The S&P 500 is perhaps the largest “managed” fund in the world. Contrary to widespread belief, it is not an index of only the largest companies in America by market-cap as I explain here. It is an index comprising 500 stocks that are actively chosen by a committee. The committee, led by economist David Blitzer picks 500 stocks from a listing of 1,000 of the largest companies in America. It also decides the sectors and the sector-weightings. In the late 90s, for example, when technology was on fire, the committee finally decided to make technology its own sector. The committee had … [Read more...]
The Truth Behind the S&P 500
Let’s get a few things straight about the S&P 500. First, it’s a market-cap weighted index of large-cap companies based in the U.S. A company’s market cap is calculated by multiplying its shares outstanding by its stock price. The bigger the company’s market-cap the bigger its influence on the direction of the S&P 500. Imagine Apple or Amazon as the 800-pound gorillas and you get an idea of how the index works. How is it constructed? The S&P 500 is not a collection of the largest 500 companies by market cap in the U.S. It is constructed and managed by a committee. Part of the … [Read more...]
Paris: A Checklist before You Leave
Take it from me, there’s a lot that can be forgotten before you leave on your trip to Paris. For example, if you use a debit card, you don’t want to forget to call your bank or credit card company to let them know you’re going to be out of the country. If you’re used to using American Express, realize it’s not accepted by some merchants and brasseries. It was embarrassing when our waiter told me, after our first meal, that my credit card was rejected. This was especially embarrassing since my father-in-law, Dick Young, asked me with a grin, “Aren’t you the survival guy?” With that in … [Read more...]
My Pick for the Next Federal Reserve Chief: A Gold Standard
If the decision were up to me to choose between current Federal Reserve governor Jerome Powell or Stanford University economics professor John Taylor as the next Federal Reserve Chief, I would choose Taylor. At least, of the two, Taylor has a rule named after him. According to the “Taylor Rule,” the Federal Funds rate would be a much higher 3.5% today, not a measly 1%. But the rule isn’t exactly cut and dried. “Its components include the gap between inflation and its target, between economic output and its target, and the ‘neutral’ real (inflation-adjusted) interest rate, which keeps the … [Read more...]
This Market is Smoking-Hot
Over the weekend I received a post-card sized mailer from a local realtor. She was reaching out to residents in my general neighborhood. She has a retired couple interested in buying in the “neighborhood.” Her “clients” want off street parking, an easy to maintain yard, located within walking distance to the center of Newport. Whether this couple exists is neither here nor there. The real estate market, as she points out, is smoking hot and if you’re thinking about selling she wants to hear from you. Pretty clever approach for stressed out buyers or realtors. Which leads me to an article … [Read more...]
How to Attract Amazon’s HQ2
If you’re a small business owner, then you probably can’t relate to the full court press from what seems like all of New England—and the rest of America for that matter—hoping to lure Amazon CEO Jeff Bezos to choose their city or state for its second headquarters. You might be saying to yourself “no one put on a press conference to have me move to start a business.” Which is why I like the approach New Hampshire is taking. Yes, it wants Bezos. But it doesn’t have to fund HQ2 with tax breaks residents end up paying. “Everyone else is still trying to play catchup to this tax incentive we … [Read more...]
Welcome to Hôtel de Crillon: You’ve Arrived
You know you’ve arrived, literally and figuratively, the minute you see Place de la Concorde up on your left and Hôtel de Crillon on your right. As your driver pulls up you are surrounded by regally dressed staff, guiding you to the historic facade as if it’s your movie being premiered. Welcome to the mansion built for Louis XV, and, since July 2017 after a four-year renovation, for you too. The minute you walk inside Hôtel de Crillon you know how Louis XV must have felt. The entrance is unlike that of any hotel I’ve ever been in—it feels like a mansion—there’s no lobby. There’s no check-in … [Read more...]
Economic Freedom: Where does USA Rank?
You may be surprised at how far you need to scan your finger down the list to locate the United States in the Economic Freedom of the World: 2017 Annual Report co-published by the Cato Institute, the Fraser Institute in Canada and more that 70 think tanks around the world. The United States, which has held a spot in the top ten for decades, now ranks 11th. Going back to the period 1980-2000, the U.S. was an economic beast, generally ranked 3rd freest economy in the world behind Hong Kong and Singapore. And then came the decline. After the U.S. ranked 2nd in 2000 it’s been mostly downhill … [Read more...]
October RAGE Gauge
My October Rage Gauge is in and it seems like the frogs in the pot have no idea what’s going on around them. When someone tells me they can handle a 20 percent hit because they’ve “made” so much money in this market, I think to myself, “they haven’t done the math on a 100 percent hit.” Another month has passed and more records have been broken. Now would be a good time to think about protecting your portfolio. You never know when the big hit is going to come. … [Read more...]
You’ve Read the Last Intelligence Report Now What? Part II
Being on the front lines every day talking with investors just like you, it never ceases to amaze me how much you appreciate Dick Young and how he has made you a more comfortable and successful investor. He made you self-reliant. He helped you beat inertia. How? You basically had no choice. You needed to know what he was thinking every month. He got your attention, which reminds me of an interchange we had when I first started working with him back in 1998. My job was to talk with prospective clients, learn about their situations and see if there was a way we could help. Prospects would … [Read more...]
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