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Polarization of markets isn't a bug but rather a feature. And it turns out, if your performance is horrible, you can blame it on polarization in the markets.
It's like using "traffic", "weather" or "health issues" excuse whenever you're late to office or need to skip it. https://twitter.com/anishteli/status/1252570497424019456
It's like using "traffic", "weather" or "health issues" excuse whenever you're late to office or need to skip it. https://twitter.com/anishteli/status/1252570497424019456
A small % of stocks will always drive returns. It's the same across the world.
Professor Hendrik Bessembinder's study found:
"Only 4 percent of all publicly traded stocks account for all of the net wealth earned by investors in the stock market since 1926"
The other stocks don't even outperform a T-bill!
https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2900447
"Only 4 percent of all publicly traded stocks account for all of the net wealth earned by investors in the stock market since 1926"
The other stocks don't even outperform a T-bill!
https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2900447
This why cap-weighted indices work pretty well over the long run. They pretty much ensure, the winners are rewarded and losers are rid of like a bad smell. It's the easiest way to get exposure to innovation and change. Mr. Market is pretty decent fund manager.
Before you ask why cap-weight and not equal weight, it has been a horrible Idea in India so far? Will the performance remain bad - I don't know! Will equal weight do better in the future? I don't know! But best not to complicate things, in my view.
There's an insane amount of data on equal weighting in this thread, in case you're curious. https://twitter.com/ShyamNation/status/1250295230747688961?s=20
Next time you see someone whining about polarization, put a chilli in their mouth and run away. Or take a look at that particular manager's performance and odds are he or she would have under permed the benchmark or maybe even a FD :p
