[mbesto]

> they buy everything in the index according to the market cap

You're splitting hairs. I guess I should have clarified. What I meant was that at some level the companies are being valued based on PE ratios, etc. So while the index funds may not be analyzing the underlying securities themselves (other than determining their weighted value), someone is, such that their market cap drives them being in the index (SP500 for example). Point still stands from the parent comment.