Thursday, November 12, 2009

Indexes (again)

Since the DOW is proportional to the average of 30 stock prices and the S&P500 is proportional to the average of 500 market capitalizations, then what'd happen if'n we invent an Index which is proportional to the average of the gains, beginning at some convenient point in time ... like 10 years ago (November, 1999)?

Suppose we try it, using the DOW 30 stocks.
This "new" Index would look like so:

The S&P is stuck in there for a comparison.

I call the new Index the g-Index.
The g stands for ... uh ... great.
-------------------------------------------------

The justification (if any) for the g-Index is that, being ignorant of which stock will be the best performer, you'd presumably invest equal amounts in each stock.

In that case, your portfolio would be a g-Index.


 

No comments:

Post a Comment