Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Five Biggest Stocks Are 23% of S&P 500 Market Cap

thesoundingline.com

Post reply on HN
Print view View original

61–70 of 86 posts

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#61

Post by unreal37 »

tsjq wrote: post #2

Due to the trillions of dollars blindly going into index funds, thereby purchasing these stocks, are these five companies' stock prices way too artificially high ?

It may be "high" but it's not "artificial".

That's real money being invested in these companies. Index funds buy stock and never sell it. It's real money, buying real shares, that takes the stock out of circulation, that don't get day traded.

Anyway, not to be caught in semantics, but I believe stocks can be priced high and very high, but that doesn't mean it has to fall. The index fund system props up the prices forever.

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#62

Post by throw0101a »

snarf21 wrote: post #39
solatic wrote: post #36

I'm not sure whether people understand just how big of a problem this is. Resilient economies are well-balanced economies. When Big Tech falls - and it will eventually fall, because no industry is immune to corrections or busts - - the effect on the wider economy will be all the greater. The greater a share of the stock market that Big Tech holds, the larger the blast radius their failure will impose on the wider eco…

And it isn't just FAANG. Look at Disney and Comcast and all the other conglomerates. The SEC and FTC have totally failed our country in the 21st century.

You may be interested in the book Goliath by Stoller:

> Americans once had a coherent and clear understanding of political tyranny, one crafted by Thomas Jefferson and updated for the industrial age by Louis Brandeis. A concentration of power, whether in the hands of a military dictator or a JP Morgan, was understood as autocratic and dangerous to individual liberty and democracy. This idea stretched back to the country’s founding. In the 1930s, people observed that the Great Depression was caused by financial concentration in the hands of a few whose misuse of their power induced a financial collapse. They drew on this tradition to craft the New Deal.

> In Goliath, Matt Stoller explains how authoritarianism and populism have returned to American politics for the first time in eighty years, as the outcome of the 2016 election shook our faith in democratic institutions. It has brought to the fore dangerous forces that many modern Americans never even knew existed. Today’s bitter recriminations and panic represent more than just fear of the future, they reflect a basic confusion about what is happening and the historical backstory that brought us to this moment.

> The true effects of populism, a shrinking middle class, and concentrated financial wealth are only just beginning to manifest themselves under the current administrations. The lessons of Stoller’s study will only grow more relevant as time passes. Building upon his viral article in The Atlantic, “How the Democrats Killed Their Populist Soul,” Stoller illustrates in rich detail how we arrived at this tenuous moment, and the steps we must take to create a new democracy.

* https://www.goodreads.com/book/show/40538538-goliath

There's been a back and forth over the last century on this topic.

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#63

Post by beezle »

siliconmountain wrote: post #11
dralley wrote: post #7

Earlier quoted context omitted.

"Blindly" meaning that your average index fund investor has absolutely no idea what's in their portfolio. They are blind investors.

I buy index. I have a portfolio of 500 large American companies, who are publicly traded, and follow SEC regulations, where gross negligence and gross fraud are mostly avoided, and which maybe a third also have global operations. It’s a basket of restive safe equity, diversified across industry but not much in terms of nationality. Beyond that I don’t know what’s in it and don’t particularly need to care

Wow, no disrespect but that made me laugh. Worldcom? Enron? AIG? Lehman? I could go on but you get the gist.

The only thing an index fund (I'll assume SPY for sake of argument) gets you is diversity in number of holdings, but that benefit is greatly reduced when the individual components are heavily skewed in weight. The same applies to industry (and probably always did).

In an ideal world that diversity protects you from a one off calamity (ch 7/11) as each holding is expected to be relatively small and not likely to affect many other companies or the entire index to any great extent. That too goes out the window with the current concentrations.

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#65

Post by Balgair »

throw0101a wrote: post #48
solatic wrote: post #36

I'm not sure whether people understand just how big of a problem this is. Resilient economies are well-balanced economies. When Big Tech falls - and it will eventually fall, because no industry is immune to corrections or busts - - the effect on the wider economy will be all the greater. The greater a share of the stock market that Big Tech holds, the larger the blast radius their failure will impose on the wider eco…

Historical data says otherwise. Right now the five biggest make up 23%, in April they were 21.38%. In 1964 the five biggest made up 27.60%: * https://theirrelevantinvestor.com/2020/04/21/the-only-thing-... In 1964, AT&T alone made up 8.90% and in 1969 IBM alone made up 9.00%. The author of this story needs to look into history more and go back more than just thirty years. Companies and industries rise and fall and ha…

I would suspect that most of the stock markets over time are distributed as a power law.

These distributions come up all over the place, from the sizes of asteroids, to the populations of cities. I'm not sure exactly why this is, but I seem to recall that it's related to the integrals of normal distributions.

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#66

Post by [deleted] »

unreal37 wrote: post #61
tsjq wrote: post #2

Due to the trillions of dollars blindly going into index funds, thereby purchasing these stocks, are these five companies' stock prices way too artificially high ?

It may be "high" but it's not "artificial". That's real money being invested in these companies. Index funds buy stock and never sell it. It's real money, buying real shares, that takes the stock out of circulation, that don't get day traded. Anyway, not to be caught in semantics, but I believe stocks can be priced high and very high, but that doesn't mean it has to fall. The index fund system props up the prices for…

[deleted]

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#67

Post by throw0101a »

dralley wrote: post #7
1over137 wrote: post #3

Earlier quoted context omitted.

"blindly"? People choose index funds very deliberately, because mutual funds are so much more expensive.

"Blindly" meaning that your average index fund investor has absolutely no idea what's in their portfolio. They are blind investors.

Better to "blindly" invest in a passive index fund (S&P 500, Russell 3000, etc) than to try to pick an individual stocks. Most people will get positive results/returns on the former and worse results for the latter.

Evidence for this has been around for decades:

* https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#68

Post by throw0101a »

beezle wrote: post #63
siliconmountain wrote: post #11

Earlier quoted context omitted.

I buy index. I have a portfolio of 500 large American companies, who are publicly traded, and follow SEC regulations, where gross negligence and gross fraud are mostly avoided, and which maybe a third also have global operations. It’s a basket of restive safe equity, diversified across industry but not much in terms of nationality. Beyond that I don’t know what’s in it and don’t particularly need to care

Wow, no disrespect but that made me laugh. Worldcom? Enron? AIG? Lehman? I could go on but you get the gist. The only thing an index fund (I'll assume SPY for sake of argument) gets you is diversity in number of holdings, but that benefit is greatly reduced when the individual components are heavily skewed in weight. The same applies to industry (and probably always did). In an ideal world that diversity protects you…

> The only thing an index fund (I'll assume SPY for sake of argument) gets you is diversity in number of holdings

"only thing"? "only"? That's huge:

> Famed economist and Nobel Prize winner Harry Markowitz called diversification “the only free lunch in finance.” The thought is that by diversifying, an investor gets the benefit of reduced risk while sacrificing little in expected returns over the long run.

* https://www.bizjournals.com/milwaukee/news/2018/10/03/invest...

* https://en.wikipedia.org/wiki/Harry_Markowitz

What's the alternative anyway? Throwing darts at listing of stocks? Asking Orlando the cat?

* https://en.wikipedia.org/wiki/Orlando_(cat)

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#69

Post by lotsofpulp »

brtkdotse wrote: post #28
jzwinck wrote: post #18

Earlier quoted context omitted.

What personal tax consequences arise from rebalancing within an index fund?

None, that's the point of a fund.

An index ETF won’t have tax consequences until you sell the ETF. An index mutual fund can cause you to have to pay taxes:

https://money.usnews.com/investing/investing-101/articles/et...

> Since mutual funds trade directly through the fund manager, the manager may need to sell shares of the fund's investments to generate cash needed to cover redemptions. This causes mutual funds to buy and sell within the fund more frequently than ETFs. And every time the trades generate net capital gains within the fund, it creates a taxable event for investors.

"Mutual funds are legally required to pay out capital gains to their shareholders each year," Jessee says. Even if you don't sell your shares, you may get a tax bill for gains incurred within the fund. This could happen even in a fund that's losing value.

Re: Five Biggest Stocks Are 23% of S&P 500 Market Cap

#70

Post by throw0101a »

lotsofpulp wrote: post #69
brtkdotse wrote: post #28

Earlier quoted context omitted.

None, that's the point of a fund.

An index ETF won’t have tax consequences until you sell the ETF. An index mutual fund can cause you to have to pay taxes: https://money.usnews.com/investing/investing-101/articles/et... > Since mutual funds trade directly through the fund manager, the manager may need to sell shares of the fund's investments to generate cash needed to cover redemptions. This causes mutual funds to buy and sell within the fund more fr…

Assuming that it is held in a taxable account. For most people, for most of their portfolio, it will probably held in a tax-sheltered account (e.g., 401(k) retirement in US).

If you've maxed out all your sheltered accounts, and are worried about dealing tax events in non-sheltered ones, that's a pretty good position to be in—financially speaking.

Post reply on HN