Creating Indexes

Wed, 2017/08/30 - 12:19pm | Your editor
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Melania Trump's Slovenian grandfather was a genetic scientist. One of Donald Trump's uncles was a nuclear physicist. Maybe some scientific insights into how global warming causes 500-year storms of horrendous proportions may penetrate the ill-educated brain of our president who never seriously studied science.

Your editor tends to favor active stock-picking over buying an exchange traded fund to passively track an index. My main reason is that my newsletter is about active investing. And because our small-cap and under-the-radar finds can outperform cookie-cutter ETFs.

This week's Economist challenges how indexes are now created in the wake of the Dow-Jones Industry Average, which went live in 1896. Dow famously is weighted by share prices in dollars rather than by market capitalization, which was the only way it could produce a number quickly in the era of ticker-tape machines. But index distortion has not ended just because the number-crunching now is easier.

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