Many Happy Returns 10 Things They Don't Tell You About Stocks
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Jan 17, 2024 Explore underappreciated aspects of stock markets: flaws of price-weighted indices, advantages of market cap weighting, active management vs passive investing, limitations of P.E. ratio, dilution in stocks and foreign exchange fees, optimizing fees and taxes, market cap vs GDP in global index funds, and reliability of market cap vs GDP as an indicator.
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Avoid Price-Weighted Indices
- Avoid price-weighted indices like the Dow Jones or Nikkei 225.
- Choose market-cap-weighted indices like the S&P 500 for better value representation.
Index Funds and Stock Performance
- Most stocks underperform their index, making active stock picking challenging.
- Index funds succeed due to a few high-performing stocks driving overall growth.
Calculate Compounded Returns Correctly
- Use the geometric mean, not the arithmetic average, when calculating compounded returns.
- Be cautious of annualized return percentages without clarification.