Is there a way to avoid bad companies in S&P 500?

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vu8
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Is there a way to avoid bad companies in S&P 500?

Post by vu8 » Tue Jun 26, 2018 9:06 am

Most of the S&P 500 companies disappear or change in 50 years. Is there a way to filter out terrible companies? Because if you buy the haystack, there has to be a few bad eggs out there.

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climber2020
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Re: Is there a way to avoid bad companies in S&P 500?

Post by climber2020 » Tue Jun 26, 2018 9:10 am

Any intelligent person who can do this consistently is certainly not going to lose a huge competitive advantage by telling you or anyone else.

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Re: Is there a way to avoid bad companies in S&P 500?

Post by retiredjg » Tue Jun 26, 2018 9:23 am

vu8 wrote:
Tue Jun 26, 2018 9:06 am
Most of the S&P 500 companies disappear or change in 50 years. Is there a way to filter out terrible companies? Because if you buy the haystack, there has to be a few bad eggs out there.
You could buy individual stocks. This is much riskier and much more time consuming and many people fail at it.

If you think you can pick the best stocks on a consistent basis, you are almost certainly mistaken. Even the best fund managers with all their knowledge, access to information, collaboration with colleagues, 40+ hours a week and computer models cannot do this on a consistent basis.

TV and movies and legends have us all believing in stock picking, but it is a fools errand for the most part. Don't go there. :happy

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Re: Is there a way to avoid bad companies in S&P 500?

Post by Pajamas » Tue Jun 26, 2018 9:31 am

vu8 wrote:
Tue Jun 26, 2018 9:06 am
Most of the S&P 500 companies disappear or change in 50 years.
It's not often discussed here, but the stocks that compose the S&P 500 are selected by a committee. Each year a couple of dozen or so stocks are replaced. At least in theory, the committee eventually removes "bad" or "terrible" companies that no longer meet the requirements for inclusion. Criteria include market cap, liquidity, financial viability, etc.

https://us.spindices.com/documents/meth ... ndices.pdf

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Re: Is there a way to avoid bad companies in S&P 500?

Post by chevca » Tue Jun 26, 2018 9:33 am

vu8 wrote:
Tue Jun 26, 2018 9:06 am
Most of the S&P 500 companies disappear or change in 50 years. Is there a way to filter out terrible companies? Because if you buy the haystack, there has to be a few bad eggs out there.
Of the 500 in there now, can you tell us which ones are "terrible", on the way out the door, or next to leave? You want to do the work and studying to try and figure that out?

The ones that leave get replaced by another company. I prefer to let the folks that pick the S&P figure that out rather than try to do it myself.

Index invest doesn't involve much filtering out. The few bad eggs get balance out by the few outstanding eggs, and then there's all kinds of good eggs in the middle. :happy

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Re: Is there a way to avoid bad companies in S&P 500?

Post by Jeff Albertson » Tue Jun 26, 2018 9:39 am

Will Rogers figured this out:
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it.

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Re: Is there a way to avoid bad companies in S&P 500?

Post by linenfort » Tue Jun 26, 2018 9:48 am

Buy the real haystack, the total market. It's the only way to get the golden needles which will make up for all the bad stocks.
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Re: Is there a way to avoid bad companies in S&P 500?

Post by JBTX » Tue Jun 26, 2018 10:09 am

You would probably be cutting out value stocks in doing so which is not recommended.

if you really want to only have quality companies a fund like vanguard dividend growth might fit the bill.

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Re: Is there a way to avoid bad companies in S&P 500?

Post by H-Town » Tue Jun 26, 2018 10:10 am

vu8 wrote:
Tue Jun 26, 2018 9:06 am
Most of the S&P 500 companies disappear or change in 50 years. Is there a way to filter out terrible companies? Because if you buy the haystack, there has to be a few bad eggs out there.
The "terrible" companies in S&P 500 would be those who are doing so well and their stocks price are so high. The return will not be so great.

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Re: Is there a way to avoid bad companies in S&P 500?

Post by KlangFool » Tue Jun 26, 2018 10:11 am

vu8 wrote:
Tue Jun 26, 2018 9:06 am
Most of the S&P 500 companies disappear or change in 50 years. Is there a way to filter out terrible companies? Because if you buy the haystack, there has to be a few bad eggs out there.
Why invest in S&P 500 when you can invest in Total Stock Market Index?

KlangFool

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Smorgasbord
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Re: Is there a way to avoid bad companies in S&P 500?

Post by Smorgasbord » Tue Jun 26, 2018 10:15 am

To filter out the bad companies you just need to know the future, and for that you'll need a working time machine. Of course, the fundamental problem with this concept is that if you had a time machine you'd get much better returns from the Grays Sports Almanac than something boring like the S&P500.

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Re: Is there a way to avoid bad companies in S&P 500?

Post by livesoft » Tue Jun 26, 2018 10:21 am

You mean like buy the S&P500 index fund and sell GE short?

With ETFs, you could sell a sector short, like banks or technology.
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Re: Is there a way to avoid bad companies in S&P 500?

Post by SimpleGift » Tue Jun 26, 2018 10:42 am

vu8 wrote:
Tue Jun 26, 2018 9:06 am
Most of the S&P 500 companies disappear or change in 50 years. Is there a way to filter out terrible companies? Because if you buy the haystack, there has to be a few bad eggs out there.
The difficulty is, because of the positive skew in the distribution of returns for S&P 500 stocks, nearly half of the companies are usually terrible investments (at left, chart below). It's the few big winners on the right that drive the majority of returns.
  • Image
    Note: Shows cumulative returns for the 20-year period from 1997-2017.
    Source: S&P-Dow Jones
Since no one knows the future performance of individual S&P 500 companies, identifying the large of number of losers to reject is equally as hard as identifying the small number of super winners to embrace. Best to just buy the whole haystack of companies and let the market sort it out.
Cordially, Todd

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Re: Is there a way to avoid bad companies in S&P 500?

Post by 02nz » Tue Jun 26, 2018 11:07 am

There are inevitably poorly performing companies in the S&P500, or ones whose future don't look so bright. But remember - the market has already priced that into its valuation of those stocks. So unless you have good reason to think you have better information or insight than the many people who do this for a living, it's a fool's errand.

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Re: Is there a way to avoid bad companies in S&P 500?

Post by rgs92 » Tue Jun 26, 2018 11:11 am

Well, you could have weeded out GE yesterday and lost the 8.3% gain today...

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JoMoney
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Re: Is there a way to avoid bad companies in S&P 500?

Post by JoMoney » Tue Jun 26, 2018 11:12 am

I think if you're sticking with large cap stocks, like the S&P 500, you're already filtering the majority of stocks that will disappear (the failure rate in small caps is much larger).
You can try to be more selective, I think you might even be able to pick stocks that are somewhat objectively safer and higher quality companies.. the bigger question I think, is can you do that without also hindering your returns relative to the S&P 500? There are lots of professional fund managers with lots of experience and good information that attempt to do that and fail.

2017 SPIVA Scorecard:
Over the past 15 years, the S&P 500 outperformed 92.33% of the mutual funds trying to beat it
https://us.spindices.com/documents/spiv ... d-2017.pdf
"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: Is there a way to avoid bad companies in S&P 500?

Post by 272 Sheep » Tue Jun 26, 2018 11:21 am

The S&P 500 is composed of both Growth (good) companies and Value (bad or distressed) companies
according to Bill Bernstein. Everyone wants the "good" companies so shareholders overpay and over-own
them thus making even cheaper the "bad" companies by comparison. Additionally, the Value companies
usually pay higher dividends, putting more sugar in the tea so to say, to make those companies even more
appealing to stock buyers. Of course, Value companies generally have more risk but by owning a mutual
fund, much of that risk, including the occasional bankruptcy, can be mitigated.

Since 1926, the Value (bad) companies have out-performed the Growth (good) companies by 2.6%/year.
The truly awful companies, based on their performance will eventually exit themselves and be replaced
within their respective index.

Carl W.

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JoMoney
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Re: Is there a way to avoid bad companies in S&P 500?

Post by JoMoney » Tue Jun 26, 2018 11:28 am

272 Sheep wrote:
Tue Jun 26, 2018 11:21 am
The S&P 500 is composed of both Growth (good) companies and Value (bad or distressed) companies
according to Bill Bernstein. Everyone wants the "good" companies so shareholders overpay and over-own
them thus making even cheaper the "bad" companies by comparison. Additionally, the Value companies
usually pay higher dividends, putting more sugar in the tea so to say, to make those companies even more
appealing to stock buyers. Of course, Value companies generally have more risk but by owning a mutual
fund, much of that risk, including the occasional bankruptcy, can be mitigated.

Since 1926, the Value (bad) companies have out-performed the Growth (good) companies by 2.6%/year.
The truly awful companies, based on their performance will eventually exit themselves and be replaced
within their respective index.

Carl W.
Huh.. :confused
<Growth Chart of S&P 500 Value vs S&P 500>
"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: Is there a way to avoid bad companies in S&P 500?

Post by WhiteMaxima » Tue Jun 26, 2018 11:35 am

Buy S&P500 and short the company you don't like. What's your definition of bad company? Tobacco, gun or alcohol company?

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Re: Is there a way to avoid bad companies in S&P 500?

Post by 02nz » Tue Jun 26, 2018 11:36 am

272 Sheep wrote:
Tue Jun 26, 2018 11:21 am
The S&P 500 is composed of both Growth (good) companies and Value (bad or distressed) companies
according to Bill Bernstein. Everyone wants the "good" companies so shareholders overpay and over-own
them thus making even cheaper the "bad" companies by comparison.
Maybe I'm being nitpicky but that's not a great definition of value and growth. The distinction is more about the outlook for earnings growth, which has a lot to do with the industry in which a company is engaged, not whether a company is "good," "bad," or "distressed."

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Re: Is there a way to avoid bad companies in S&P 500?

Post by Taylor Larimore » Tue Jun 26, 2018 11:44 am

02nz wrote:
Tue Jun 26, 2018 11:07 am
There are inevitably poorly performing companies in the S&P500, or ones whose future don't look so bright. But remember - the market has already priced that into its valuation of those stocks. So unless you have good reason to think you have better information or insight than the many people who do this for a living, it's a fool's errand.
02nz:

Well put!

Thank you and best wishes.
Taylor
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Re: Is there a way to avoid bad companies in S&P 500?

Post by HomerJ » Tue Jun 26, 2018 11:58 am

vu8 wrote:
Tue Jun 26, 2018 9:06 am
Most of the S&P 500 companies disappear or change in 50 years. Is there a way to filter out terrible companies? Because if you buy the haystack, there has to be a few bad eggs out there.
Apple was once considered a bad company.

If you could pick just the good ones and leave out the bad ones, you'd be a billionaire pretty quickly.

It's not very easy to predict the future.
The J stands for Jay

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Re: Is there a way to avoid bad companies in S&P 500?

Post by SimpleGift » Tue Jun 26, 2018 12:15 pm

Another way to look at the OP question: Because of the strong positive skew in S&P 500 company returns historically, the big winners have tended to pull up the market much more than the big losers have dragged it down (except in major bear markets). The chart below shows the net return contribution of the 10 best and 10 worst S&P 500 stocks over the 1963-2015 period.
Thus, historically, in order to reap strong market gains, there's really been no need to avoid the worst losers. Investors just need to make sure their equity portfolios contain the few big winners — which broad market index funds guarantee.
Cordially, Todd

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Re: Is there a way to avoid bad companies in S&P 500?

Post by aristotelian » Tue Jun 26, 2018 12:25 pm

Smorgasbord wrote:
Tue Jun 26, 2018 10:15 am
To filter out the bad companies you just need to know the future, and for that you'll need a working time machine. Of course, the fundamental problem with this concept is that if you had a time machine you'd get much better returns from the Grays Sports Almanac than something boring like the S&P500.
Excellent movie on this, and they do make a killing on stocks. Unfortunately, it is fiction.
https://www.youtube.com/watch?v=3nj5MMURCm8

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Re: Is there a way to avoid bad companies in S&P 500?

Post by BogleMelon » Tue Jun 26, 2018 12:26 pm

HomerJ wrote:
Tue Jun 26, 2018 11:58 am
vu8 wrote:
Tue Jun 26, 2018 9:06 am
Most of the S&P 500 companies disappear or change in 50 years. Is there a way to filter out terrible companies? Because if you buy the haystack, there has to be a few bad eggs out there.
Apple was once considered a bad company.
+1

Was about to say the same!
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Re: Is there a way to avoid bad companies in S&P 500?

Post by Alexa9 » Tue Jun 26, 2018 12:33 pm

I prefer the little bad companies. Tilting to small value is the way to go.

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Re: Is there a way to avoid bad companies in S&P 500?

Post by heyyou » Wed Jun 27, 2018 1:13 am

<Growth Chart of S&P 500 Value vs S&P 500>
The difference looks impressive, but starting with $10K, for 24.5 years, the winner is $12.81 per week better than the other one, and that is without any compounding. Might be a good idea to choose either one, and just save as much as possible.

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Re: Is there a way to avoid bad companies in S&P 500?

Post by beardsworth » Wed Jun 27, 2018 6:54 am

JBTX wrote:
Tue Jun 26, 2018 10:09 am
You would probably be cutting out value stocks in doing so which is not recommended.

if you really want to only have quality companies a fund like vanguard dividend growth might fit the bill.
Just commenting on the mention of that particular fund, not on the general pro-indexing consensus of the thread: VDIGX has been closed to new accounts for a while. A reasonable replacement, if someone wanted to take this approach, could be Vanguard Dividend Appreciation Index (VDAIX).

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Re: Is there a way to avoid bad companies in S&P 500?

Post by JBTX » Wed Jun 27, 2018 7:06 am

beardsworth wrote:
Wed Jun 27, 2018 6:54 am
JBTX wrote:
Tue Jun 26, 2018 10:09 am
You would probably be cutting out value stocks in doing so which is not recommended.

if you really want to only have quality companies a fund like vanguard dividend growth might fit the bill.
Just commenting on the mention of that particular fund, not on the general pro-indexing consensus of the thread: VDIGX has been closed to new accounts for a while. A reasonable replacement, if someone wanted to take this approach, could be Vanguard Dividend Appreciation Index (VDAIX).
Agreed. I have both.

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Re: Is there a way to avoid bad companies in S&P 500?

Post by topper1296 » Wed Jun 27, 2018 7:19 am

Their are fundamentally weighted index funds you could explore.

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Re: Is there a way to avoid bad companies in S&P 500?

Post by randomizer » Wed Jun 27, 2018 7:40 am

Fool’s game.
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Re: Is there a way to avoid bad companies in S&P 500?

Post by bottlecap » Wed Jun 27, 2018 8:04 am

Is there a way to identify the “bad” companies in the S&P 500 ahead of time?

GE was one of those bad companies. I guess it should never have been a part of the index.

JT

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Re: Is there a way to avoid bad companies in S&P 500?

Post by House Blend » Wed Jun 27, 2018 9:26 am

SimpleGift wrote:
Tue Jun 26, 2018 10:42 am
vu8 wrote:
Tue Jun 26, 2018 9:06 am
Most of the S&P 500 companies disappear or change in 50 years. Is there a way to filter out terrible companies? Because if you buy the haystack, there has to be a few bad eggs out there.
The difficulty is, because of the positive skew in the distribution of returns for S&P 500 stocks, nearly half of the companies are usually terrible investments (at left, chart below). It's the few big winners on the right that drive the majority of returns.

<cool chart omitted>

Since no one knows the future performance of individual S&P 500 companies, identifying the large of number of losers to reject is equally as hard as identifying the small number of super winners to embrace. Best to just buy the whole haystack of companies and let the market sort it out.
No. The distribution isn't symmetric, so (valid) arguments against picking winners and losers cannot be symmetric.

The long right tail of that distribution demonstrates that if you randomly pick a handful of stocks, you will almost certainly trail the index. By a wide margin. But if you randomly pick a handful of stocks to leave *out* of the index, then you will likely beat the index.

It would be fun to quantify the average "edge" one would obtain by randomly omitting, say, 10 stocks from the S&P 500. My guess is that it is tiny; i.e., positive but negligible compared to expenses.

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Re: Is there a way to avoid bad companies in S&P 500?

Post by SimpleGift » Wed Jun 27, 2018 10:09 am

House Blend wrote:
Wed Jun 27, 2018 9:26 am
No. The distribution isn't symmetric, so (valid) arguments against picking winners and losers cannot be symmetric.
Point taken, House Blend. Thank you for that observation.
Cordially, Todd

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Re: Is there a way to avoid bad companies in S&P 500?

Post by Jags4186 » Wed Jun 27, 2018 10:19 am

How do you square the fact that a terrible company became one of the 500 or so largest American companies? Remember, today's dogs are tomorrow's turnaround stories. Today's high flyers are tomorrow's disappointments. GE was a great company until it became "terrible". Eastman Kodak was a great company until it wasn't. Same with Enron, WorldCom, etc. etc. It wasn't that long ago that Apple was almost out of business. 20 or so years later it is the largest company in the world. Amazon was a high flyer until it crashed and then became a high flyer again.

Good luck!

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Re: Is there a way to avoid bad companies in S&P 500?

Post by JoMoney » Wed Jun 27, 2018 12:51 pm

House Blend wrote:
Wed Jun 27, 2018 9:26 am
SimpleGift wrote:
Tue Jun 26, 2018 10:42 am
vu8 wrote:
Tue Jun 26, 2018 9:06 am
Most of the S&P 500 companies disappear or change in 50 years. Is there a way to filter out terrible companies? Because if you buy the haystack, there has to be a few bad eggs out there.
The difficulty is, because of the positive skew in the distribution of returns for S&P 500 stocks, nearly half of the companies are usually terrible investments (at left, chart below). It's the few big winners on the right that drive the majority of returns.

<cool chart omitted>

Since no one knows the future performance of individual S&P 500 companies, identifying the large of number of losers to reject is equally as hard as identifying the small number of super winners to embrace. Best to just buy the whole haystack of companies and let the market sort it out.
No. The distribution isn't symmetric, so (valid) arguments against picking winners and losers cannot be symmetric.

The long right tail of that distribution demonstrates that if you randomly pick a handful of stocks, you will almost certainly trail the index. By a wide margin. But if you randomly pick a handful of stocks to leave *out* of the index, then you will likely beat the index.

It would be fun to quantify the average "edge" one would obtain by randomly omitting, say, 10 stocks from the S&P 500. My guess is that it is tiny; i.e., positive but negligible compared to expenses.
It goes back and forth over different time periods, and kind of depends on the relative diffusion or market breadth. Sometimes there are a lot of individual stocks advancing more than the few top weighted ones. An equal weight index does better when the market behaves like this. Some people refer to it as a "stock pickers market", because in those time periods there is a higher likelihood of picking stocks that perform better although not necessarily better when "risk adjusted" because unless one makes an effort to stick to only the top 50 stocks, stock picking tends to tilt to smaller cap stocks (there's a whole lot more of them).
"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: Is there a way to avoid bad companies in S&P 500?

Post by patrick013 » Thu Jun 28, 2018 1:32 pm

age in bonds, buy-and-hold, 10 year business cycle

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Re: Is there a way to avoid bad companies in S&P 500?

Post by CaliJim » Thu Jun 28, 2018 2:25 pm

vu8 wrote:
Tue Jun 26, 2018 9:06 am
Most of the S&P 500 companies disappear or change in 50 years. Is there a way to filter out terrible companies? Because if you buy the haystack, there has to be a few bad eggs out there.
Time travel :twisted:
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Re: Is there a way to avoid bad companies in S&P 500?

Post by inbox788 » Thu Jun 28, 2018 5:39 pm

rgs92 wrote:
Tue Jun 26, 2018 11:11 am
Well, you could have weeded out GE yesterday and lost the 8.3% gain today...
Everybody "knew" Amazon was getting into the pharmacy business. Ironic that GE is being switched out for WBA. Do you use yesterdays price or today's price when comparing GE to WBA when figuring out if the incoming stock or the outgoing stock is doing better going forward?

https://www.bloomberg.com/news/videos/2 ... tury-video
https://www.cbsnews.com/news/walgreens- ... to-amazon/

Image
Is Amazon getting into the pharmacy business? This is what you need to know
Published: Nov 28, 2017 9:58 a.m. ET
https://www.marketwatch.com/story/is-am ... 2017-10-09

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Re: Is there a way to avoid bad companies in S&P 500?

Post by blixet » Thu Jun 28, 2018 5:47 pm

Buy the Russell 2000? :oops:

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Re: Is there a way to avoid bad companies in S&P 500?

Post by tennisplyr » Thu Jun 28, 2018 5:53 pm

I believe Fidelity allows you to create a fund made of a market basket of individual stocks.
Those who move forward with a happy spirit will find that things always work out.

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Re: Is there a way to avoid bad companies in S&P 500?

Post by amateurnovice » Thu Jun 28, 2018 9:58 pm

Yeah, don't buy an index fund.

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Re: Is there a way to avoid bad companies in S&P 500?

Post by jbranx » Thu Jun 28, 2018 10:12 pm

Avoiding the "bad" companies in the S&P 500 is exactly what a few thousand mutual fund managers who benchmark against it say they are doing. Not so easy to do, apparently.

S&P has run the S&P Earnings and Dividend Ranking System since the late fifties, using a formula of approx. (I think) 60% for eps increase and 40% for div. growth and issuing ranks of A+ on down. One would think the A+ companies (say JNJ) would outperform; not so much. In fact, during long periods the B's, C's outdo the Index. The best risk-adjusted returns have accrued to the A- companies. So, there are times, especially when new bull markets are starting, that one wants to own the "bad" companies if they hope to beat the Index over the long term.

One never knows which stock is going to recover. In 1997 Apple was forecasted to enter bankruptcy and B. Gates was asking "why doesn't Steve (Jobs) just give up." This study by Prof. Bessembinder makes pretty clear that most of the returns of the 500 and other indices are attributable to a handful of stocks, none easily guessed beforehand:

https://papers.ssrn.com/sol3/papers.cfm ... id=2900447

I remember an exercise some analyst did in the nineties about all the tech companies that were going to grow their revenues at 15% for 15 consecutive years or some long number. Turns out the only two that had done it were non-techies Philip Morris and Fannie Mae. One was selling an addictive product and the other was cooking the books.

Some times you want to own the bad when you want to do good. Guessing when and which is the loser's game.

If you want to track the results of a firm that invests only in the highest quality large caps, check out Jensen Investment Mgt. in Portland. They only buy companies that have a consistent 15% ROI for10 years; not an index crusher over the long term, apparently, with M'star calling its returns relative to the 500 "pedestrian." It does give the main fund 4 Stars. One wonders if this very good mgt. team's long-term results of only buying large caps of "uncompromising quality" doesn't raise the question of whether the "quality factor' can be captured after accounting for expenses.

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Re: Is there a way to avoid bad companies in S&P 500?

Post by random_walker_77 » Thu Jun 28, 2018 10:47 pm

jbranx wrote:
Thu Jun 28, 2018 10:12 pm
One never knows which stock is going to recover. In 1997 Apple was forecasted to enter bankruptcy and B. Gates was asking "why doesn't Steve (Jobs) just give up."
That's actually the stock that convinced me I can't pick out the losers. I remember rewatching "Forrest Gump" around '97 and thinking that the reference to Apple stock was already really outdated. There's a line in the movie about Forrest making a ton of money investing in "some fruit company", and at that time, Apple had retreated to niche markets like education and its future didn't look so good. Who'd have guessed then that it'd go on to become the biggest company in the world (by market cap)?

TropikThunder
Posts: 1027
Joined: Sun Apr 03, 2016 5:41 pm

Re: Is there a way to avoid bad companies in S&P 500?

Post by TropikThunder » Thu Jun 28, 2018 11:32 pm

tennisplyr wrote:
Thu Jun 28, 2018 5:53 pm
I believe Fidelity allows you to create a fund made of a market basket of individual stocks.
How is that different than just buying the individual stocks?

jbranx
Posts: 258
Joined: Thu Feb 09, 2017 6:57 pm

Re: Is there a way to avoid bad companies in S&P 500?

Post by jbranx » Thu Jun 28, 2018 11:43 pm

TropikThunder wrote:
Thu Jun 28, 2018 11:32 pm
tennisplyr wrote:
Thu Jun 28, 2018 5:53 pm
I believe Fidelity allows you to create a fund made of a market basket of individual stocks.
How is that different than just buying the individual stocks?
It isn't. You can buy up to 50 stocks in a "basket" you create, then execute the basket trade, all at $4.95 per stock. You cannot set a buy or sell limit on any of the stocks. Look under the "trade" tab and you can find the basket creation tool. I have used it in the past when it first came out, but have found I prefer to set limits on buys/sales. I still use it once in a while to buy, say, a few ETS's at once.

PFInterest
Posts: 2252
Joined: Sun Jan 08, 2017 12:25 pm

Re: Is there a way to avoid bad companies in S&P 500?

Post by PFInterest » Fri Jun 29, 2018 1:56 am

vu8 wrote:
Tue Jun 26, 2018 9:06 am
Most of the S&P 500 companies disappear or change in 50 years. Is there a way to filter out terrible companies? Because if you buy the haystack, there has to be a few bad eggs out there.
Good luck finding the needles.

Ron Scott
Posts: 967
Joined: Tue Apr 05, 2016 5:38 am

Why would creating an intelligent S&P 475 be so difficult to do?

Post by Ron Scott » Fri Jun 29, 2018 3:13 pm

[Thread merged into here, see below (next page). --admin LadyGeek]

I get it. The brightest stock analysts cannot beat the market with their actively managed funds…

But why can’t those same bright ones at least identify 25 dogs out of 500 large companies? Or 20? Or even 10?

What exactly makes something like that so very difficult to accomplish?
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. Preparing for financial challenges is more fruitful than trying to predict them.

M1garand30064
Posts: 85
Joined: Tue Sep 04, 2012 8:49 pm

Re: Why would creating an intelligent S&P 475 be so difficult to do?

Post by M1garand30064 » Fri Jun 29, 2018 3:15 pm

Why would you want to? Sometimes companies near death make an unexpected recovery and produce huge gains. Better to own everything.

MotoTrojan
Posts: 2274
Joined: Wed Feb 01, 2017 8:39 pm

Re: Why would creating an intelligent S&P 475 be so difficult to do?

Post by MotoTrojan » Fri Jun 29, 2018 3:16 pm

Ron Scott wrote:
Fri Jun 29, 2018 3:13 pm
I get it. The brightest stock analysts cannot beat the market with their actively managed funds…

But why can’t those same bright ones at least identify 25 dogs out of 500 large companies? Or 20? Or even 10?

What exactly makes something like that so very difficult to accomplish?
Because you want to invest in companies that will exceed expectations, not dominate the industry when they are expected to. So each individual stock is already priced per its assumed future success. This requires you to figure out where the market has made a mistake.

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