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Ask HN: Why is the stock market so high?

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Re: Ask HN: Why is the stock market so high?

#21

Post by ptype »

brudgers wrote: post #19
ptype wrote: post #16

Earlier quoted context omitted.

Surely this is (ignoring transaction costs) reflected in the index performance already. If you sell and buy at the time (and price) of the index you will match the performance. This is not unique to DJIA by the way.

There are indexes that can be matched. DJIA is not one of them.

If that is the case, how do you explain that there are ETFs tracking the index? E.g. http://www.etf.com/DIA

Re: Ask HN: Why is the stock market so high?

#22

Post by mercury_craze »

Planet money ran a typically excellent episode on why the Dow is a terrible mechanism for measuring the health of the economy. About the only redeeming feature it had was the length of time it has been running allowing it to be used to compare the state of the economy going back > 100 years.

http://www.npr.org/sections/money/2017/01/04/508261371/episo...

Re: Ask HN: Why is the stock market so high?

#23

Post by ptype »

brudgers wrote: post #18
ptype wrote: post #13

Earlier quoted context omitted.

Yes, so you should not allocate the $400 equally across the shares to match the performance of the index. You should buy an equal number of shares of each stock. It may not be a greatly constructed index by modern standards but to my understanding you can in theory get the same performance yourself.

Buying an equal number of shares does not track the DJIA either. Apple closed at 126.6 the day it replaced ATT. ATT closed at 33.48.

I struggle to see why that is a problem? You will need to rebalance the portfolio, yes.

Re: Ask HN: Why is the stock market so high?

#24

Post by brudgers »

ptype wrote: post #23
brudgers wrote: post #18

Earlier quoted context omitted.

Buying an equal number of shares does not track the DJIA either. Apple closed at 126.6 the day it replaced ATT. ATT closed at 33.48.

I struggle to see why that is a problem? You will need to rebalance the portfolio, yes.

The DJIA replaced each share of ATT with a share of Apple on a ledger. Without additional investment or buying and selling other assets, there's no way to replicate that in a portfolio due to the difference in share price. Essentially, the DJIA pumped in an ~300% increase in equity value on the ATT shares...or divided among thirty companies a 10% profit.

Re: Ask HN: Why is the stock market so high?

#25

Post by brudgers »

ptype wrote: post #21
brudgers wrote: post #19

Earlier quoted context omitted.

There are indexes that can be matched. DJIA is not one of them.

If that is the case, how do you explain that there are ETFs tracking the index? E.g. http://www.etf.com/DIA

They suffer a loss when a more expensive stock replaces a less expensive stock. Portfolios have risks, indexes don't.

Re: Ask HN: Why is the stock market so high?

#27

Post by nicholas73 »

The market broke out both from promises of massive spending from Trump, and from expected interest rate increases that drives the dollar higher - drawing foreign money into the US (plus foreign economies are not doing well).

It's not cheap but not at bubble levels either. It doesn't mean it won't get cheaper or will grow to bubble levels. There is a probability for everything.

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