1/ I have thought about it a little more and now I'm a bit confused whether FactSet's methodology is actually better than Grant's. Let me explain what's giving me second thoughts.
https://twitter.com/borrowed_ideas/status/1391403024162115589
2/ if we imagine overall earnings of today's market is a stable pool of total earnings that grows at a historically similar rate, it perhaps makes sense to just the total earnings of the market rather than adjusting it by their mcap weights.
3/ Companies within today's index will die or be left out and new companies will join, and overall profit pool in the economy will just shift around to companies that are creating the most value.
4/ Adjusting for mcap weights perhaps understates this dynamism that in inherent in an index and looking at overall market profit pool reflects better underlying profit pool than mcap adjusted profit pool.
5/ The original point I was trying to make which I didn’t do a good job is it's rarely useful to look at an individual company and then compare their valuation multiple to broader market.
Broader market will always survive. Individual companies may not.
Broader market will always survive. Individual companies may not.
End/ Thanks to those who replied in the earlier thread that made me re-think this whole thing. I appreciate it.
Oh god, lots of silly typos and missing words. This is what happens when you are hungry but decided to tweet the thread nonetheless. 😭
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