Stupid Comment of the Week

I had the misfortune of being told by someone who should know better the following: "If for whatever reason investors liquidate cap weighted etf's in significant amounts (or I suppose index funds too although that was not stated) large cap stocks will be harder hit than small cap stocks because they have a larger weight in the etf/index."

Anyone with possessing some intelligence who thinks about it for more than a second will recognize the silliness of the argument fairly quickly. The weight in the etf/index will have no impact because it is being held at the same propotion to its relative size. Exxon might have 10x the weight of Colgate and 20x the weight of Harley Davidson but it also that much larger. Therefore no impact simply due to size. However, what will have an effect in this scenario is liquidity as measured by trading volume, float, and other issues that determine your ability to move the stock. These variables almost always favor the larger names. Therefore not only does the initial statement not hold true but the inverse is actually true. And they say the market is comprised of rationale investors who optimize their risk and reward, etc., etc....