"Traditional
stock indexes, such as the S&P 500 and even the MSCI World Index, are
deeply flawed. They do not weight their members equally, but rather
according to their market values. This means they put the most weight on
the biggest and most expensive stocks and markets. Today, Apple alone
makes up 3 percent of the S&P 500. The U.S., which makes up less than
20 percent of the global economy, accounts for about 50 percent of the
MSCI World Index.Inevitably, this means these indexes, and the money
managers who follow them, put too much weight on the most fashionable and
overvalued assets at the worst times—Japan in 1989, technology stocks in
1999, banks in 2006."
