It Has Been Very Easy to Beat the S&P500 in 2000-2018: Several Examples
15 Pages Posted: 30 Jun 2018 Last revised: 2 Jun 2019
Date Written: May 26, 2019
We document that unweighted indexes have outperformed weighted indexes and that the S&P400 and the S&P600 have outperformed the S&P500. $100 invested in the S&P500 in January 2000 became $252.6 in April 2018, but invested in the S&P600 became $577.2, invested in the 30% smallest companies (equal weight) of Kenneth French became $617.9 and invested in the portfolio of [smallest companies and highest Book to Market] (equal weight) of Kenneth French became $1,640. Then, we can conclude that it has been very easy to beat the S&P500. Kenneth French data show (exhibits 5 and 6) that it has been so since 1927.
When a rational investor invests for the long-term, he cares about how much money he will have at the end (retirement, endowment…) and he diversifies to avoid a concentration of risk in some of the individual investments. The rational investors (at least the ones we know) do not care about using “the best model”, “the most popular model”…They do not care neither about maximizing some ratio (Sharpe…) nor about minimizing the volatility of his portfolio (most rational investors we know like volatility: volatility does not measure the risk they want to avoid).
The objectives of this paper are neither number crunching, neither to maximize anything nor to provide recipes on how to invest, but to provide with some data (facts) that help the reader to analyze his investments and, perhaps, to change his investment criteria.
We include a final advice: apply the logic principle “Never buy a hair growth lotion from a man with no hair” to your investment advisors.
Keywords: Unweighted Indexes, Market Unefficient, Sharpe Ratio, Small Companies
JEL Classification: G12, G31, M21
Suggested Citation: Suggested Citation