My Inferrence: Price weighted indices’ returns can be replicated by purchasing equal number of shares of each company included in the index. But, I’ve had more than a couple of questions where DJIA returns could be “outperformed over time” by picking … say 1000 shares of each stock. Could someone please guide me on this one ?
Because if you buy 10 shares, you most likely will be able to reinvest dividends; whereas, the index cannot reinvest dividends!
by increasing your shares, you are reducing the probability of being affected hugely by a huge change in a value of a high price stock in the index.
soxboys…i think u’re off by a hair…the index doesn’t even ACCOUNT for dividends, whereas ur personal account regardless of what u do with them, would still receive them ie, GE pays a div…the price will drop in the index, by the dividend per share amount…the index doesn’t account for that drop in any way/shape/form
so it’s that the prices in the indices are lower after the dividend… but how does that increase the return of the portfolio … ? … is the “reinvested dividend” point valid mate ?