But then you wind up with a portfolio that isn't balanced and isn't tracking like an index fund. An index fund doesn't simply buy a flat amount of stock and hold it, they buy stock in proportion to the relative weight of the exchange. Which is always moving
Market cap weighting is special. If company A has 500 shares, company B 500 also, than a fund that has 5 shares of A and 5 of B is market cap weighted.
And what happens if company A issues more stock? Company B is delisted? Company C is now listed? Company A and C merge? Company A spins off it's most valuable side business into it's own independent listing company?
500 shares of company A is worth 100% of the market cap of company A.
500 shares of company B is also worth 100% of the market cap of company B.
So if you have 5 shares of each, you'll have 1% of the market cap of each, even if one of those companies finds the cure for cancer or turns out to be a money furnace.
