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Abstract

A passive investment system based on indices created from various metrics is disclosed. The indexes may be built with metrics other than market capitalization weighting, price weighting or equal weighting. These metrics may include, but are not limited to book value, sales, revenue, earnings, earnings per share, income, income growth rate, dividends, dividends per share, earnings before interest, tax, depreciation and amortization, etc. Non-financial metrics may also be used to build indexes to create passive investment systems. Additionally, a combination of financial non-market capitalization metrics may be used along with non-financial metrics to create passive investment systems. Once the index is built, it may be used as a basis to purchase securities for a portfolio. As the data underlying the indexes changes because of, e.g., economic activity, the index may be updated and may be used as a basis to rebalance the portfolio. Alternatively, the index can be rebalanced when a pre-determined threshold is reached. Specifically excluded are widely-used capitalization-weighted indexes and price-weighted indexes, in which the price of a security contributes in a substantial way to the calculation of the weight of that security in the index or the portfolio. Valuation indifferent indexes of the present invention avoid overexposure to overvalued securities and underexposure to undervalued securities, as compared with conventional capitalization-weighted and price-weighted. Also specifically excluded are equal weighting weighted indexes.

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First Claim