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