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Consider a world consisting of three stocks, A , B , and C . Each stock has 1 0 0 shares outstanding. The world consists
Consider a world consisting of three stocks, A B and C Each stock has shares outstanding. The world consists of investors. Investor # is a passive indexer who holds of the market. Evaluate the following statements, are they true or false, and one sentence why?
a Investor # holds shares each in A B C no matter what the prices are
b Investors # # as a group, hold shares each in A B C no matter what the prices are
c It is possible that some of investors # # will have returns that are higher than market returns.
d It is possible that all of investors # # will have returns that are higher than market returns.
e If investor # holds shares of stock A but nothing else, it is obvious that he is a fool. There is no conceivable rational reason for him to do this.
f If investor # holds shares of stock A but nothing else, then it is mathematically impossible that investors # # as a group are just holding stocks in proportion to their market capitalization. It is mathematically impossible for everyone except investor # to just hold the market or just hold index funds
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