The Big AAPL and the S&P 500
- Rick Ferri
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The Big AAPL and the S&P 500
Most people still associate The Big Apple with NYC, but there may be a challenger. The challenger is Apple, Inc. (ticker: AAPL).
Apple is the most valuable corporation in the world. At around $700 billion in market capitalization, AAPL’s free-float market capitalization is nearly twice the value of any other company. Accordingly, AAPL’s dominance has had a meaningful impact on the return of stock indices in the US and globally.
Apple has grown to become such a large portion of the S&P 500 that S&P Dow Jones Indices (SPDJI) created ex-Apple indexes to see how the benchmark would have performed without AAPL’s influence. Figure 1 in the article below illustrates the difference in cumulative price-only returns of the S&P 500 with and without Apple stock over the years. Shown are cumulative price gains through August 5, 2015. Dividends and dividend reinvestment are not included.
Click to the full article for a chart: The Big AAPL and the S&P 500
There’s no way to know where Apple will be on the list in 30 years, or the name of the next company to dominate the S&P 500. Perhaps the top company isn’t public yet or has not even been formed.
The way to avoid guessing the top company and being wrong is not to exclude any companies from your portfolio. This can be done through total market index funds and exchange-traded funds (ETFs) that include nearly all stock that trade regularly on the US exchanges. With total market index funds, you’re sure to own the next top company soon after it becomes public.
Rick Ferri
Apple is the most valuable corporation in the world. At around $700 billion in market capitalization, AAPL’s free-float market capitalization is nearly twice the value of any other company. Accordingly, AAPL’s dominance has had a meaningful impact on the return of stock indices in the US and globally.
Apple has grown to become such a large portion of the S&P 500 that S&P Dow Jones Indices (SPDJI) created ex-Apple indexes to see how the benchmark would have performed without AAPL’s influence. Figure 1 in the article below illustrates the difference in cumulative price-only returns of the S&P 500 with and without Apple stock over the years. Shown are cumulative price gains through August 5, 2015. Dividends and dividend reinvestment are not included.
Click to the full article for a chart: The Big AAPL and the S&P 500
There’s no way to know where Apple will be on the list in 30 years, or the name of the next company to dominate the S&P 500. Perhaps the top company isn’t public yet or has not even been formed.
The way to avoid guessing the top company and being wrong is not to exclude any companies from your portfolio. This can be done through total market index funds and exchange-traded funds (ETFs) that include nearly all stock that trade regularly on the US exchanges. With total market index funds, you’re sure to own the next top company soon after it becomes public.
Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.
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Re: The Big AAPL and the S&P 500
Hi Rick,
Thank you for the analysis. Many years ago in our stock picking days, we own a sizeable position in Apple. We made money and lost money and the fees and taxes put us back even further. We prefer to own total market index funds now and keep investing simple!
Best.
Thank you for the analysis. Many years ago in our stock picking days, we own a sizeable position in Apple. We made money and lost money and the fees and taxes put us back even further. We prefer to own total market index funds now and keep investing simple!
Best.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The Big AAPL and the S&P 500
Boy, people sure forget times like late 1985, when Steve Jobs was in charge but the Mac looked like it was on life support...
...or 1996, when Gil Amelio strode onto the stage at WWDC in front of an audience of developers wearing a power suit with a red tie... and everyone started yelling at him "Lose the tie!" and he wouldn't take it off. And, more to the point... everyone was lining up at the lab to see if their stuff would run under Copland, and Copland itself wouldn't run. And the promise that at the meeting all attendees would receive CDs of a Copland developers' release to take home was modified to say they'd be mailing it out later... and they never did.
(Copland? the big-deal operating system that was going to replace what we now call the Classic Mac OS. They'd decide they were going to code-name the new line of revolutionary new operating systems after American composers).
Apple is amazing, I'm typing this on a Mac right now and have used nothing but Macs since February of 1984 (I know, it took me a whole month to commit). But it could go the way of many other household names--Studebaker, Schwinn bicycles, Eastern Airlines, Wang Laboratories. Everyone like to create an aura of safety and invincibility around the big companies, but no single company is safe... and the only AAPL I own is whatever is in Vanguard Total Stock Market Index Fund.
...or 1996, when Gil Amelio strode onto the stage at WWDC in front of an audience of developers wearing a power suit with a red tie... and everyone started yelling at him "Lose the tie!" and he wouldn't take it off. And, more to the point... everyone was lining up at the lab to see if their stuff would run under Copland, and Copland itself wouldn't run. And the promise that at the meeting all attendees would receive CDs of a Copland developers' release to take home was modified to say they'd be mailing it out later... and they never did.
(Copland? the big-deal operating system that was going to replace what we now call the Classic Mac OS. They'd decide they were going to code-name the new line of revolutionary new operating systems after American composers).
Apple is amazing, I'm typing this on a Mac right now and have used nothing but Macs since February of 1984 (I know, it took me a whole month to commit). But it could go the way of many other household names--Studebaker, Schwinn bicycles, Eastern Airlines, Wang Laboratories. Everyone like to create an aura of safety and invincibility around the big companies, but no single company is safe... and the only AAPL I own is whatever is in Vanguard Total Stock Market Index Fund.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: The Big AAPL and the S&P 500
Thanks for the reminder.
Seems that every year we hear that 10 +/- days per year account for almost all of the return for some index and that some small number of companies in that index account for almost all of the return for that index.
Impossible to pick the days or those companies, although some believe that the companies can be screened and some companies selected/eliminated a bit and that screen will hold true down the road.
Seems that every year we hear that 10 +/- days per year account for almost all of the return for some index and that some small number of companies in that index account for almost all of the return for that index.
Impossible to pick the days or those companies, although some believe that the companies can be screened and some companies selected/eliminated a bit and that screen will hold true down the road.
Re: The Big AAPL and the S&P 500
Great article, thank you for sharing!
Re: The Big AAPL and the S&P 500
Interesting, but if you don't like AAPL the difference between an S&P500 index and a 'Total market' index is pretty marginal, 4% vs 3.2%.... maybe we should compare the performance of AAPL against the top 4% of the extended market/completion index
People who own an S&P500 index should probably be aware that it's not the 'Total Market', but that doesn't mean they want to own the 'Total Market'.
People who own an S&P500 index should probably be aware that it's not the 'Total Market', but that doesn't mean they want to own the 'Total Market'.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: The Big AAPL and the S&P 500
We switched to Apple products over a few years and now the entire home is Apple. Computing is for the first time (knock on wood) so easy and simple. It just works!
John C. Bogle: “Simplicity is the master key to financial success."
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Re: The Big AAPL and the S&P 500
More than 10% of the SPOOs return since 2000 has been due to one company out of 500.
In possibly unrelated news, the NYSE AD line has been declining since April.
In possibly unrelated news, the NYSE AD line has been declining since April.
Re: The Big AAPL and the S&P 500
apple - amazing products
Apple computers have made me forget all of the microsoft woes. Their cost is a little more, but the savings in long term time and productivity are amazing. I would pay 10x the windows cost for a mac. Maybe 20x. Maybe 50x They add that much to productivity.
Glad the stock reflects the excellence of the product and company. Kudos to their management.
Apple computers have made me forget all of the microsoft woes. Their cost is a little more, but the savings in long term time and productivity are amazing. I would pay 10x the windows cost for a mac. Maybe 20x. Maybe 50x They add that much to productivity.
Glad the stock reflects the excellence of the product and company. Kudos to their management.
Re: The Big AAPL and the S&P 500
Apple didn't pay a div from 1996 to 8/2012. How much would that change the numbers?
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Re: The Big AAPL and the S&P 500
If Apple retained all earnings rather than pay a dividend, the price of AAPL would probably be higher today and this would have affected the price-only return of the S&P 500. But since it didn't happen, there is no way to tell exactly how much this would have have changed the index.naha66 wrote:Apple didn't pay a div from 1996 to 8/2012. How much would that change the numbers?
Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.
Re: The Big AAPL and the S&P 500
Er, this article was rather disappointing. Very short, very little historical perspective, comparisons with past juggernauts is limited to IBM without any details. The most disappointing part is the complete lack of analysis on the difference between the S&P500 and the Total Market, although this appears to be the key conclusion. Don't know, I expected more substance here.
This last topic (difference between the S&P500 and the Total Market) is actually one that intrigues me. Intellectually, it is obvious to me that one should invest in the total market, for the reasons hinted at in the article (big players were small at some point, former big players are no more). And yet, fact is the historical returns of TSM are strikingly close to the S&P500 returns. Why is that? A solid analysis on this topic would be welcome.
This last topic (difference between the S&P500 and the Total Market) is actually one that intrigues me. Intellectually, it is obvious to me that one should invest in the total market, for the reasons hinted at in the article (big players were small at some point, former big players are no more). And yet, fact is the historical returns of TSM are strikingly close to the S&P500 returns. Why is that? A solid analysis on this topic would be welcome.
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Re: The Big AAPL and the S&P 500
I'm sorry you're disappointed with my article. If the data was available, I would have included it. If it helps. the S&P 500 is 85% of the total market. So, just take 85% of the values and you're close. BTW, this is a free country, and you are certainly welcome to do more research and write an article that extends on the subject.siamond wrote:Er, this article was rather disappointing. Very short, very little historical perspective, comparisons with past juggernauts is limited to IBM without any details. The most disappointing part is the complete lack of analysis on the difference between the S&P500 and the Total Market, although this appears to be the key conclusion. Don't know, I expected more substance here.
Rick
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.
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Re: The Big AAPL and the S&P 500
Hi Rick,Rick Ferri wrote:I'm sorry you're disappointed with my article. If the data was available, I would have included it. If it helps. the S&P 500 is 85% of the total market. So, just take 85% of the values and you're close. BTW, this is a free country, and you are certainly welcome to do more research and write an article that extends on the subject.siamond wrote:Er, this article was rather disappointing. Very short, very little historical perspective, comparisons with past juggernauts is limited to IBM without any details. The most disappointing part is the complete lack of analysis on the difference between the S&P500 and the Total Market, although this appears to be the key conclusion. Don't know, I expected more substance here.
Rick
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Re: The Big AAPL and the S&P 500
If your are going to link articles from your personal website (which I don't think is kosher) then I think you should be willing to take criticism.Rick Ferri wrote: BTW, this is a free country, and you are certainly welcome to do more research and write an article that extends on the subject.
Rick
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Re: The Big AAPL and the S&P 500
Let's be fair about this. I did take the critism and I provided the poster with a workaround. You cut out my response and just posted the last sentence.bertie wooster wrote:If your are going to link articles from your personal website (which I don't think is kosher) then I think you should be willing to take criticism.Rick Ferri wrote: BTW, this is a free country, and you are certainly welcome to do more research and write an article that extends on the subject.
Rick
Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.
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Re: The Big AAPL and the S&P 500
You're right - you did answer his question and I should have included that - my apologies for not fully quoting you!Rick Ferri wrote:
Let's be fair about this. I did take the critism and I provided the poster with a workaround. You cut out my response and just posted the last sentence.
Rick Ferri
Re: The Big AAPL and the S&P 500
Rick, my understanding is that the S&P 500 is about 75% of the total market. Has something changed? This would imply that large caps have left mid-caps and small-caps in the dust in recent years. As far as I know this hasn't happened. Could you please clarify?Rick Ferri wrote:I'm sorry you're disappointed with my article. If the data was available, I would have included it. If it helps. the S&P 500 is 85% of the total market. So, just take 85% of the values and you're close. BTW, this is a free country, and you are certainly welcome to do more research and write an article that extends on the subject.siamond wrote:Er, this article was rather disappointing. Very short, very little historical perspective, comparisons with past juggernauts is limited to IBM without any details. The most disappointing part is the complete lack of analysis on the difference between the S&P500 and the Total Market, although this appears to be the key conclusion. Don't know, I expected more substance here.
Rick
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Re: The Big AAPL and the S&P 500
Take a look at MGC, VFINX, and VTSAX.siamond wrote:Er, this article was rather disappointing. Very short, very little historical perspective, comparisons with past juggernauts is limited to IBM without any details. The most disappointing part is the complete lack of analysis on the difference between the S&P500 and the Total Market, although this appears to be the key conclusion. Don't know, I expected more substance here.
This last topic (difference between the S&P500 and the Total Market) is actually one that intrigues me. Intellectually, it is obvious to me that one should invest in the total market, for the reasons hinted at in the article (big players were small at some point, former big players are no more). And yet, fact is the historical returns of TSM are strikingly close to the S&P500 returns. Why is that? A solid analysis on this topic would be welcome.
In international VGTSX, and VFWIX, just a guess but the allocations are almost identical, diversification has it's limits.
Morningstar quote
"While mega-cap stocks may have slower growth, they are also less volatile. The standard deviation of return of the Russell Top 50 Mega Cap Index has been 13.8% during the past 10 years compared with 19.5% for the small-cap stocks in the Russell 2000 Index. This may be because mega-cap companies tend to be better diversified and are more likely to enjoy sustainable competitive advantages than smaller companies. The fund has 72% of its assets invested in stocks with Morningstar Economic Moat Ratings of Wide, Morningstar’s assessment that a firm enjoys a sustainable competitive advantage. That compares with just 49% of assets for the S&P 500. Its holdings also tend to be more profitable. They generated a higher average return on invested capital in the trailing 12 months through July 2015 (15.1%) than the average constituent in the S&P 500 (13.7%)."
So it would seem cap weight and deviation of return come into play when you start adding the small and mid caps. Intresting to note that the fund with the fewest equities is actually the least volatile while having near identical returns. Food for thought. I have thought about picking up MGC, it only represents about 300 equities, but still it seems to track and be less volatile. I think VONE is also tracking as well.
So pick your poison.
Re: The Big AAPL and the S&P 500
I know you addressed Rick - but FYI, the typical example has been 80%/20% - http://www.bogleheads.org/wiki/Extended ... index_fundnedsaid wrote:Rick, my understanding is that the S&P 500 is about 75% of the total market. Has something changed? This would imply that large caps have left mid-caps and small-caps in the dust in recent years. As far as I know this hasn't happened. Could you please clarify?
but over-weighting/tilting is popular so it's not unusual to hear people exaggerate it.
If you look at PortfolioVisualizer over the past 20 year period, 85/15 has been a little bit closer approximation than 80/20 was at achieving the same risk/returns... even 90/10 works
80/20 seems about right comparing VTSMX and VFINX/VEXMX on Morningstar's Instant X-Ray
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: The Big AAPL and the S&P 500
When being inclusive, why restrict oneself to just the U.S. stock exchanges? Apple may be largest company in the world by market cap, but when compared with other companies in the latest Global 500, it is:Rick Ferri wrote:The way to avoid guessing the top company and being wrong is not to exclude any companies from your portfolio. This can be done through total market index funds and exchange-traded funds (ETFs) that include nearly all stock that trade regularly on the US exchanges.
- • Only the 15th largest company by revenue (behind #1 Walmart, a long list of global petroleum companies, #8 Volkswagen, #9 Toyota and #13 Samsung);
• Only the 2nd largest company by profits (behind #1 Industrial & Commerce Bank of China).