The DC Today - Monday, December 4, 2023
The Dividend Cafe
The Dividend Cafe - The Bahnsen Group
4.9 • 572 Ratings
🗓️ 4 December 2023
⏱️ 15 minutes
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Summary
Today's Post - https://bahnsen.co/3uFMLMZ
Ask David
“If you are an investor in a passive index fund, exactly what happens to your equity when that fund/index removes a poor performer, and replaces it with a stock that has recently performed much better? While I suspect that your equity may stay the same upon replacement, it seems intuitively like an example of buying high while selling low. Is there any documented study of index fund performance over time due to the survival bias? Do you have any thoughts on the topic?” ~ Dom
I think I understand what you are saying but actually in this case the survival bias of the index methodology helps its performance over time, not hurts. What you are suggesting makes sense prima facie – that they are adding companies at high prices and removing others at low prices – but the fact of the matter is that the companies removed from the index is very rare, and almost always only happens after the company is broken. A significant amount of companies that have been removed from market indices over the years no longer exist at all, meaning that path from “a low price” to “zero” was never experienced by the index investor. Of course, there are cases when a company is removed from an index and subsequently rallies from a low valuation, but that is much less frequent than the opposite. And all of it is very rare and inconsequential …
Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com
Transcript
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| 0:00.0 | Welcome to the DC Today, your daily market synopsis of the Dividing Cafe, brought to you every Monday through Thursday to bring you up-to-date information and perspective on financial markets. |
| 0:13.3 | Well, hello and welcome to the special Monday edition of the DC Today. We are back at it for the month of December. We're going to try to finish out 20, 23 strong. |
| 0:24.4 | I'm here in the Newport Beach office this whole week, and I am pretty happy with the way this |
| 0:30.8 | Monday, D.C. today came together. A lot of info on the Fed. A few things on energy, I think, |
| 0:36.6 | are real important, especially in light of the OPEC plus meeting, and just a few nuggets on policy and the economic data and housing. |
| 0:44.2 | But I want to start with the markets. Let's get today's action out of the way first. |
| 0:49.5 | You know, it's funny, a day like today where the market opens down 200 points and then like |
| 0:55.2 | five minutes later is back to flat and then an hour later is down 250, then comes all the way |
| 1:02.2 | back and gets kind of even and more or less ends the day even. I think we ended up down 0.11% |
| 1:08.1 | 0.11% 40 points on the day. |
| 1:13.0 | That would seem kind of exciting a little bit in the grand scheme of things, but not really compared |
| 1:18.0 | to the month, about five, six weeks we've had now, just really a pretty significant market |
| 1:24.4 | rally and a really significant bond rally. And so days like today seem kind of boring. |
| 1:29.7 | Now, the S&P was down half a percent today. Nasdaq was down 84 basis points. But again, |
| 1:35.5 | this is coming off of just what's been quite a move higher markets. I don't really know |
| 1:41.6 | what to tell you as to why the market went way up and then way down and then back up. |
| 1:45.7 | But again, even though I say way up, way down, in the context of 200, 250 points, it's actually, |
| 1:51.7 | those are not modifiers I would normally use on a day like that. |
| 1:56.4 | It's just maybe comparatively because we haven't had much up and down movement. |
| 2:00.4 | Now, what's the story here? |
| 2:02.0 | What's going on? |
| 2:03.9 | Why have the market's been moving so much higher? |
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