How can 1 US company be worth more than the top 350 UK companies?

IanManc

SneakySpectator said:

IanManc said:

Pathfinder000 said:

........ we are a small country, without any real money and a slowly sinking economy .......  

SneakySpectator said:
........ but yeah it's pretty dead on the island nowadays ........

The UK is the 6th largest economy in the world, and the 9th biggest manufacturer in the world.

However, it has a sizeable portion of its population which glibly talks the UK down contrary to the evidence.

The problem is the companies that make up the overwhelming bulk of our "large economy" are in no growth sectors. Banks, oil, mining etc. 

Just for fun I removed banks, oil & gas, insurance, mining, and tobacco from the FTSE 350 and the market cap drops by 45%. So nearly half of the market cap is made up from those relic companies.

I removed those same sectors from the S&P500 and the market cap drops by just 26%. 

The contrast is undeniable. I don't really mind if the UK stock market is fuelled by high profit no growth companies, but I better be getting a 10% dividend yield as a result.

"The problem" with your argument here is that you are assuming that the UK stock market accurately reflects the UK economy.

It doesn't, any more than China's does.

Cus

When the average Joe invests his regular monthly amount into a global passive index tracker fund as per the advice of many knowledgeable people, he doesn't care that he actually put more money into Tesla and Apple shares than the whole UK FTSE 100. He doesn't care about value, or company profits, heck, some of those huge companies don't even pay a  dividend, (to me its not that different to a zero sum game like gold but that's another thread..) He just follows the advice that he has no better chance than luck that he can pick better than fund managers, and the stats show that recently, and he just carries on with the passive index.  It's a self fulfilling process, the more that happens the more it will happen. But there must be a break point.

GeoffTF

Cus said:

When the average Joe invests his regular monthly amount into a global passive index tracker fund as per the advice of many knowledgeable people, he doesn't care that he actually put more money into Tesla and Apple shares than the whole UK FTSE 100. He doesn't care about value, or company profits, heck, some of those huge companies don't even pay a  dividend, (to me its not that different to a zero sum game like gold but that's another thread..) He just follows the advice that he has no better chance than luck that he can pick better than fund managers, and the stats show that recently, and he just carries on with the passive index.  It's a self fulfilling process, the more that happens the more it will happen. But there must be a break point.

Market weight trackers simply hold a fixed percentage of every fund in the index. They do not trade. Price discovery takes place with the relatively small number of shares that do change hands. The number of shares changing hands has increased over the years despite the fact that a large proportion of the shares are not traded. Will we ever reach a time where everyone believes that trying to beat the market is a mugs game? More importantly, perhaps, will we ever reach a time where nobody is willing to invest in funds that have done very well (albeit by chance and often with very little money invested in them)?

Cus

GeoffTF said:

Cus said:

When the average Joe invests his regular monthly amount into a global passive index tracker fund as per the advice of many knowledgeable people, he doesn't care that he actually put more money into Tesla and Apple shares than the whole UK FTSE 100. He doesn't care about value, or company profits, heck, some of those huge companies don't even pay a  dividend, (to me its not that different to a zero sum game like gold but that's another thread..) He just follows the advice that he has no better chance than luck that he can pick better than fund managers, and the stats show that recently, and he just carries on with the passive index.  It's a self fulfilling process, the more that happens the more it will happen. But there must be a break point.

Market weight trackers simply hold a fixed percentage of every fund in the index. They do not trade. Price discovery takes place with the relatively small number of shares that do change hands. The number of shares changing hands has increased over the years despite the fact that a large proportion of the shares are not traded. Will we ever reach a time where everyone believes that trying to beat the market is a mugs game? More importantly, perhaps, will we ever reach a time where nobody is willing to invest in funds that have done very well (albeit by chance and often with very little money invested in them)?

I'm a little confused by your post.  I always assumed that if I invest say 100 in a global market cap weighted index tracker fund that has say 4000 equities in it, then they must go and buy 100 worth of equities, and if one equity has 5% of the whole market cap then 5 of my 100 goes to buy that equity.  So is that not buying so therefore trading?

masonic

Cus said:

GeoffTF said:

Cus said:

When the average Joe invests his regular monthly amount into a global passive index tracker fund as per the advice of many knowledgeable people, he doesn't care that he actually put more money into Tesla and Apple shares than the whole UK FTSE 100. He doesn't care about value, or company profits, heck, some of those huge companies don't even pay a  dividend, (to me its not that different to a zero sum game like gold but that's another thread..) He just follows the advice that he has no better chance than luck that he can pick better than fund managers, and the stats show that recently, and he just carries on with the passive index.  It's a self fulfilling process, the more that happens the more it will happen. But there must be a break point.

Market weight trackers simply hold a fixed percentage of every fund in the index. They do not trade. Price discovery takes place with the relatively small number of shares that do change hands. The number of shares changing hands has increased over the years despite the fact that a large proportion of the shares are not traded. Will we ever reach a time where everyone believes that trying to beat the market is a mugs game? More importantly, perhaps, will we ever reach a time where nobody is willing to invest in funds that have done very well (albeit by chance and often with very little money invested in them)?

I'm a little confused by your post.  I always assumed that if I invest say 100 in a global market cap weighted index tracker fund that has say 4000 equities in it, then they must go and buy 100 worth of equities, and if one equity has 5% of the whole market cap then 5 of my 100 goes to buy that equity.  So is that not buying so therefore trading?

Once the money is deployed initially, there is no trading. If a share falls 10%, then its market cap relative to the index changes. If another share rises 20% then likewise. No rebalancing needed because market cap weighting means the weighting and price movement cancel out. Trading is still required when companies enter or exit the index.

Price movement will occur from the actively managed share capital being traded, and net inflows and outflows, though the latter in relation to trackers will only affect the overall index, not the relative value of constituents.

Cus

masonic said:

Cus said:

GeoffTF said:

Cus said:

When the average Joe invests his regular monthly amount into a global passive index tracker fund as per the advice of many knowledgeable people, he doesn't care that he actually put more money into Tesla and Apple shares than the whole UK FTSE 100. He doesn't care about value, or company profits, heck, some of those huge companies don't even pay a  dividend, (to me its not that different to a zero sum game like gold but that's another thread..) He just follows the advice that he has no better chance than luck that he can pick better than fund managers, and the stats show that recently, and he just carries on with the passive index.  It's a self fulfilling process, the more that happens the more it will happen. But there must be a break point.

Market weight trackers simply hold a fixed percentage of every fund in the index. They do not trade. Price discovery takes place with the relatively small number of shares that do change hands. The number of shares changing hands has increased over the years despite the fact that a large proportion of the shares are not traded. Will we ever reach a time where everyone believes that trying to beat the market is a mugs game? More importantly, perhaps, will we ever reach a time where nobody is willing to invest in funds that have done very well (albeit by chance and often with very little money invested in them)?

I'm a little confused by your post.  I always assumed that if I invest say 100 in a global market cap weighted index tracker fund that has say 4000 equities in it, then they must go and buy 100 worth of equities, and if one equity has 5% of the whole market cap then 5 of my 100 goes to buy that equity.  So is that not buying so therefore trading?

Once the money is deployed initially, there is no trading. If a share falls 10%, then its market cap relative to the index changes. If another share rises 20% then likewise. No rebalancing needed because market cap weighting means the weighting and price movement cancel out. Trading is still required when companies enter or exit the index.

Price movement will occur from the actively managed share capital being traded, and net inflows and outflows, though the latter in relation to trackers will only affect the overall index, not the relative value of constituents.

Thanks, so my thought that the initial investment (deployed as you say) by the individual equates to the fund actually buying (trading) more equity shares in a cap weighted basis for that individual?

So if there is more and more passive investing like this, then consistently these funds are always net buying more and more of the equities in their funds (cap weighted) . Since price movement is determined by net buying and selling, then this amount of passive net buying influences the price (at the time of trade)

Perhaps the influence on overall price is no different to a scenario years ago when all these individuals invested the same amount but with an active fund who made decisions on what to buy for them, based on valuations rather than just a cap weighted simple calc, and maybe more active decisions to pull out of equity markets into something else happened more.

Overall it makes me think that a company like Apple's equity price will actually do better out of passive investing as the proportion of people assessing it's value versus the people just buying market cap based is less, so price movement is weighted towards more buyers?

InvesterJones

Cus said:

masonic said:

Cus said:

GeoffTF said:

Cus said:

When the average Joe invests his regular monthly amount into a global passive index tracker fund as per the advice of many knowledgeable people, he doesn't care that he actually put more money into Tesla and Apple shares than the whole UK FTSE 100. He doesn't care about value, or company profits, heck, some of those huge companies don't even pay a  dividend, (to me its not that different to a zero sum game like gold but that's another thread..) He just follows the advice that he has no better chance than luck that he can pick better than fund managers, and the stats show that recently, and he just carries on with the passive index.  It's a self fulfilling process, the more that happens the more it will happen. But there must be a break point.

Market weight trackers simply hold a fixed percentage of every fund in the index. They do not trade. Price discovery takes place with the relatively small number of shares that do change hands. The number of shares changing hands has increased over the years despite the fact that a large proportion of the shares are not traded. Will we ever reach a time where everyone believes that trying to beat the market is a mugs game? More importantly, perhaps, will we ever reach a time where nobody is willing to invest in funds that have done very well (albeit by chance and often with very little money invested in them)?

I'm a little confused by your post.  I always assumed that if I invest say 100 in a global market cap weighted index tracker fund that has say 4000 equities in it, then they must go and buy 100 worth of equities, and if one equity has 5% of the whole market cap then 5 of my 100 goes to buy that equity.  So is that not buying so therefore trading?

Once the money is deployed initially, there is no trading. If a share falls 10%, then its market cap relative to the index changes. If another share rises 20% then likewise. No rebalancing needed because market cap weighting means the weighting and price movement cancel out. Trading is still required when companies enter or exit the index.

Price movement will occur from the actively managed share capital being traded, and net inflows and outflows, though the latter in relation to trackers will only affect the overall index, not the relative value of constituents.

Thanks, so my thought that the initial investment (deployed as you say) by the individual equates to the fund actually buying (trading) more equity shares in a cap weighted basis for that individual?

So if there is more and more passive investing like this, then consistently these funds are always net buying more and more of the equities in their funds (cap weighted) . Since price movement is determined by net buying and selling, then this amount of passive net buying influences the price (at the time of trade)

Perhaps the influence on overall price is no different to a scenario years ago when all these individuals invested the same amount but with an active fund who made decisions on what to buy for them, based on valuations rather than just a cap weighted simple calc, and maybe more active decisions to pull out of equity markets into something else happened more.

Overall it makes me think that a company like Apple's equity price will actually do better out of passive investing as the proportion of people assessing it's value versus the people just buying market cap based is less, so price movement is weighted towards more buyers?

It influences all prices by the same proportion, so has no effect on one company more than another, however it contributes to raising or lowering the market as a whole.

Cus

InvesterJones said:

Cus said:

masonic said:

Cus said:

GeoffTF said:

Cus said:

When the average Joe invests his regular monthly amount into a global passive index tracker fund as per the advice of many knowledgeable people, he doesn't care that he actually put more money into Tesla and Apple shares than the whole UK FTSE 100. He doesn't care about value, or company profits, heck, some of those huge companies don't even pay a  dividend, (to me its not that different to a zero sum game like gold but that's another thread..) He just follows the advice that he has no better chance than luck that he can pick better than fund managers, and the stats show that recently, and he just carries on with the passive index.  It's a self fulfilling process, the more that happens the more it will happen. But there must be a break point.

Market weight trackers simply hold a fixed percentage of every fund in the index. They do not trade. Price discovery takes place with the relatively small number of shares that do change hands. The number of shares changing hands has increased over the years despite the fact that a large proportion of the shares are not traded. Will we ever reach a time where everyone believes that trying to beat the market is a mugs game? More importantly, perhaps, will we ever reach a time where nobody is willing to invest in funds that have done very well (albeit by chance and often with very little money invested in them)?

I'm a little confused by your post.  I always assumed that if I invest say 100 in a global market cap weighted index tracker fund that has say 4000 equities in it, then they must go and buy 100 worth of equities, and if one equity has 5% of the whole market cap then 5 of my 100 goes to buy that equity.  So is that not buying so therefore trading?

Once the money is deployed initially, there is no trading. If a share falls 10%, then its market cap relative to the index changes. If another share rises 20% then likewise. No rebalancing needed because market cap weighting means the weighting and price movement cancel out. Trading is still required when companies enter or exit the index.

Price movement will occur from the actively managed share capital being traded, and net inflows and outflows, though the latter in relation to trackers will only affect the overall index, not the relative value of constituents.

Thanks, so my thought that the initial investment (deployed as you say) by the individual equates to the fund actually buying (trading) more equity shares in a cap weighted basis for that individual?

So if there is more and more passive investing like this, then consistently these funds are always net buying more and more of the equities in their funds (cap weighted) . Since price movement is determined by net buying and selling, then this amount of passive net buying influences the price (at the time of trade)

Perhaps the influence on overall price is no different to a scenario years ago when all these individuals invested the same amount but with an active fund who made decisions on what to buy for them, based on valuations rather than just a cap weighted simple calc, and maybe more active decisions to pull out of equity markets into something else happened more.

Overall it makes me think that a company like Apple's equity price will actually do better out of passive investing as the proportion of people assessing it's value versus the people just buying market cap based is less, so price movement is weighted towards more buyers?

It influences all prices by the same proportion, so has no effect on one company more than another, however it contributes to raising or lowering the market as a whole.

I agree.  But as there is less reliance of assessing individual companies actual value (not to say that big market caps are currently over valued or not but if less people are assessing it versus the others who assume that what it is today must be the right value) versus their current price, does that lead to less adjustment of the rankings of value in the index, and more concentration? 

Edit to add: does it also mean that the money never leaves the index, just gets automatically adjusted based on market caps, where as in the past the active funds might have moved out of the index into other asset classes

InvesterJones

Cus said:

InvesterJones said:

Cus said:

masonic said:

Cus said:

GeoffTF said:

Cus said:

When the average Joe invests his regular monthly amount into a global passive index tracker fund as per the advice of many knowledgeable people, he doesn't care that he actually put more money into Tesla and Apple shares than the whole UK FTSE 100. He doesn't care about value, or company profits, heck, some of those huge companies don't even pay a  dividend, (to me its not that different to a zero sum game like gold but that's another thread..) He just follows the advice that he has no better chance than luck that he can pick better than fund managers, and the stats show that recently, and he just carries on with the passive index.  It's a self fulfilling process, the more that happens the more it will happen. But there must be a break point.

Market weight trackers simply hold a fixed percentage of every fund in the index. They do not trade. Price discovery takes place with the relatively small number of shares that do change hands. The number of shares changing hands has increased over the years despite the fact that a large proportion of the shares are not traded. Will we ever reach a time where everyone believes that trying to beat the market is a mugs game? More importantly, perhaps, will we ever reach a time where nobody is willing to invest in funds that have done very well (albeit by chance and often with very little money invested in them)?

I'm a little confused by your post.  I always assumed that if I invest say 100 in a global market cap weighted index tracker fund that has say 4000 equities in it, then they must go and buy 100 worth of equities, and if one equity has 5% of the whole market cap then 5 of my 100 goes to buy that equity.  So is that not buying so therefore trading?

Once the money is deployed initially, there is no trading. If a share falls 10%, then its market cap relative to the index changes. If another share rises 20% then likewise. No rebalancing needed because market cap weighting means the weighting and price movement cancel out. Trading is still required when companies enter or exit the index.

Price movement will occur from the actively managed share capital being traded, and net inflows and outflows, though the latter in relation to trackers will only affect the overall index, not the relative value of constituents.

Thanks, so my thought that the initial investment (deployed as you say) by the individual equates to the fund actually buying (trading) more equity shares in a cap weighted basis for that individual?

So if there is more and more passive investing like this, then consistently these funds are always net buying more and more of the equities in their funds (cap weighted) . Since price movement is determined by net buying and selling, then this amount of passive net buying influences the price (at the time of trade)

Perhaps the influence on overall price is no different to a scenario years ago when all these individuals invested the same amount but with an active fund who made decisions on what to buy for them, based on valuations rather than just a cap weighted simple calc, and maybe more active decisions to pull out of equity markets into something else happened more.

Overall it makes me think that a company like Apple's equity price will actually do better out of passive investing as the proportion of people assessing it's value versus the people just buying market cap based is less, so price movement is weighted towards more buyers?

It influences all prices by the same proportion, so has no effect on one company more than another, however it contributes to raising or lowering the market as a whole.

I agree.  But as there is less reliance of assessing individual companies actual value (not to say that big market caps are currently over valued or not but if less people are assessing it versus the others who assume that what it is today must be the right value) versus their current price, does that lead to less adjustment of the rankings of value in the index, and more concentration? 

Just leads to the same concentration as before. No more, no less.

Cus

InvesterJones said:

Cus said:

InvesterJones said:

Cus said:

masonic said:

Cus said:

GeoffTF said:

Cus said:

When the average Joe invests his regular monthly amount into a global passive index tracker fund as per the advice of many knowledgeable people, he doesn't care that he actually put more money into Tesla and Apple shares than the whole UK FTSE 100. He doesn't care about value, or company profits, heck, some of those huge companies don't even pay a  dividend, (to me its not that different to a zero sum game like gold but that's another thread..) He just follows the advice that he has no better chance than luck that he can pick better than fund managers, and the stats show that recently, and he just carries on with the passive index.  It's a self fulfilling process, the more that happens the more it will happen. But there must be a break point.

Market weight trackers simply hold a fixed percentage of every fund in the index. They do not trade. Price discovery takes place with the relatively small number of shares that do change hands. The number of shares changing hands has increased over the years despite the fact that a large proportion of the shares are not traded. Will we ever reach a time where everyone believes that trying to beat the market is a mugs game? More importantly, perhaps, will we ever reach a time where nobody is willing to invest in funds that have done very well (albeit by chance and often with very little money invested in them)?

I'm a little confused by your post.  I always assumed that if I invest say 100 in a global market cap weighted index tracker fund that has say 4000 equities in it, then they must go and buy 100 worth of equities, and if one equity has 5% of the whole market cap then 5 of my 100 goes to buy that equity.  So is that not buying so therefore trading?

Once the money is deployed initially, there is no trading. If a share falls 10%, then its market cap relative to the index changes. If another share rises 20% then likewise. No rebalancing needed because market cap weighting means the weighting and price movement cancel out. Trading is still required when companies enter or exit the index.

Price movement will occur from the actively managed share capital being traded, and net inflows and outflows, though the latter in relation to trackers will only affect the overall index, not the relative value of constituents.

Thanks, so my thought that the initial investment (deployed as you say) by the individual equates to the fund actually buying (trading) more equity shares in a cap weighted basis for that individual?

So if there is more and more passive investing like this, then consistently these funds are always net buying more and more of the equities in their funds (cap weighted) . Since price movement is determined by net buying and selling, then this amount of passive net buying influences the price (at the time of trade)

Perhaps the influence on overall price is no different to a scenario years ago when all these individuals invested the same amount but with an active fund who made decisions on what to buy for them, based on valuations rather than just a cap weighted simple calc, and maybe more active decisions to pull out of equity markets into something else happened more.

Overall it makes me think that a company like Apple's equity price will actually do better out of passive investing as the proportion of people assessing it's value versus the people just buying market cap based is less, so price movement is weighted towards more buyers?

It influences all prices by the same proportion, so has no effect on one company more than another, however it contributes to raising or lowering the market as a whole.

I agree.  But as there is less reliance of assessing individual companies actual value (not to say that big market caps are currently over valued or not but if less people are assessing it versus the others who assume that what it is today must be the right value) versus their current price, does that lead to less adjustment of the rankings of value in the index, and more concentration? 

Just leads to the same concentration as before. No more, no less.

Concentration based on market cap rather than opinion on value though

Edit to add: if we think to the extreme, and 100% of investing is passive market cap based without any individual value assesment, where does that lead us?  Can we really not think that the large changes in market caps of certain companies across different companies over the last number of years is only due to those companies being truly deserving of their current values? ( As per the op original question) and not influenced by other factors of the passive movement?
Not that in itself is wrong but where does it end..