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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

#51

Post by bluedevil2k »

JumpCrisscross wrote: post #13
bluedevil2k wrote: post #6

Try the ETF with the symbol "RSP". It's an S&P 500 fund, but each of the 500 is equally weighted. In other words 0.2% of the fund. The theory is that the larger companies in the S&P 500 have less growth potential, or are already overvalued, compared to the smaller companies.

> Try the ETF with the symbol "RSP". It's an S&P 500 fund, but each of the 500 is equally weighted. Note that an equal-weighted index will tend be more volatile, have higher turnover ( i.e. more trading costs and short-term tax effects) and be sensitive to value over momentum in comparison with a market-cap weighted index like the S&P 500. The former have outperformed the latter over the last decade (EDIT: no, it has…

Note, it’s an ETF so there’s no tax consequences directly on the buyer until it’s sold.

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

#52

Post by beezle »

dgrin91 wrote: post #44
JumpCrisscross wrote: post #13

Earlier quoted context omitted.

> Try the ETF with the symbol "RSP". It's an S&P 500 fund, but each of the 500 is equally weighted. Note that an equal-weighted index will tend be more volatile, have higher turnover ( i.e. more trading costs and short-term tax effects) and be sensitive to value over momentum in comparison with a market-cap weighted index like the S&P 500. The former have outperformed the latter over the last decade (EDIT: no, it has…

To put the nail in the coffin, take a look at a comparison between the two: https://www.google.com/finance/quote/.INX:INDEXSP?sa=X&ved=2... Historical performance of RSP has always lagged behind SPX

That is not true at all. RSP has for many years outperformed SPX over many different time horizons. It really is not until 2019 that there is a significant underperformance which also coincides with the outsized top 10 market caps.

ref: https://stockcharts.com/freecharts/perf.php?RSP,SPY

change the window size to whatever time horizon you want.

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

#53

Post by Tsiklon »

andrewmcwatters wrote: post #46
Tsiklon wrote: post #41

Earlier quoted context omitted.

I have no knowledge in this field whatsoever, but is this more an indication that we shouldn't be using the S&P 500 and similar indices as an overall indicator of the performance of the economy, is there value in looking at these indices absent of Big Tech?

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?

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

#54

Post by chmod775 »

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…

>I'm not sure whether people understand just how big of a problem this is. Resilient economies are well-balanced economies.

You seem to be under the misconception that the stock market somehow reflects the actual economy, in fact you seem to think that the stock market is the economy.

Those "top 5" companies taken together are less than 5% of the actual US economy, regardless of whichever way you want to calculate that (revenue/profit+wages vs GDP, ...)

The ones hurt by an investment failing are just the investors themselves, which is the whole point of investment. You take the risk and reap the rewards.

The only exception is when a "too big to fail" whatever (this narrative is complete bs btw) made bad investments again, so the government, and by proxy the taxpayer, steps in to finance the gambling addiction of people who are politician's retirement plans. Now you have made a considerable impact on the actual economy.

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

#55

Post by throw0101a »

Cthulhu_ wrote: post #43
andy_threos_io wrote: post #21

More interesting, that around 2000 the top 5 was Microsoft, GE, Cisco, Intel, Walmart. Nothing last forever.

All of which are still massive companies, with Walmart pulling in half a trillion per year in revenue, double that of Apple or Amazon. Stock market value only tells part of the story (that of the richest getting richer).

Walmart has a well-understood business model, and so there is less uncertainly/risk, which means that investors generally accept lower returns for greater certainty.

The impact and revenues of tech companies is more uncertain, which is more risky, so investors are asking for more return in exchange for taking on that risk.

Recent video by Ben Felix of PWL Capital on the topic, "Investing in Technological Revolutions":

> Exciting new technologies, and the companies that create them, seem like obvious investment opportunities. Why wouldn’t you want to invest in the companies leading a new world-changing technological paradigm?

* https://www.youtube.com/watch?v=UZnVt_CvL3k

Some of the past recent he's found has shown that investing in a company on the way to being a Top 10 gets you good returns, but once a company is in the Top 10 its returns actually lag the market average.

As for income/wealth disparity: redistribution was used to good effect post-WW2 with high marginal tax rates, and it's also why the idea of a 'baby bond' is gaining some traction.

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

#57

Post by beezle »

htfy96 wrote: post #19
JumpCrisscross wrote: post #13

Earlier quoted context omitted.

> Try the ETF with the symbol "RSP". It's an S&P 500 fund, but each of the 500 is equally weighted. Note that an equal-weighted index will tend be more volatile, have higher turnover ( i.e. more trading costs and short-term tax effects) and be sensitive to value over momentum in comparison with a market-cap weighted index like the S&P 500. The former have outperformed the latter over the last decade (EDIT: no, it has…

My preference would be holding normal SPY and hedge the overweighted NASDAQ stocks with short NQ futures. In this way you only need to rebalance the NQ futures which benefits from 60/40 rule with better tax rate.

The 60/40 rule cuts both ways. You are also subject to daily market to market cash/margin drawdowns.

It is probably easier to just buy RSP and then buy virtually any 'market' or tech etf/mutual fund to round up the top 10-20% weighting as you want it. The reason I say any will do is that there is little difference in the holdings of most of the etfs and funds.

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

#58

Post by unreal37 »

Cthulhu_ wrote: post #40
Aunche wrote: post #33

Earlier quoted context omitted.

That theory doesn't make much sense. For example, surely Amazon has a lot more room to grow than Coca Cola.

I'm not sure; Coca Cola could start investing money and start buying up other food & drink brands. I mean could you have imagined 10, 20 years ago that Disney would start to gobble up other companies like some weird Shoggoth monstrosity and multiply its stock value by 5-6 times?

Coca-cola revenues have fallen 5% per year on average, for the past 5 years.

Of course, they're panicking over that. Of course they're trying to find growth. But they can't find it yet.

The fact is, they own so many brands in other beverage categories already. They own 500 beverage brands.

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

#59

Post by andrewmcwatters »

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?

No.

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

#60

Post by andrewmcwatters »

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.

I frequently think about the fact that such organizations, from the outside, seem like the people now working there have forgotten what they are supposed to be doing for the American people.

The most prominent example I can think of is Microsoft getting in all this trouble over bundling a browser with Windows and yet this proliferation of forced App Stores runs rampant in the industry.

Where in world is the FTC now? All of these people should be fired. They’ve been asleep for 20 years.

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