100 companies, just the weightage changes. The weightage change is not showing any benefits in terms of risk, measured in draw-downs.

Whatever you benefit from the higher weightage of bigger caps' you are paying in terms of higher volatility of smaller names. For those arguing volatility is not risk, bigger names going down because of temporary issues vs permanent value destruction is not measured or discussed here. Also, keep in mind, you are not seeing the smaller names extreme poor performance because they are kicked out.

Still, there is this feel good, but no hard evidence.

But there are many who likes passionate, often very wrong, arguments.
Seems I am one of them, one of those poor souls who often rec Jim's posts with their faulty logic.


May be. If you are happy with the logic, then you are happy. If you are one of those, who accepts, cash on balance sheet doesn't count as cash, if it is held by a company that I don't like, on the other hand, debt on balance sheet also doesn't matter because I like this company, kind of logic... go for it.

I just have problem, with such account slight of hand.

Separately, the same person also argued all along against indexing, it doesn't provide any risk mitigation and also favors 100% allocation to single stock, suddenly so worried that equal weight providing unmeasurable, feel-good better risk profile.... I have trouble reconciling.

Clearly you don't. Good for you.
Print the post Back To Top
No. of Recommendations: 0
Yes, but one clarification is needed:
Equal weight portfolios of 50-100 stocks picked at random from an index will result in a normal
distribution -- about half will do better than the equal weight index...

Which is why it's almost guaranteed to outperform the cap weight index.


Again faulty logic. Just like they may do poorly on the downside, they will do better on the upside. In fact, it is proven that cap weighted index performs better on the bull market. In the end, it basically a wash.
Print the post Back To Top
No. of Recommendations: 4
Did I miss it? Where is the argument that mega cap's are typically overvalued???


Well, you ignored my pointing out the long history of research indicating smaller stocks typically outperform larger stocks, and value stocks typically outperform growth stocks. Are you aware of this research? If not, it's easy to Google it. If so, do you not agree that the equal weighted version of the S&P500 will give you a much heavier weighting of smaller stocks and value stocks than the cap-weighted version?

It's obvious that it gives you heavier weighting in smaller cap stocks, by definition. To confirm it also gives you heavier weighting in value stocks I looked at the portfolio stats for Vanguard's large cap value index (median market cap $117 billion) vs large cap growth index (median market cap $312 billion). This is just at this moment, but I'm 99% sure the growth stocks in the S&P500 tend to be significantly higher market cap than the value stocks.


the argument for the equal weighted is megacap's are overvalued

No, you have tried to narrow the argument down to this, but you're the only one making such a narrow argument.

Jim put the basic logic very succinctly:
"
On any given day, some stocks are temporarily overvalued, to widely varying degrees.
On that day, every cap weight index is overweight every one of those stocks, and underweight all the undervalued ones.
The overweight of each is in proportion to the degree they are overvalued that day, times the size of the firm.
"

You can apply the same thinking to the megacaps: of the top ten largest companies by cap weight, some will be more over valued, some will be less overvalued or perhaps 'correctly' valued or undervalued, and the more overvalued ones will have higher weighting in the index compared to their 'correct' value.

This doesn't actually address the issue 100%, as we can imagine a scenario where the megacaps are undervalued while the small caps are over-valued, and the cap weighted index is then overweight in the undervalued megacaps. And nobody is arguing that the cap weighted index always over-represents the over-valued, just that it does significantly more often than not. Why? Popularity, name recognition, the excitement and popularity of investing in well known growth companies tends to keep them pushed to the top of the list.

So far attack the person asking the question is what I have seen,

What in any of my posts responding to you do you perceive as an attack? Very curious to know.
Print the post Back To Top
No. of Recommendations: 10
You can apply the same thinking to the megacaps: of the top ten largest companies by cap weight, some will be more over valued, some will be less overvalued or perhaps 'correctly' valued or undervalued, and the more overvalued ones will have higher weighting in the index compared to their 'correct' value.

The reason for overvaluation in megacaps is a bit stronger, and stranger, than mere variation having more effect because 10% is more of an issue with a bigger firm.

I think of it this way:

Sort all companies by their true values. In the S&P 500, that's 1 for the most valuable down to 500 for the least valuable.
(we don't know their true values, but imagine we did, and sorted on it)

Now, add to each one either a positive or negative percentage of its true value to its current market cap.
Say, a random number in the range -30% to +30%. The average percentage move is zero.
There is no reason to think the big ones or the small ones will have differing percentages.
After applying those random changes, re-sort the list.

But keep thinking about this situation:

Near the middle, there will be some shuffling going on when you switch from true value to market cap value.
Consider the range of ranks 250 to 259, a ten stock range.
Some of the things that started out in that range when sorted by true value will get pushed lower due to the random valuation step having made them cheap.
A few will be pushed out of the 250-259 range to become bigger, also leaving the range.
The gaps in that 250-259 range will be filled by things that started out just above and below that range that had also moved a bit when the valuation plus/minus was added.
Their moves will have been in the opposite direction, or at least smaller moves.

But now consider ranks 1-10, the biggest by true value.
The also get random amounts added or subtracted to convert from true value to market value.
Some of the biggest will get a random number making them smaller cap, so they will slide down the ranks a bit.
Some from lower ranks will come up to replace those, as we saw with ranks 250-259. The gaps get filled.
Some of the ones at the very biggest 10 ranks will get market value added, and they will want to shuffle even higher in the ranks.
But there is no higher rank. There are no bigger companies which could have shuffled down in ranks to take their places in the 10 stock range we're considering.
They have to stay there in that range of 1-10.
So--the big rank 1-10 firms that have random market noise making them smaller can leave the range,
but the big firms that have random noise making them bigger have to stay in the top 10.
They don't get replaced by ones that got smaller from the noise.
So, there are necessarily more firms in the top 10 that got made bigger by the random noise than there are that got smaller due to the randomness.

This is one way of thinking about why the chances of overvaluation at ranks 1-10 are greater than the chances of overvaluation at ranks 250-259, or any other place in the list.

Then you consider that the big companies simply matter more to a cap weight portfolio because they are bigger.
The very biggest have the most influence on the whole, and they are also most likely to be overvalued.

Jim
Print the post Back To Top
No. of Recommendations: 1
Well, you ignored my pointing out the long history of research indicating smaller stocks typically outperform larger stocks,

First of all it is mere assertion. Even if I accept that outperformance has nothing to do with overvaluation. The argument that mega cap's are overvalued, how are you coming to that conclusion?

No, you have tried to narrow the argument down to this, but you're the only one making such a narrow argument.
The stated reason to prefer equal weighted is because 1) megacaps are overvalued, 2) single stock risk, 3) because of the over valuation of megacap, a single stock risk is amplified. If not, then the risk of a stock running into bad times is statistically same for any member of the index.

I think we have hit an impasse. For me, the arguments are merely assertions and not providing any sufficient data. A large number of folks are convinced there is a strong case is provided. I am skeptical of the arguments as much as the author who is making these arguments. I have seen so many past arguments which are completely wrong, at that time had a great fan following, only to see they are proven wrong in time. So I wanted to keep an open mind to see where is the data coming from. I am not able to get convinced. Just because I cannot see something, doesn't mean it doesn't exist. May be my view is clouded to see the argument.

Good luck, if anyone chooses to invest on equal weighted indices. If not, good fun.
Print the post Back To Top
No. of Recommendations: 16
To stay on topic, I do mention Berkshire in this post. This is somewhat long, so grab a cup of coffee.

The max drawdown figures are not useful proxies for risk, of course.

You may be right, but let's look at the facts. My argument against equal-weight ETFs is simple. It's in three parts.

Firstly, the folks on this board (especially the retired ones) tend to value capital preservation, and seek steady returns with minimal drawdowns. The peak loss numbers do matter to them.

The fact is that equal weight RSP exposed investors to a -39% drawdown during the 2020 Covid recession. This was worse than the -32% drawdown of an index fund. What's the explanation for this? How come an ETF with lower weight in large caps and bigger weight in smaller caps resulted in a worse loss for an investor compared to the cap-weighted index? Why didn't reducing your exposure to "overvalued" large caps save you from losing almost 40% of your money?

Now, let's go back to the Great Recession of 2008. Same story, only much worse. The equal weight RSP delivered a shocking drawdown of -61% from the peak in 2007 to the bottom in March 2009. This was worse than the S&P 500's -56% drawdown. Again, no relative protection with equal weight over cap weight.

What about equal weight QQQE compared to QQQ? Well, QQQE only started trading in 2012, so we can't compare for the Great Recession. But for the 2020 recession, it's the same story. QQQE fell -30% that year compared to -27% for QQQ.

Since equal weight was such a bust during the last two big recessions, why recommend it now, when we may already be in another recession?

BTW, in the current Nasdaq bear market that started in Nov last year, both QQQ and QQQE have declined about the same amount, i.e., about -31%. People need to know these numbers before investing their hard earned dollars.

Secondly, you wrote:
A better characterization is that "the stock prices of the few truly giant firms tend to do particularly badly"

So then why are you advocating buying Berkshire now when BRK has 43% of its stock holdings in Apple? I kid you not! Look at the latest 13-F. A full 43% of Berkshire's stock portfolio is in a single tech company. Apple is, in fact, a "truly giant company" so then will it also "tend to do particularly badly" as you state above?

Berkshire's 13-F: https://whalewisdom.com/filer/berkshire-hathaway-inc#tabhold...

The 13-F shows that 75% of Berkshire's stock portfolio is in just 5 stocks: Apple, BofA, Amex, Chevron and Coke. Talk about concentration risk!

This is way worse concentration risk in large caps than an index fund. The top 5 companies in the S&P 500 weigh in at less than 25% of the $32 trillion market cap of the total index.

Besides Apple, what are the other truly giant companies in the index that are "likely to do badly"? Google, at a P/E of 20 growing revenues 23% annually? Microsoft, at forward P/E of 24 growing revenues at 18% YoY with a gigantic moat? Maybe they will do badly (who knows?), but the index concentration in the top 5 is only 24% compared to BRK's 75% allocation in its top 5.

BTW, I totally accept your book value calculation on Berkshire, and respect your conclusion that now is a good time to buy because the P/BV ratio is so low. But with 42% of BRK's stock holdings in one tech firm, well that's too much concentration risk for me.

Thirdly, you concluded:
Which is why [an equal weight index] is almost guaranteed to outperform the cap weight index.

You should know better than to make a statement like this. Never use the word guarantee about an unknown investment outcome on a public discussion board.

Think about it. If we truly are in a recessionary environment, which type of company is most likely to survive it? An asset-light megacap like Microsoft which serves a critical business need, has little debt, $105B of cash on hand, and has a near monopoly on operating systems? I'd much rather have 6% of my portfolio allocated to MSFT via an index ETF like SPY than to inflate my allocation in a debt-ridden airline like Alaska Air in an equal-weight ETF like Alaska Air. The smallest companies in the index are constantly getting kicked out.

Ben wrote:
... smaller stocks typically outperform larger stocks, and value stocks typically outperform growth stocks

The fact is that value stocks and growth stocks have alternating multi-year stretches where one category outperforms the other. And the same is true for small caps vs large caps.

It's easy (and fun) to see this using Yahoo's excellent interactive chart. The S&P Value ETF is IVE and the S&P Growth ETF is IVW. Go to

https://finance.yahoo.com/quote/IVE/chart?p=IVE

Click the +Comparison button and enter IVW as the ticker to compare with. Now drag your mouse to the left, and you can see how growth stocks did vs value stocks. You can easily see that growth beat value from 2009 through present (12+ years), but that value beat growth from 2001 through 2008 (8 years). Growth also beat value from 1995 through 2000 (6 years).

It's best not to be married to either growth or value. Adapt according to the environment. Even WEB got burned by cigar butt companies, and decided he'd rather pay a fair price for a wonderful company.

Cheers, and happy investing.
Print the post Back To Top
No. of Recommendations: 5
So then why are you advocating buying Berkshire now when BRK has 43% of its stock holdings in Apple?..... Apple is, in fact, a "truly giant company" so then will it also "tend to do particularly badly" as you state above?.... 75% of Berkshire's stock portfolio is in just 5 stocks: Apple, BofA, Amex, Chevron and Coke. Talk about concentration risk!

This mixes up two different things. The discussion was about 2 different groups of investors:

A) The ones investing in single companies, with the need then to research them, resulting in decisions pro or against investing in them.

For me with what you say you just brought an example of one of those companies: Berkshire. All you say re Apple etc. is correct and simply influences this decision of group A.

B) Investors who do not want to do such research and to make such decisions, which are then accordingly better suited by buying an index, ideally an equal weight index to avoid getting something close to scenario A, which they do not want.

This has nothing at all to do with a conscious decision of "single-company-investors" whether to eventually invest in Berkshire --- or in T... for that matter.
Print the post Back To Top
No. of Recommendations: 7
Thanks for your post. You make some very good points. If one is not comfortable with the Berkshire concentrated portfolio, then BRK stock is not a great option for you at least as a concentrated position. I like Apple being a very large position but don’t expect great returns from here but what I do expect are very high probability durable reasonable returns from here. Cash flow generating large companies during all economic cycles are what defines a Buffett ideal company (railroads, utilities, coke, Kraft, Moodys. I exclude his financial as they can certainly lose money in a given cycle but insolvency seems awfully unlikely. Lumpiness in earnings is expected and big time guaranteed with his financial picks (AXP,BAC, USB, C).

“Even WEB got burned by cigar butt companies, and decided he'd rather pay a fair price for a wonderful company.” This statement is not really true. If Buffett were starting out today, he would invest the same way he invested when he started out. Protect the downside, arbitrage, work outs, generals. Remember, his partnership never had a down year. Investing larger sums of money forced him to change away from cigar butts. And professionally, he preferred long term ownership of good businesses run by people he liked and respected.
Print the post Back To Top
No. of Recommendations: 0
Excellent post. Very well articulated, I wish I could frame my arguments clearly like you.
Print the post Back To Top
No. of Recommendations: 16
Now, let's go back to the Great Recession of 2008. Same story, only much worse. The equal weight RSP delivered a shocking drawdown of -61% from the peak in 2007 to the bottom in March 2009. This was worse than the S&P 500's -56% drawdown. Again, no relative protection with equal weight over cap weight.

Just a quick note regarding cherry picking dates. Yes, these numbers are pretty close. (I get 56.47% decline for SPY.) To me, the differences, 56.5% compared to 61%, aren't too big at all. One's not a whole lot more shocking than the other.

But what happened in the year after the bottom? 3/9/2007 to 3/9/2010?

RSP: +102.2%
SPY: +68.27%

Net return from market peak to one year after bottom:

RSP: -21.1%
SPY: -26.76

Tails
Print the post Back To Top
No. of Recommendations: 6
For example, I think Microsoft is probably a bit overvalued at present. Maybe I'm wrong about that.


A bit off topic for this thread, but since it was mentioned...I'm curious what your rationale is for MSFT being overvalued?

To me, it seems to be one of the most attractive investments I can find. Not simply based on chance of a great return, but even more so the enormously low chance of a really bad one. Their business model and moat are simply phenomenal. As far as being resistant to both a recession and inflation (or both...stagflation), they're hard to beat; having so much of the business delivered on a subscription basis is wonderful. Azure still has a long runway of growth, and they're gaining on AWS; cloud will be enormous, enduring, and likely be a triopoly, with Azure the leader. Teams appears to be developing into kind of an operating-system-for-the-enterprise, and really seems to have no realistic competitor in that realm. And to the extent that Teams does pull that off, and to the extent that--like the PC--the metaverse blossoms first in the enterprise (and then later trickles down to widespread consumer use), Microsoft has an enormous advantage here. Or maybe the metaverse takes off more in the gaming market; again, Microsoft has a terrific advantage here. And let's not forget about Linkedin; it has no peer, and continues to prosper.

When considering valuation, while their "current" P/E (basically average of TTM + estimated next year) is about 25X. While not low, when you consider the very high ROIC growth ahead and the very high likelihood of a very, very long period of success, cash surplus, and a fantastic CEO, that seems quite attractive to me. I hope so anyway, as it's now 18% of my portfolio. This is one of the rare businesses which 1) I could realistically be comfortable having my entire net worth in, and 2) would be fine owning if the markets closed for a decade. (Berkshire Hathaway and Constellation Software are the other two...and I hold those in similar proportion.)
Print the post Back To Top
No. of Recommendations: 1
Teams appears to be developing into kind of an operating-system-for-the-enterprise, and really seems to have no realistic competitor in that realm.

No competitor or competition??? Heard of slack?
Print the post Back To Top
No. of Recommendations: 12
For example, I think Microsoft is probably a bit overvalued at present. Maybe I'm wrong about that.
...
A bit off topic for this thread, but since it was mentioned...I'm curious what your rationale is for MSFT being overvalued?



Nothing earth shattering.
It's not like they're going out of business.

My assessment is that the recent very good rate of growth in observable value per share has been well above trend and is unlikely to be sustained.
I don't buy consensus forecasts, which seem to be little more than extrapolating a half cycle.
At the same time, the valuation is rich enough that I conservatively assume it won't last.
Looking out a few years, some slowing growth plus a moderation of multiples is enough to create a pretty long stretch of no net returns.
That usually includes some negative moments, though one can always wait those out.

This is all pretty normal. You tend to see above-average multiples applied to cyclically above-average earnings.
That's how business cycles turn into bull/bear market cycles.

Microsoft itself is famous for going in and out of fashion.
It had a P/E below the market average pretty much the entire decade to 2016, and that was considered normal.
Now it's 60% higher than the average and that is considered normal.
This too shall pass. Probably.
About 11%/year of the market returns from MSFT in the last 11 years were from multiple expansion, not business value growth.
I tend to be a buyer at the other end of that cycle when the optimism has dried up.

Jim
Print the post Back To Top
No. of Recommendations: 0
You tend to see above-average multiples applied to cyclically above-average earnings.

It's crucial, of course, not to mistake the cycle for the trend. That said, I see the shift to annual licensing, the growing value of Microsoft Teams, and esp. Azure as being important drivers of long-term value. Is all of that built into the price? Probably. It's not as if I've got this figured out better than folks who do it for a (highly paid) living.

I have a small position in MSFT and am looking to add. But probably not yet.
Print the post Back To Top
No. of Recommendations: 1
You tend to see above-average multiples applied to cyclically above-average earnings.

Is software cyclical business?
Print the post Back To Top
No. of Recommendations: 3
Teams appears to be developing into kind of an operating-system-for-the-enterprise, and really seems to have no realistic competitor in that realm.

No competitor or competition??? Heard of slack?



Well, it seems to me that they're not really playing the same game.

I think Ben Thompson (as usual) has great insight into this:

https://stratechery.com/2020/the-slack-social-network/

Here’s the thing, though: Dropbox absolutely is better than One Drive. Google Apps are better at collaboration than Microsoft’s Office apps. Asana is better than Planner. And, to be very clear, Slack is massively better than Teams at chat. Using all of them together, though, well, it sucks: the user experience that matters for me is not any one app but all of them at once, and for the way I want to work, having everything organized in one single place is simply better (and that’s even with the normal spate of maddening Microsoft UI oddities!). In this Teams is less a chat app than it is a file explorer for the cloud generally, and Stratechery LLC specifically.
This is what Slack — and Silicon Valley, generally — failed to understand about Microsoft’s competitive advantage: the company doesn’t win just because it bundles, or because it has a superior ground game. By virtue of doing everything, even if mediocrely, the company is providing a whole that is greater than the sum of its parts, particularly for the non-tech workers that are in fact most of the market. Slack may have infused its chat client with love, but chatting is a means to an end, and Microsoft often seems like the only enterprise company that understands that.



It would seem enterprise agrees. The latest numbers I've seen show Microsoft Teams has 270M users, 15X the 18M Slack has.
Print the post Back To Top
No. of Recommendations: 2
Nothing earth shattering.
It's not like they're going out of business.

My assessment is that the recent very good rate of growth in observable value per share has been well above trend and is unlikely to be sustained.
I don't buy consensus forecasts, which seem to be little more than extrapolating a half cycle.



Jim, as usual, thanks for the reply.

Not confusing the cycle for the trend is good advice. On the other hand, sometimes businesses to transform in a positive manner, and Microsoft under Nadella has done that in spades.

And I agree with Kingran: Microsoft's business isn't really cyclical...particularly now that they've transitioned so heavily to a subscription basis. For large enterprises, what part of their spend with Microsoft are they going to cut back on in a recession? Office? Windows? Azure?

One other critical thing I am always looking for are businesses that will be hurt the least if we see sustained ugly inflation--which is so financially devastating in so many ways. Microsoft checks that box as well. (But, importantly, they'll do fine if said inflation never develops, too).

Microsoft has become essentially a utility company for enterprise compute and software. But a very profitable one, with amazing ROE and operating leverage.

While it seems kind of pricey, I personally adhere strongly to Buffett's admonition that it's far better to buy a wonderful business at a fair price than a fair business at a wonderful price. There are not many businesses more wonderful than Nadella's Microsoft. And the price seems fair.
Print the post Back To Top
No. of Recommendations: 0
"My assessment is that the recent very good rate of growth in observable value per share has been well above trend and is unlikely to be sustained."

Jim,

If you don't mind, how do you assess the rate of growth in observable value per share? Do you graph a trendline of EPS or some other variable?

Also, do you suspect that it will not sustain because it is too high or for some other reason?

MSFT's ROE has been greater than 35% every year in the last few years and valueline shows that the expected ROE for the period 2025-2027 is 40%. This does not seem anything like slowing.

Like you, the price is too high for my taste. The median P/E for the last 10 years has been 19 and it is currently 29.59 based on the average of 2021 and expected 2022 earnings ($8.70). Of course, this does not account for any slowdown in earnings and that may further negatively affect the stock price, as you also noted.

Thank you.
Print the post Back To Top
No. of Recommendations: 7
If you don't mind, how do you assess the rate of growth in observable value per share? Do you graph a trendline of EPS or some other variable?

Well, in this case it's relatively simple.
To make an extremely long story short, the thinking is not far from the PEG ratio.
Not literally, but that's the general idea--
The multiples are not, in my view, commensurate with the growth prospects.
I'm cheap: I'm not going to pay over 20 times current earnings for anything that isn't a bulletproof rocketship growing over 20%/year on some meaningful metric.
Alphabet, BABA, that kind of thing, depending on the year and the data available.
Microsoft is not, in my opinion, in that league for prospective growth. Maybe closer to 11% than to 21%.

[Strictly speaking I look at my estimate of future earnings, but if something is already in a relatively flat net margin stage of its lifecyle it amounts to the same thing.
At that stage of life, simple P/E isn't so bad, with any appropriate cyclical adjustment]

I totally agree Microsoft is a fine firm that's doing well lately, and the business and the value per share are likely to do well in the years to come.
But let's face it, it's easy to find people who think that these days simply because the price has been doing well.
It's just human nature. That's WHY the multiples are so high now.
When the business was doing very well a decade ago and the price was doing badly, few were interested.
P/E under 10 for one of the best businesses on the planet.
The projected growth rate is only 4%/year higher now than it was then--even assuming they're useful--but the multiples are 2.7 times higher.

In 2012, when I piled in, it was an obvious global "GARP" standout: (growth at a reasonable price)
https://boards.fool.com/quotwe-hope-also-to-purchase-some-la...

Or, FT.com screener (which is conveniently global, not just US) will
give you companies with five year average return on assets over any given figure.
http://markets.ft.com/screener/customscreen.asp
There are 43 US companies with market caps over 10 billion and five year
average return on total assets over 20% trading at under 15x trailing earnings.
There are 8 UK firms meeting all the same criteria, 2 German, 4 French, 43 all Europe.
There are 17 listed in Hong Kong, 12 in India, 4 in Japan (!!!) and 104 total Asia/Pacific.

A tighter set of criteria:
Listed in one of US, UK, or Japan
Minimum $10bn market cap
EPS growth last 10 years >12%/year
P/E under 15 right now
ROA five year average >20%
Debt to total capital < 25%
Dividend yield at least 1% right now

This gives 5 companies for your consideration, coincidentally all listed in the US:
Buckle (BKE) Typical fad retailer?
Microsoft (MSFT)
Buenaventura (BVN) Gold and metals in Peru
Mesabi Trust (MSB) Iron ore
National Presto (NPK) Making a killing selling bullets at the moment

Microsoft seems the sustainable standout.


Around that time I bought a implausible number of $25 calls for $5.31 each, and some $28 calls for $2.73.
But I've been out for a long time.
I believe in a margin of safety on positions I hold, not just positions I enter.

Jim
Print the post Back To Top
No. of Recommendations: 1
I believe in a margin of safety on positions I hold, not just positions I enter.

So does this mean you’re willing to be overweight cash for long periods of time such as the recent period of rich valuations, or do you always find opportunities with a margin of safety even in the most enthusiastic periods?
Print the post Back To Top
No. of Recommendations: 0
Hi Jim,

Thank you very much for the prompt and insightful response. I completely agree with you that the price is high relative to the value of the firm or its growth prospects. Consequently, any measures relating to price, such as PEG or P/E will look high as well.

I am more interested in the likely value growth of the firm (stripped of price) so that if it becomes cheap enough in the current downturn, I may buy it.

As I mentioned, Valueline expects Microsoft's ROE to continue at very high rates (35%-40%) for the next several years. It also expects its EPS to rise by 13.6% in the next five years, from 2021 ($9.70) to 2026 ($18.35; actually, between 2025-2027).

In contrast, it expects Alphabet's EPS to rise by 12.67% during the same period, going from $112.20 to $203.75.

So, based on expected EPS growth rate, Valueline expects MSFT to do slightly better than GOOG (almost 1% better per year).

That's why I am puzzled by your comment that the rate of growth in observable value is likely to be very good for GOOG, but not for MSFT.

I would appreciate it if you clarify this part.

I agree with your view made elsewhere that GOOG is reasonably priced at this time (and that MSFT is not). So based on the price to expected growth rate, GOOG is a buy at this point, but MSFT is not.
Print the post Back To Top
No. of Recommendations: 0
Invested in QQQE yesterday @62.10 after digesting Jim’s data over the last few months and weighing risk/reward in these uncertain times. 0.35% expense is not too bad imo considering the ease of access and the quarterly rebalancing.

FYI- From the website:

“The index is reviewed and adjusted annually in December, but replacements may be made any time throughout the year. The index is rebalanced quarterly in March, June, September and December.”
Print the post Back To Top
No. of Recommendations: 1
Wouldn't it be nice if holdings were weighted according to likely value growth rate, maybe in a range from 0.5% to 2% weightings instead of 1% weightings? If one could forecast the growth rates even more or less right, it would make a difference. One way to do that might be to start with equal weight and rebalance periodically according to revenue growth. Just a thought.
Print the post Back To Top
No. of Recommendations: 0
"One way to do that might be to start with equal weight and rebalance periodically according to revenue growth. Just a thought."

Fundamental indices rebalance more or less by revenue growth, but they start with widely varying weightings based on company size, which has little correlation with value growth or stock performance.
Print the post Back To Top
No. of Recommendations: 7
"One way to do that might be to start with equal weight and rebalance periodically according to revenue growth. Just a thought."
...
Fundamental indices rebalance more or less by revenue growth, but they start with widely varying
weightings based on company size, which has little correlation with value growth or stock performance.


You know, that first one sounds like a really interesting idea.
Start each position with equal weight, then let it grow along with, but not faster than, the business.
It's consistent with the notions that you know some will be long term successes, sut not which;
that sales growth is a surprisingly useful metric to follow winners,
yet recognizing that following the market cap ahead of the growth of the business is the road to overallocation to the overvalued.
In effect, it would trim over-successful positions, but only the portion of growth that was above the growth in the value.
It would have the side effect of selling high and buying low on a regular basis, but rather than
just high and low relative to the initial position size or cap weight size, it would be high and low
relative to some flawed but useful proxy of the progress of the value.
If the stock price rose 10% but sales rose only 50%, it would sell a little.
If the stock price rose 50% but sales rose 100%, it would add to the position.

Alas, I don't think I have the tools to test that.
Hmmmm.

Jim
Print the post Back To Top
No. of Recommendations: 1
As you probably recall, Robert Arnott backtested an earnings growth weighted portfolio.

https://thereformedbroker.com/wp-content/uploads/2014/11/jpm...

Of the portfolios that Arnott backtested, the earnings growth portfolio was the only one for which the inverse portfolio didn't outperform the non-inverse portfolio, for whatever that implies.

portfolio, annualized return

US cap weighted, 9.66%
Equal weight, 11.46%

Fundamental weighted, 11.60%
Inverse fundamental weighted, 14.06%

Earnings growth weighted, 12.42%
Inverse earnings growth weighted, 10.26%

Earnings growth weighted outperformed cap weighted by about three percentage points and outperformed equal weighted by about one percentage point. Sales growth weighted seems more logical than cap weighted, equal weighted or fundamental weighted, none of which have weightings that correlate with value growth. (As you've shown, none of the index portfolios perform as well as cherry picking the top 25-100 companies by revenue growth.)
Print the post Back To Top
No. of Recommendations: 0
"As you've shown, none of the index portfolios perform as well as cherry picking the top 25-100 companies by revenue growth."

Cherry picking is not the right word. Mechanically selecting is better.
Print the post Back To Top
No. of Recommendations: 5
I agree with Kingran: Microsoft's business isn't really cyclical.

"The second thing is, in the conversations we are having with our customers, the interesting thing I find from perhaps even past challenges, whether macro or micro, is, no, I don't hear of businesses looking to their IT budgets or digital transformation projects as the place for cuts. If anything, some of these projects are the way they are going to accelerate their transformation, or for that matter, automation, for example. I have not seen this level of demand for automation technology to improve productivity, because in an inflationary environment, the only deflationary force is software.”

“In closing, we are entering a new era where every company will become a digital company. Our portfolio of durable digital businesses and diverse business models, built on a common tech stack, position us well to capture the massive opportunities ahead. We expect to close FY22, even in a more complex macro environment, with the same consistency we have delivered throughout the year with strong revenue growth, share gains, and improved operating margins as we invest in the areas that are key to sustaining that growth.”

- Satya on Microsoft earnings call

It is interesting folks don't see any cyclical hit to Berkshire operating businesses which operate in decidedly cyclical industries, yet they see cyclical hit everywhere else. Is data leading us to conclusions or our conviction is looking for data?
Print the post Back To Top