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

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

#81

Post by throw0101a »

bluedevil2k wrote: post #79
throw0101a wrote: post #74

Earlier quoted context omitted.

These 'taxable people' are in the minority: > Approximately 6 in 10 households in the United States own securities investments—typically through taxable accounts, IRAs or employer-sponsored retirement plans. However, this figure drops to a little over 3 in 10 if only taxable investments are considered. Households that own taxable accounts are more likely to be older, affluent, college educated and white relative to h…

You don’t know what you’re talking about - taxes are never a ‘good problem’. ‘Good problem’ doesn’t even make any sense and you using it here shows you don’t know the difference between income and wealth.

Having so much money that you've maxed out and over-flowed tax-sheltered accounts—accounts that many people aren't even able to afford—to the point that you're now worrying about tax efficiency is a not a bad situation to be in IMHO.

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

#82

Post by smabie »

ac29 wrote: post #80
smabie wrote: post #77

Earlier quoted context omitted.

correlation between all stocks in the S&P 500 is so high that removing big tech makes little difference. Also, a major part of the problem in my view is the blind indexing of equities that most investors use for the bulk of their portfolio. Market cap weighting essentially results in what essentially a momentum overlay: new money is allocated disproportionately to the stocks with the highest market cap, resulting in…

> Market cap weighting essentially results in what essentially a momentum overlay: new money is allocated disproportionately to the stocks with the highest market cap, resulting in those stocks going up even more New money is allocated exactly proportionally to a stock's market cap in a cap-weighted index fund, by definition. New money into such funds can't disproportionally increase the price of one stock in the ind…

Sorry, I phrased that incorrectly/poorly. What I meant to say is that market cap weighting allocates more money to stocks that have a higher market cap (and the stocks got that way by going up in the past), pushing up the price even more.

This wouldn't be true if all shares of a company were all trading at the same time, but that's not the case. The number of available shares is more constrained than the total free floating market cap would suggest.

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

#83

Post by beezle »

throw0101a wrote: post #68
beezle wrote: post #63

Earlier quoted context omitted.

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://…

You are missing the point. The S&P 500 and most large mutual funds are not anywhere near as diversified as typical investors believe them to be and have become less so over the past few years. Investors buy them for the perception of great diversification as well as the ease of purchase/sale.

Diversity in number of holdings works well if the holdings are not heavily overweight/underweight and are not highly correlated. So RSP (equal weight S&P) would meet the definition of well diversified in respect to weighting. Unfortunately, equities have been trending towards an increasing degree of correlation which can't be adjusted for when an etf is constructed mechanically based on market cap.

I always urge friends, family etc. to look at the components of the various funds and etfs they hold as they will be shocked to find that, in aggregate, a significant portion of their position is in 10 or 15 stocks. For some that may be acceptable, especially if they hold other non highly correlated asset classes. For others, they need to take a little more time or consult a professional to research how to better balance that risk. As just one example, VXF attempts to capture the return of the non-S&P 500 equities.

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

#84

Post by bryanlarsen »

lotsofpulp wrote: post #25
bryanlarsen wrote: post #15

Earlier quoted context omitted.

The argument is that the top five are overvalued. If so they would have outperformed during the period they became overvalued.

I was replying to JumpCrisscross’s comment.

And I was responding to the thread, not to you specifically.

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

#85

Post by siliconmountain »

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…

I said "where gross negligence and gross fraud are mostly avoided"

I know about Worldcom Enron AIG Lehman... Gross fraud and negligence still isn't condoned. Buying the index is still better than trying to guess which of the 500 aren't performing fraud. Laugh all you want; best of luck to you

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

#86

Post by llampx »

Tsiklon wrote: post #53
andrewmcwatters wrote: post #46

Earlier quoted context omitted.

There is an S&P 500 Equal Weight Index, but it makes essentially no difference.

Equal Weight index from what I've just read about it apparently treats each company in the index equally - as in 1/500th of the total index's value. What I was more thinking of is that the S&P 500 is top heavy with Big Tech stocks, is it better to look an index absent of the Big Tech stocks?

An index absent of the big tech stocks would be the Russell 2000 or IWM.
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