Your Survival Guy

Preparing your investments and family for when disaster strikes.

Disclosure

  • Home
  • Your Survival
    • EMP Threat
    • Tucker Explains
    • Newport Gas Outage
    • Water
      • Let There Be Water
    • Get Your Gun and Your Training Now
    • Satellite Phones
    • Communications
    • Navy SEAL Survival Kit
  • Your Money
    • Where to Keep Your Cash
    • Paris
    • Dead or Alive? The Future of Long-Term Investing
    • Is Vanguard too Big?
    • Cryptocosm and Life After Google
    • The Last Intelligence Report
    • The Truth Behind the S&P 500
    • RAGE Gauge
    • How Many “Retirees” Will Keep Working?
    • Your Retirement Life
  • Weapons
  • About Me
    • My Videos/Pics
    • Music
    • One of My Favorite CDs
  • You
    • Our Cabin on Kodiak, Alaska
    • If You Are in Pain, this May Help. It Helped Me.
    • How to Save for a Grandchild
    • FIRE! Financial Independence, Retire Early
    • Compound Interest
    • Arithmetic of Portfolio Losses
    • Maximum Portfolio Withdrawal Rate
    • An Efficient Frontier
    • Retirement Compounders
    • Counterbalanced Total Returns
  • Survive & Thrive
    • November 2019
    • October 2019
    • September 2019
    • August 2019
    • July 2019
    • June 2019
    • May 2019
    • April 2019
    • March 2019
    • February 2019
    • January 2019
    • December 2018
    • November 2018
    • October 2018
    • September 2018
    • August 2018
    • July 2018
    • June 2018
    • May 2018
    • April 2018
    • March 2018
    • February 2018
    • Welcome

The Truth Behind the S&P 500, Part 2

October 27, 2017 By E.J. Smith - Your Survival Guy

Image used under license from Shutterstock.com

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 already missed a huge run up in the sector, but with its ninth inning move, investors were there in spades when tech went bust in 2000. Maybe not the best stock selection move by the committee.

The committee’s stock selection methodology includes a company’s public float, financial viability, and treatment of IPOs to name a few. When AIG was “rescued” by the government, for example, public float sank well below the 50% guideline. But, rather than cut AIG loose, the committee decided to keep it in the index. That was their choice.

Today the committee needs to consider what to do about Amazon. How does the committee choose which sector Amazon should be in when it is basically in almost every sector? It’s in cloud services, groceries delivered to your kitchen, and will command an estimated 43.5% of e-commerce sales this year. The committee considers Amazon as a consumer-discretionary. Really? Meanwhile Wal-Mart is a consumer-staple. As Mr. Blitzer has said in the past, “At the end of the day, it’s more art, not a science.”

When it comes to constructing portfolios for clients, I agree that stock selection is more art than science—it’s a guiding tenet for what we do for investors. But with so many trillions of dollars banking on the S&P 500’s “passive” approach, perhaps “managed” would be a more accurate description.

The following two tabs change content below.
  • Bio
  • Latest Posts
My Twitter profileMy Facebook profileMy Instagram profile

E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com
My Twitter profileMy Facebook profileMy Instagram profile

Latest posts by E.J. Smith - Your Survival Guy (see all)

  • MS-13 in Northern Virginia - December 6, 2019
  • A Tax-Free Savings Plan for Your Grandchild - December 6, 2019
  • Your Retirement Life: “My life Has Always Been One of Very Good Fortune” - December 5, 2019
  • America’s Silent Army with 423M Guns - December 5, 2019
  • Banks Are Selling Your Private Info to Strangers - December 4, 2019

If you enjoy this post, email it to a friend:

  • Email

Related Posts

Trending

  • Is Your Cash Safe? Probably not This Safe
  • Navy SEAL Survival Kit: Assemble Yours Right Here Today at Yoursurvivalguy.com!
  • Rich Grandchild, Poor Grandchild
  • Vanguard Founder Jack Bogle Sounds the Alarm on Index Funds
  • Phone Scams are Getting Better: Here's How to Protect Yourself
  • First Responders Say in a Big Disaster: "We're Not Coming"
  • Vanguard is Telling You the Problem with Indexing
  • Liz Warren’s 158% Tax Rate
  • RIP Jake Burton
  • How Has Gun Control Worked Elsewhere?

YOUR SURVIVAL GUY MUST READS

  • The Best States for Retiree Taxation
  • How Many “Retirees” Will Keep Working?
  • Is Vanguard too Big?
  • Fidelity Investments: Why it’s #1
  • Tucker Explains: Poverty Doesn’t Cause Instability. Envy Does.
  • Is an EMP Attack Imminent?
  • Your Retirement Life: Choosing Where to Retire
  • Living Your Best Life: FIRE! (Part I)
  • This Money Market Fund is Paying 47 Times More than its Competition
  • Air Force Tells Americans They Aren’t Taking the EMP Threat Seriously Enough

Copyright © 2019 | Terms & Conditions

loading Cancel
Post was not sent - check your email addresses!
Email check failed, please try again
Sorry, your blog cannot share posts by email.