Portfolio Selection: The Power of Equal Weight

Abstract

We empirically show the superiority of the equally weighted S&P 500 portfolio over Sharpe's market capitalization weighted S&P 500 portfolio. We proceed to consider the MaxMedian rule, a non-proprietary rule designed for the investor who wishes to do his/her own investing on a laptop with the purchase of only 20 stocks. Rather surprisingly, over the 1958-2016 horizon, the cumulative returns of MaxMedian beat those of the equally weighted S&P 500 portfolio by a factor of 1.15.