JUN · ISSUE 24 · June 8, 2026
CONCEPTWhy a few stocks move the whole index
A market-cap index doesn't give every company the same weight. The giants run the show.
WHAT IT IS
Weight
by company size
EFFECT
Few rule
the biggest dominate
RISK
False calm
less diverse than you think
THE IDEA
By weight
↑ big companies weigh more than small ones
In a market-cap index, each company weighs according to its market size. The more a company is worth, the more its daily move sways the entire index.
SIMPLE RULE
TO GET ITThe top 10
≈35%
▲ rough weight of the top 10
Illustrative figure: if the top 10 weigh a third, their day decides the whole index's day.
In many large indices, the ten biggest companies weigh as much as hundreds of small ones combined.
- TOP 10
- — The ten largest companies inside an index.
- DIVERSIFICATION
- — Spreading risk across many assets so you don't depend on one.
QUOTE
SIMPLE RULEDiversification on the surface
“An index can look diversified on the outside while, underneath, it's betting on a handful of names.”
Holding many positions doesn't protect you if they all weigh little and a few decide everything.
- CORRELATION
- — How much two assets move in the same direction.
- EXPOSURE
- — How much of your money depends on one asset or sector.
VISUAL
EXAMPLEHow weight is spread (example)
Illustrative figures. A few positions weigh as much as hundreds of small companies combined.
An illustrative example: the top spots weigh far more than the tail of the index.
- TAIL
- — The many small companies that barely move the index.
- WEIGHTING
- — The rule that decides how much each stock weighs in the index.
TWO WAYS
BY CAP vs EQUALCap-weighted or equal-weighted
CAP-WEIGHTED
The giants run it
- Each company weighs according to its size.
- Rises hard when the giants rise.
- More concentrated: it depends on a few names.
EQUAL-WEIGHTED
Everyone counts the same
- Each company weighs the same, big or small.
- Better reflects the average company.
- More spread out: less dependent on the giants.
The same group of companies can be measured two ways, and the result changes a lot.
- EQUAL-WEIGHTED
- — An index where every stock weighs the same.
- CAP-WEIGHTED
- — An index where each stock weighs by its market cap.
VISUAL
EXAMPLEA typical index from the inside (example)
Illustrative figures. The first third of the weight lives in barely ten companies.
A conceptual example of how weight spreads across the size blocks of a large index.
- BLOCK
- — A group of companies bucketed by size within the index.
- CONCENTRATION
- — When a few positions hold a large share of the weight.
TO EXPLORE
5 TEACHING ETFs5 ETFs that show the concept
| SPY | ~ | ▲ reference | Cap-weighted S&P. The classic example of a concentrated index. |
| RSP | ~ | ▲ reference | The same S&P but equal-weighted. Compare its behavior with SPY. |
| QQQ | ~ | ▲ reference | Nasdaq-100. Even more concentrated in tech megacaps. |
| VOO | ~ | ▲ reference | Another cap-weighted, low-cost S&P. Same logic as SPY. |
| XLK | ~ | ▲ reference | Tech only. Shows the extreme of sector concentration. |
These five let you see, in practice, the difference between concentrated and spread out.
- ETF
- — A listed basket that tracks an index or sector.
- REFERENCE
- — We use no day prices here: the ETF serves only as an example.
- LOW-COST
- — A fund's very small annual fee (expense ratio).
WRAP-UP
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- WEIGHT
- — How much a stock influences the index based on its size.
- DIVERSIFICATION
- — Spreading risk across many different assets.