Many investors aren’t aware of the fact that stock markets don’t do a good job reflecting the real economies. For instance, the markets usually contain too many high-risk industries such as pharma or banks and not enough service providers.
The Swiss SMI (Swiss Market Index) for example has seven times more pharma companies and twice as many banks as Switzerland itself. In other words: SMI investors are speculating on pharma and banks when they’re buying the SMI as an index fund.
That’s not what most investors want, but many of them still buy index funds without thinking about it.
Why is the index fund not the same as the market? It’s very easy: Nobody makes sure that companies are added to the stock market in ratios that are representative. That’s why there are many more companies from industries that need the stock market, and fewer from industries that are less dependent on the public capital markets. You can find more information about this in our free (Investing Handbook). Service providers are less dependent on the capital markets. IKEA for example is still family-owned, and Migros and Coop aren’t on the stock market either.
So when I saw Adecco in the top 10 list of the SMI, I decided to buy the stock; despite the fact that I was on holiday and was only looking at the SMI top 10 for fun.
It wasn’t too much work though: I bought 70 Adecco shares at market on the Swiss stock exchange with my online broker Strateo.