While preparing my last post, “Warnings for Index FundHolders”, I came across some interesting facts in my research and thought they
would be of interest to you.
But before I go there, let me share something I read last
week about the S&P 500 index.
According to this source, some stock market analysts project that the
potential for gains over the next year in an index fund that gives equal weight
to each of the 500 companies represented in the index is double that of an index
fund that invests in the 500 companies in proportion to their
capitalization/size. A relative handful
of large, high-tech companies have accounted for most of the recent gains in
mutual funds that are indexed to the S&P 500. Now (at least according to some) it is the
turn of the rest of the index to outshine in their performance and reward
investors. Something to consider if you
are tweaking your stock portfolio.
[Reminder: I am not a registered advisor and cannot and do
not make stock recommendations.]
Now to those interesting findings.
You’ve probably heard people say—and maybe you’ve even said
it yourself—that certain companies or industries are getting too powerful and
dominating the market. Maybe. But time tends to upend the market and
conventional wisdom. Consider, for
example, who were the top 10 companies (by capitalization) in the S&P 500
in June 2000:
General
Electric (4.19% of the index)
Intel
(3.59%)
Cisco
Systems (3.56%)
Microsoft
(3.38%)
Pfizer
(2.42%)
Exxon
Mobil (2.19%)
Walmart
(2.06%)
Oracle
(1.89%)
AT&T
(1.70%)
Nortel
(1.62%)
Compare that to the current top 10:
Apple
(7.56%)
Microsoft
(6.92%)
Amazon
(3.17%)
Nvidia
(3.05%)
Tesla
(2.06%)
Alphabet
Class A (Google or GOOGL) (1.90%)
Meta
Platforms Class A (1.83%)
Alphabet
Class C (Google or GOOG) 1.64%
Berkshire
Hathaway (1.60%)
UnitedHealth
Group (1.23%)
So
twenty-three years later only one of the top 10 still held that spot. There are no “Big Pharma” companies
there. And no “Big Oil.” And Nortel?
Bankrupted over fraud and liquidated just seventeen years after being
the tenth biggest company in the U.S. by capitalization.
And
how about this list of S&P 500 top 10 companies from 1973:
IBM
(8.44%)
AT&T
(5.19%)
Exxon
(4.05%)
Kodak
(4.04%)
General
Motors (3.49%)
Sears
Roebuck (2.73%)
Xerox
(2.24%)
General
Electric (1.92%)
3M
(1.74%
Texaco
(1.71%)
Kodak? Sears Roebuck? How times have changed.
And that’s my point.
Any number of factors can shuffle the ranking of companies and how much—or
how little—they are valued by Americans.
From fraud, to changing technology, to regulation (or deregulation), to
changing consumer tastes, to pandemics….it can all rearrange the corporate picture
in a relatively short time. It seems
nothing in this world is forever.
Until
next time,
Roger
“See, I am doing a new
thing! Now it springs up; do you not
perceive it? I am making a way in the
wilderness and streams in the wasteland.” Isaiah 43:19 NIV*
*Scripture
quotations taken from the Holy Bible, New International Version® NIV® Copyright
© 1973, 1978, 1984, 2011 by Biblica, Inc.™ Used by permission. All rights reserved worldwide.
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