Mungofitch:
This is the bit where I see some space between your thinking and mind. You mention:
1) Cap-weight means you own the same fraction of every company you own...

But this isn't right. You're owning the same fraction of the market cap of every company. But price (market cap) and value (the business reality) are usually different.


I chose my words carefully: you are owning the same fraction of every company in a cap-weighted index. If every company in a cap weighted fund has a billion shares, Then the fund would own, say 10,000 shares of each company in the index. That is it would own 1/100000th of each company. And this would be a market cap weighted fund. It doesn't matter that some of the stocks might be overpriced and others might be overpriced. You still own 1/100000th of every company in the index if it is a market cap weighted fund. N'est-ce pas?

By contrast in an equal-weight fund, you own a bigger fraction of the smaller companies so that all of your holdings have the same total price when in balance.

Not trying to be intentionally pedantic. Just asking because there may be a point you are making that I am missing.

Cheers,
R:

PS loved your answer! Equal weighted may the ticket I've been looking for as I am concderned that SP500 is overvalued, but it is indeed more so the large caps in there that seem likely overvalued.