A look at how the S&P 500 index committee manages stock additions and the price manipulation that can happen before a company gets added. The speaker breaks down why index funds tracking the S&P 500 might not be the passive investment they claim to be.
It's kind of dumb to have an index fund that follows the Dow Jones. It's just dumb. Don't do that. There are lots of other indexes out there that are popular that you've heard of that maybe aren't the best ones to follow with your indexes. The most common one out there is the s and P500. It's basically 500 large US stocks. It's not the 500 largest ones, though. There's a committee that decides what goes into the s and P500 and they announce it. And so index funds that follow this are forced to buy that stock after this announcement is made. So what happens? Well, a bunch of people go, oh, this is going to be added to the index. A whole bunch of people are going to want to buy it. A bunch of funds are going to buy shares of this. The price is going to go up. Let's buy it now and front run this. And that's a problem with the s and P500. If you're using a total stock market fund, that doesn't happen.
Physician Takes a Youth Sports Team to the State Championship - MtoM Podcast #236
