I do marginally favor the equal weight indexing over market cap weight.


That was one of the questions in this thread. I would be interested to hear your view on a different question; IF you decide you want to reallocate capital from a company with a high valuation, relative to your estimate of its value in 10 years, then one might wonder how finely tuned such a readjustment should be. For instance, if a stock is trading at 5 times your estimate of its intrinsic value in 10 years, and drops to 4.9, it is a slightly less good deal, and it would make sense to me to very slightly reduce exposure to it, reallocating it to something that has maybe gone from 4.9 to 5.0, for instance. And then again, if it drops to 4.8, an so on. The alternative would be to wait for a much bigger drop, like from 5 to 4, before reallocating. I'm guessing the former is a lot more trouble for about the same result, but I think you might theoretically gain a small amount from doing the rebalancing more frequently. Maybe not enough to be worthwhile, but positive nevertheless. But I would be interested to hear your opinion on this question.

Berkshire Hathaway FAQ

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