« Merger Monday - PD + N + FAL JNJ & PFE | Main | FIFA World Cup and Productivity »

Jun27
Fundamental Indexing - Some More Of The Story
John C. Bogle, the legendary founder of Vanguard Group and Burton G. Malkiel, author of the best seller, A Random Walk Down Wall Street, published a rebuttal to Jeremy Siegel's editorial on Fundamental Indexation in The Wall Street Journal June 27, 2006 on page A14.  You will recall that Jeremy Siegel's research showed that a Dividend Weighted Index outperformed a Capitalization Weighted Index.  Messers Bogle and Malkiel beg to differ.

They make several points in favor of Capitalization Weighted Indexes.
  1. Fundamental Weighted Index funds have higher costs than passively managed Capitalization Weighted Index funds due to higher management fees, higher turnover, and higher operating expenses.
  2. Because of the forced turnover in the entire fund each time a single company changes its dividend, Fundamental Weighted Index funds are less tax efficient than Market Weighted funds.
  3. All of the currently know methods of Fundamental Indexation tend to overweight value and small capitalization stocks.  These are precisely the sectors that have outperformed during the measurement periods cited in the Fundamental Index research and is the real reason for the outperformance.  If large cap or growth begin to dominate, Fundamental Indexation should underperform.
The authors caution investors to beware of discarding Market Weighted Index funds too quickly.  They have proven successful over three decades with over $3 trillion of Capitalization-Weighted funds in existence.  So now you know some more of the story.

The World Cup Tournament is down to the final eight teams.  I have written a small post on the tournament and productivity.  Look for it next.  Have you followed the World Cup?  What are your impressions?

related entries


6 Comments/Trackbacks




Ah yes, many of us who have followed the World Cup elimination competition have been particularly impressed with the absolutely superb and consistently outstanding quality of beautiful women to whom the Brazilian and Argentine players are married. Have you seen how drop-dead gorgeous so many players' wives are, especially on those two teams? Totally magnificent! Why, it's almost too much for my eyes and heart to take, in any one viewing session. That's the most striking impression I've come away with, while watching the games, since you asked. As for my other impressions, my brother says I can sometimes do a pretty good one of an old fisherman...

Hard bodies, rich & powerful, athletic, who can blame women from wanting them as spouses. Being beautiful doesn't exempt you from normal human desires. But that is probably a different impression than I thought I would get.

A man gets a check up from his doctor. The doctor calls a couple of days later and says I've got bad news and really bad news. The bad news is you have a terrible disease that only gives you 48 hours to live. The really bad news is that I have been trying to reach you for 2 days.

After nine months, a man takes his pregnant wife to the hospital to deliver their first. The man paces back and forth in the waiting room, until the obstetrician finally walks in, all slumped over, staring down at his shoes, with a grave expression on his face, and slowly signals the expectant father to join him in the far corner of the waiting room, where they can talk privately. The doctor says, "I have some good news and some bad news. The good news is that your wife just gave successful birth to a ten pound, eight ounce giant eye. No arms or legs, no head, no body; just a giant eye." The husband looks at the doctor in horror, and finally replies, "How can you say that's good news, doctor? What cruel freek of nature is this? I can't think of any worse news than my wife giving birth to a giant eye. What on earth could possibly be the bad news, on top of this?" To which, the doctor soberly responds, "Well, that giant eye is blind."

This same couple go to the hospital again the following year, in anticipation of birth number two. This time, the obstetrician walks into the waiting room and tells the expectant father, "I have some more good news and bad news. First the bad news, this time. The bad news is that your wife just gave successful birth to a nine pound, four ounce giant head. No arms, no legs, no body; just a giant head. But the good news is that this giant head can survive for many years, is highly educable, can learn to speak fluent English, conduct an intelligent conversation with you, and won't incur large dry cleaning bills. Becoming accustomed by now to experiencing strange births, the husband and his wife decide to love and care for the giant head, much as they had the giant eye. They take the giant head home from the hospital, and place it on their mantle, above the fireplace in the living room, where it remains, year after year, as it continues to develop and learn. The giant head proves to be very smart, and quickly learns how to speak to its parents, who talk to it regularly, and treat it like any normal child might expect to be treated. Upon the giant head's twenty-first birthday, the faithfully doting parents decide to throw the giant head a special surprise party. They want it to be really special for the giant head, so they go into the living room and walk up to the mantle, where the giant head is sleeping. In a rather loud voice, the husband says to the giant head, "Wake up, head. We have a very special surprise for your twenty-first birthday, You'll never guess what it is." The giant head awakens from its sleep, shakes its self to clear its mind for a moment, thinks carefully about what it has just heard, and then replies, "Oh no, not another damn hat!"

Given where the jokes are headed I should have quit while I was a head. Puns intended.

A man gets a check up from his doctor. The doctor tells the man, "I've got some good news and some bad news. First, the bad news: You have a terrible disease that only gives you 48 hours to live." The man says, "Doctor, that's just awful news. What's the good news?" The doctor replies, "When you first came into my office today, did you see that cute little blond girl behind the desk in the reception room?" "Yes, I did," the man answers. The doctor smiles and says, "Well, the good news is that I'm having a torrid love affair with her."

submit a trackback

TrackBack URL for this entry:

post a comment

Name, Email Address, and URL are not required fields.





Comment Preview

« Merger Monday - PD + N + FAL JNJ & PFE | Main | FIFA World Cup and Productivity »

Advertise

Related Resources

recent comments

    sponsored ads



    subscribe


    Prefer Email?
    Subscribe below-

    Enter your Email:


    Powered by FeedBlitz What's this?

    Current News

    Support This Blog

    blogroll


    business social media

    Use these fast growing business social media sites to promote your business, feature your products, spotlight your business leaders, create links, and drive traffic back to your company site, all for free!

    BIZZlogos - Add your logo - free link to your site
    BIZZphotos - Add photos of your products and people
    BIZZprofiles - Submit your profile and build your online visibility
    BIZZspotlight - Spotlight your business with free links
    BIZZvideos - Videos about businesses, products and business people.
    BIZZbites - "Digg" for Business - Submit your articles and posts

    Know More Media - Finance / Banking / Insurance

    know more media network

    View Network Map

    Network Feed List (OPML)

    Know More Media Network
    Feed


    we support unitus

    PRWeb

    Influencer



    GrowYourFunds is a member of the Know More Media network of business related blogs.

    Here are some current headlines from some of our business publications:

    ProductivityGoal

    CallCenterScript

    AdHurl

    TheBizofKnowledge

    LandingTheDeal

    CustomersAreAlways

    HealthCareVox

    BrainBasedBusiness

    TheInsurancePolicy

    MarketingBlurb