Six stocks make up 98% of S&P 500 gains in 2018

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letsgobobby
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Six stocks make up 98% of S&P 500 gains in 2018

Post by letsgobobby » Tue Jul 10, 2018 3:35 pm

https://www.cnbc.com/2018/07/10/amazon- ... -2018.html

Amazon
Netflix
Microsoft
Apple
Facebook
Alphabet

My thoughts are

1. Weak breadth can signify a market correction or worse
2. A declining cumulative A/D line likewise, but I don't know how to find real time data
3. I want to have long terms puts on Amazon at least to reduce my excessive exposure to one stock
4. All of this is noise and we should just keep investing even though so much of our fortunes now depends on Jeff Bezos and possibly his strongman battle with the president.

Fourth option is unsettling.

nasrullah
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by nasrullah » Tue Jul 10, 2018 3:43 pm

Maybe along the lines of: “Don’t look for the needle in the haystack. Just buy the haystack.”
"We have a lot to do, and very little time, so we must work slowly." Liviu Ciulei | | Thanks vineviz (https://www.bogleheads.org/forum/memberlist.php?mode=viewprofile&u=134698) for the quote.

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Toons
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by Toons » Tue Jul 10, 2018 3:44 pm

nasrullah wrote:
Tue Jul 10, 2018 3:43 pm
Maybe along the lines of: “Don’t look for the needle in the haystack. Just buy the haystack.”

Ditto :happy
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jebmke
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by jebmke » Tue Jul 10, 2018 3:45 pm

Russell 2000 up 2x S&P

Own them all.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by cj2018 » Tue Jul 10, 2018 3:49 pm

letsgobobby wrote:
Tue Jul 10, 2018 3:35 pm
https://www.cnbc.com/2018/07/10/amazon- ... -2018.html

Amazon
Netflix
Microsoft
Apple
Facebook
Alphabet

My thoughts are

1. Weak breadth can signify a market correction or worse
2. A declining cumulative A/D line likewise, but I don't know how to find real time data
3. I want to have long terms puts on Amazon at least to reduce my excessive exposure to one stock
4. All of this is noise and we should just keep investing even though so much of our fortunes now depends on Jeff Bezos and possibly his strongman battle with the president.

Fourth option is unsettling.
Not surprised that FAANGM leads the pact in the index (tech is all the rage these days), but still pretty amazed when seeing the actual figure - they are driving 98% of the gains huh?

i'm biased since i work in the industry (at one of the stated companies), but if you think about it, other than perhaps Facebook, our modern day life in America is pretty heavily depend on them (at least for my peers and Gen-Y) for now.

Ron Scott
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by Ron Scott » Tue Jul 10, 2018 3:53 pm

Isn’t it true that a handful of stocks have explained most of the growth in the market for most of history?
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DesertDiva
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by DesertDiva » Tue Jul 10, 2018 3:55 pm

Toons wrote:
Tue Jul 10, 2018 3:44 pm
nasrullah wrote:
Tue Jul 10, 2018 3:43 pm
Maybe along the lines of: “Don’t look for the needle in the haystack. Just buy the haystack.”
Ditto :happy
+1 ditto again. To quote William Bernstein "when you buy the market, you are hiring the aggregate judgement of the most brilliant and well-informed minds in finance... By indexing, you are tapping into the most powerful intelligence in the world of finance--the collective wisdom of the market itself."
♫ Stocks go up ♫ Stocks go down ♫ Stocks go up ♫ Stocks go down ♫

david1082b
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by david1082b » Tue Jul 10, 2018 4:00 pm

Instead of betting against Amazon with puts you could just buy mid-caps or small-caps or non-US stocks.

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by willthrill81 » Tue Jul 10, 2018 4:00 pm

I'm very happy with that! My trend following strategy has had me primarily in large cap growth this year. My portfolio has returned 8.2% this year, compared to SPY's 2.5%.
Ron Scott wrote:
Tue Jul 10, 2018 3:53 pm
Isn’t it true that a handful of stocks have explained most of the growth in the market for most of history?
Yes. Around 90% of stocks have had real returns of 0% or lower over the long-term.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by jbranx » Tue Jul 10, 2018 4:05 pm

Ron Scott wrote:
Tue Jul 10, 2018 3:53 pm
Isn’t it true that a handful of stocks have explained most of the growth in the market for most of history?
The answer is yes, according to ASU professor Hendrik Bessembinder. Here's a thread on his paper and a link to it:


viewtopic.php?t=220232

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JoMoney
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by JoMoney » Tue Jul 10, 2018 4:08 pm

Those are the heavy weighted stocks in the top ten... other stocks doing ok too...
https://www.investopedia.com/articles/i ... 0-year.asp
Company Name Ticker Percent Gain
Netflix NFLX 103.91%
Twitter TWTR 81.88%
TripAdvisor Inc. TRIP 61.67%
XL Group Ltd XL 59.13%
Under Armour Inc.- Class C UA 58.26%
Under Armour Inc.- Class A UAA 55.79%
Align Technology ALGN 53.99%
Chipotle Mexican Grill CMG 49.25%
Macy's Inc M 48.59%
Advanced Micro Devices AMD 45.82%
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jminv
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by jminv » Tue Jul 10, 2018 4:15 pm

Historically, the majority of gains come from a small number of stocks so this isn't surprising. In addition, gains occur on a small number of days. Combined, that's a good reason to hold the market index and forget.

deltaneutral83
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by deltaneutral83 » Tue Jul 10, 2018 4:29 pm

I think it might be important to see what % of market cap these FAANGM companies represent. I think they probably account for about 10-15% of the market cap of the S&P. I think it's true that the top 10-15% of anything do the lions share of the lifting

mlz
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by mlz » Tue Jul 10, 2018 4:40 pm

I suspect the 98% number is relatively meaningless. Based on the numbers given in the article, it looks like each company's contribution to S&P 500 returns as w * r / R, where:
- w is the weight of that company in the S&P500
- r is the return of that company for the last year
- R is the total return of S&P500 for the year

With this definition, the total contribution of all companies is 100%. But since the S&P500 returns include companies with negative returns, there must be a more than 100% contribution coming from the companies with positive returns. For example, if you added just one more large company with decent returns for the last year, I'd bet the total contribution of the 7 companies would exceed 100%.

Therefore, this number isn't really a percentage of anything really meaningful. I think it only signals that there have been both winners and losers in the market in the last year.

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by nisiprius » Tue Jul 10, 2018 4:48 pm

According to Willam J. Bernstein it's normal for most of the stock market's total return to come from a few "superstocks," and that is why it is important to own the whole market.

In 2000, William J. Bernstein wrote a website posting on The Fifteen-Stock Diversification Myth. His point was the importance of personally holding the whole market, and why it was important despite accurate but misleading studies that seemed show show diminishing returns beyond 15 or 30 stocks. He noted that
a grossly disproportionate fraction of the total return [of the market] came from a very few "superstocks" like Dell Computer, which increased in value over 550 times. If you didn’t have one of the half-dozen or so of these in your portfolio, then you badly lagged the market.
The result was that if you only had 15 stocks in a portfolio, the gambling element in your personal return would be huge due to the effect of luck in whether or not you included those "superstocks." Thus,
So, yes, Virginia, you can eliminate nonsytematic portfolio risk, as defined by Modern Portfolio Theory, with a relatively few stocks. It’s just that nonsystematic risk is only a small part of the puzzle. Fifteen stocks is not enough. Thirty is not enough. Even 200 is not enough. The only way to truly minimize the risks of stock ownership is by owning the whole market.
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.

MIretired
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by MIretired » Tue Jul 10, 2018 5:07 pm

Besides. Amazon is the only one that is kickin' it. Up 48%YTD, but it's only (after that YTD explosion) 2.82% of S&P market cap. Netflix isn't even in the top 25 by mark.cap.(<.74%.) The rest of FAANGM are up between 10-20%YTD.
https://portfolios.morningstar.com/fund ... ture=en-US
The total of all for % of SP mark.cap. is <16% after the run-ups.
S&P is up about 4+%YTD
But, as everyone said, 'that's the way it works'.
I kind of got faith in stuff like Amazon, Ebay.
I think Google or Microsoft might start really losing earnings, though. :)
There's 500 stocks there.

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Phineas J. Whoopee
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by Phineas J. Whoopee » Tue Jul 10, 2018 5:10 pm

As should normally be expected.

Now, if you can reliably and repeatedly identify those few stocks in advance, without benefit of hindsight, you will be able to buy and sell the likes of me.

But can you reliably and repeatedly identify the future top performers in advance? If so, congratulations.

PJW

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by anil686 » Tue Jul 10, 2018 5:18 pm

Agree with everybody else that this is not really unusual. I think Mr. Bogle pointed out (as have others) how few a percentage of the SP 500 provide the total return over a 20 year period - I think it is like 10-15%. That is a low percentage and so the advice to hold the total market is a good one. However, to be perfectly honest, if one is uncomfortable with the current situation - they could hold the value index (either SP or Russell) which do not have MSFT in them. The VG value index largest holding by far is MSFT and so if you were inclined to avoid all tech, you could invest in those ETFs...

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FIREchief
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by FIREchief » Tue Jul 10, 2018 5:50 pm

Is this yet another one of those articles that conveniently forgets about dividends?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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CyclingDuo
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by CyclingDuo » Tue Jul 10, 2018 5:59 pm

letsgobobby wrote:
Tue Jul 10, 2018 3:35 pm
https://www.cnbc.com/2018/07/10/amazon- ... -2018.html

Amazon
Netflix
Microsoft
Apple
Facebook
Alphabet

My thoughts are

1. Weak breadth can signify a market correction or worse
2. A declining cumulative A/D line likewise, but I don't know how to find real time data
3. I want to have long terms puts on Amazon at least to reduce my excessive exposure to one stock
4. All of this is noise and we should just keep investing even though so much of our fortunes now depends on Jeff Bezos and possibly his strongman battle with the president.

Fourth option is unsettling.
Look what those cash generating stocks do FCF wise compared to the bottom 250 stocks in the S&P 500, and yet their price to FCF is about the same...

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Wricha
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by Wricha » Tue Jul 10, 2018 7:33 pm

letsgobobby wrote:
Tue Jul 10, 2018 3:35 pm
https://www.cnbc.com/2018/07/10/amazon- ... -2018.html

Amazon
Netflix
Microsoft
Apple
Facebook
Alphabet

My thoughts are

1. Weak breadth can signify a market correction or worse
2. A declining cumulative A/D line likewise, but I don't know how to find real time data
3. I want to have long terms puts on Amazon at least to reduce my excessive exposure to one stock
4. All of this is noise and we should just keep investing even though so much of our fortunes now depends on Jeff Bezos and possibly his strongman battle with the president.

Fourth option is unsettling.

I don’t know the answer but if you look at 6 worst stocks and did not own them I am sure you would have achieved superior performance and you could creat a story that would be a predictor of something.

limeyx
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by limeyx » Tue Jul 10, 2018 11:08 pm

Ron Scott wrote:
Tue Jul 10, 2018 3:53 pm
Isn’t it true that a handful of stocks have explained most of the growth in the market for most of history?
Problem is I think its a different handful every time !

CarpeDiem22
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by CarpeDiem22 » Tue Jul 10, 2018 11:17 pm

Six stocks make up 98% of Net S&P 500 gains in 2018
Corrected that. :)

What I mean is, some stocks went up, some went down. Those went up could have contributed 120% of net gains of S&P 500, while those that went down could have contributed -20% of net gains for the index. (20% just for example, haven't calculated that.).

In a flattish market, it is possible for just two stocks to make up 200% of the net gains for the index.

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by Ari » Wed Jul 11, 2018 2:54 am

It seems to me that if we have an index of stocks with two characteristics:

1. The stocks have very varying size, with some very large and many very small.
2. The stocks have very varying results, with some going very well and others very badly.

... then the above result would necessarily be the case. It's mathematically expected that if you select the largest stocks that have performed the best, then they should collectively have made a lot of money. Depending on how many stocks you selected, you can choose that you want to "make up" 98%, 50% or 140% of the return of the index. You can also do the opposite, and remove the biggest companies that suffered the biggest losses. Now you'll be able to say that "these 490 stocks explain 98% of the returns of the S&P500 index". That would be equally true. Or in a down year, you could say "these five stocks explain 98% of the losses of the S&P500". Suddely you have an argument against indexing!

All of this seems pointless to me, and cannot be used as an argument for or against indexing.
All in, all the time.

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by tennisplyr » Wed Jul 11, 2018 6:42 am

Ron Scott wrote:
Tue Jul 10, 2018 3:53 pm
Isn’t it true that a handful of stocks have explained most of the growth in the market for most of history?
Rule of 80/20
Those who move forward with a happy spirit will find that things always work out.

rich126
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by rich126 » Wed Jul 11, 2018 7:21 am

Is it also possible that a small percentage of the stocks in the index are doing poorly and dragging the overall numbers down disproportionately?

UpperNwGuy
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by UpperNwGuy » Wed Jul 11, 2018 7:34 am

Interesting thread, but it hasn't motivated me to deviate from my plan to keep investing in Total Stock index funds.

Bob
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by Bob » Wed Jul 11, 2018 8:13 am

FWIW, looking at the 500 companies in the S&P500 individually (as of close yesterday):

* 268 are up year-to-date and 236 are down (53% are up YTD and 47% are down).
* 67 (or 13%) of the "up" stocks were up 20% of more YTD.
* Of those that are up YTD, median amount is about 11% and ranges from +0.02% to +116%.
* Of those that are down YTD, median amount is almost 8% and ranges from -0.01% to -37%

If only I had known which 67 were going to be up 20% or more in December 2017. :oops: :D

CULater
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by CULater » Wed Jul 11, 2018 8:34 am

So, do a handful of stocks also account for most of the market losses? They're in the haystack too.
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by nedsaid » Wed Jul 11, 2018 9:03 am

mlz wrote:
Tue Jul 10, 2018 4:40 pm
I suspect the 98% number is relatively meaningless. Based on the numbers given in the article, it looks like each company's contribution to S&P 500 returns as w * r / R, where:
- w is the weight of that company in the S&P500
- r is the return of that company for the last year
- R is the total return of S&P500 for the year

With this definition, the total contribution of all companies is 100%. But since the S&P500 returns include companies with negative returns, there must be a more than 100% contribution coming from the companies with positive returns. For example, if you added just one more large company with decent returns for the last year, I'd bet the total contribution of the 7 companies would exceed 100%.

Therefore, this number isn't really a percentage of anything really meaningful. I think it only signals that there have been both winners and losers in the market in the last year.
This is an excellent first post. I have owned between 18-22 individual stocks for years and years. I think these kind of articles are meaningless, it doesn't relate to my actual experience. In the 18 stocks that I own in my retirement, I don't own any of the FAANG superstocks and yet over the last 15 years have tracked the S&P 500. Over my lifetime, my guess is that I have owned probably 50-60 stocks. What I will say is that a subset of those stocks have made outsized contributions to performance, my guess is probably 10. Maybe 5 were really spectacular. I also have had at least four or five portfolio disasters, stocks that just cratered. So maybe 10 stocks that did much better than expected, probably 20 or so that performed as expected and another maybe another 20 stocks that were disappointing. Of course, dividends were an important part of my returns.

The returns of my individual stocks in my retirement accounts were 9.23% over 15 years as of July 4th, 2018. My dividend yield over the years was probably 2.75% to 3%, making dividends about 30% of the returns.

The National Association of Investment Clubs say that if you carefully pick stocks using their criteria: one will do great, three will do as expected, and one will crater. That is not far off from my actual experience.

Also, I have been Value oriented during my investment career. I have never tried to own "superstocks" in my individual stock portfolio. Doubtless the various funds I have owned over the years purchased them. But somehow a ratio of 6 stocks out of 500 in the index being almost all the gains in the index just doesn't make sense. More than 6 stocks have done well, the fact that there are S&P 500 stocks with losses obscures this. It is all in the way you present information.

I just never have bought into the "superstock" theory, at least with my individual stocks. This type of stocks tend to be too expensive to get past my Value orientation. It just seems at odds with my actual experience.
A fool and his money are good for business.

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by letsgobobby » Wed Jul 11, 2018 9:12 am

Bob wrote:
Wed Jul 11, 2018 8:13 am
FWIW, looking at the 500 companies in the S&P500 individually (as of close yesterday):

* 268 are up year-to-date and 236 are down (53% are up YTD and 47% are down).
* 67 (or 13%) of the "up" stocks were up 20% of more YTD.
* Of those that are up YTD, median amount is about 11% and ranges from +0.02% to +116%.
* Of those that are down YTD, median amount is almost 8% and ranges from -0.01% to -37%

If only I had known which 67 were going to be up 20% or more in December 2017. :oops: :D
How much they're up or down is only part of the equation. Market cap is the other. What is the source of your data?

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by House Blend » Wed Jul 11, 2018 9:28 am

letsgobobby wrote:
Tue Jul 10, 2018 3:35 pm
My thoughts are
My thoughts: this is useless nonsense.

To CNBC: Why not go with a clickbaitier headline, and point out that the top 10 stocks *trounced* the 500 index, rather than having a mere 6 that come close?

The only meaningful way to attribute proportions of returns to a (cap weighted) index is by market cap. That is, if Apple is 3% of the 500 index, then they accounted for 3% of the returns, positive or negative.

It makes no sense to attribute proportions based on the returns themselves, especially when some of the returns are positive and some are negative. To illustrate, imagine a data series consisting of 10 values equal to +10.0, and 90 values equal to -1.0. The net total is +10, so by CNBC's methodology, any member of the top 10 accounts for 100% of the returns.

What's really amusing to me is the synchronicity of seeing exactly the same bit of innumeracy in a current active thread, but in a completely different context--bragging about assets gathered by fund providers.
viewtopic.php?p=4014475#p4014475

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by letsgobobby » Wed Jul 11, 2018 9:41 am

House Blend wrote:
Wed Jul 11, 2018 9:28 am
letsgobobby wrote:
Tue Jul 10, 2018 3:35 pm
My thoughts are

The only meaningful way to attribute proportions of returns to a (cap weighted) index is by market cap.
I assume they did that?

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by wolf359 » Wed Jul 11, 2018 9:56 am

tennisplyr wrote:
Wed Jul 11, 2018 6:42 am
Ron Scott wrote:
Tue Jul 10, 2018 3:53 pm
Isn’t it true that a handful of stocks have explained most of the growth in the market for most of history?
Rule of 80/20
Also known as the Pareto Principle.

Keep in mind that the S&P 500 is market weighted. That index holds more of those stocks than anything else. The six stocks are currently about 16% of the entire holdings, with the other ~500 stocks making up the rest. That means that changes in the big boys contribute more to S&P 500 gains.

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House Blend
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by House Blend » Wed Jul 11, 2018 10:07 am

letsgobobby wrote:
Wed Jul 11, 2018 9:41 am
House Blend wrote:
Wed Jul 11, 2018 9:28 am
The only meaningful way to attribute proportions of returns to a (cap weighted) index is by market cap.
I assume they did that?
I think you misunderstand what I meant.

For example the 10 largest holdings in VFINX account for ~22% of the assets (as of 5/31/18). So they account for ~22% of the returns (by my reckoning). There's no meaningful sense in which 6 stocks account for 98%.

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by letsgobobby » Wed Jul 11, 2018 10:45 am

House Blend wrote:
Wed Jul 11, 2018 10:07 am
letsgobobby wrote:
Wed Jul 11, 2018 9:41 am
House Blend wrote:
Wed Jul 11, 2018 9:28 am
The only meaningful way to attribute proportions of returns to a (cap weighted) index is by market cap.
I assume they did that?
I think you misunderstand what I meant.

For example the 10 largest holdings in VFINX account for ~22% of the assets (as of 5/31/18). So they account for ~22% of the returns (by my reckoning). There's no meaningful sense in which 6 stocks account for 98%.
I understand the claim to mean that the market cap weighted return of the other 494 stocks is 2% of the s&P's 2018 return, which is for arguments sake 2%, for a total contribution of 0.02*2% or 0.04%. Meaning the six stocks contributed 1.96%. You think it means something different?

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House Blend
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by House Blend » Wed Jul 11, 2018 10:57 am

letsgobobby wrote:
Wed Jul 11, 2018 10:45 am
House Blend wrote:
Wed Jul 11, 2018 10:07 am
letsgobobby wrote:
Wed Jul 11, 2018 9:41 am
House Blend wrote:
Wed Jul 11, 2018 9:28 am
The only meaningful way to attribute proportions of returns to a (cap weighted) index is by market cap.
I assume they did that?
I think you misunderstand what I meant.

For example the 10 largest holdings in VFINX account for ~22% of the assets (as of 5/31/18). So they account for ~22% of the returns (by my reckoning). There's no meaningful sense in which 6 stocks account for 98%.
I understand the claim to mean that the market cap weighted return of the other 494 stocks is 2% of the s&P's 2018 return, which is for arguments sake 2%, for a total contribution of 0.02*2% or 0.04%. Meaning the six stocks contributed 1.96%. You think it means something different?
Actually now that I've re-read the article, I have no idea what they mean when they say (for example), that Apple contributed 12% of "both S&P 500 and Nasdaq 100 returns".

Suppose (inventing numbers) that Apple was up 10% YTD, and the 500 index was down 5% YTD. What percentage of the 500 index's returns did Apple contribute?

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by barnaclebob » Wed Jul 11, 2018 11:02 am

letsgobobby wrote:
Tue Jul 10, 2018 3:35 pm
https://www.cnbc.com/2018/07/10/amazon- ... -2018.html

Amazon
Netflix
Microsoft
Apple
Facebook
Alphabet

My thoughts are

1. Weak breadth can signify a market correction or worse
2. A declining cumulative A/D line likewise, but I don't know how to find real time data
3. I want to have long terms puts on Amazon at least to reduce my excessive exposure to one stock
4. All of this is noise and we should just keep investing even though so much of our fortunes now depends on Jeff Bezos and possibly his strongman battle with the president.

Fourth option is unsettling.
My megacorp is in the top 10% of the SP500 for market cap and up around 20% this year. Maybe we are responsible for the other 2%...
Last edited by barnaclebob on Wed Jul 11, 2018 11:11 am, edited 2 times in total.

Bob
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by Bob » Wed Jul 11, 2018 11:03 am

letsgobobby wrote:
Wed Jul 11, 2018 9:12 am
Bob wrote:
Wed Jul 11, 2018 8:13 am
FWIW, looking at the 500 companies in the S&P500 individually (as of close yesterday):

* 268 are up year-to-date and 236 are down (53% are up YTD and 47% are down).
* 67 (or 13%) of the "up" stocks were up 20% of more YTD.
* Of those that are up YTD, median amount is about 11% and ranges from +0.02% to +116%.
* Of those that are down YTD, median amount is almost 8% and ranges from -0.01% to -37%

If only I had known which 67 were going to be up 20% or more in December 2017. :oops: :D
How much they're up or down is only part of the equation. Market cap is the other. What is the source of your data?
Source of data = https://www.barchart.com/stocks/indices/sp/sp500

letsgobobby
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by letsgobobby » Wed Jul 11, 2018 12:29 pm

House Blend wrote:
Wed Jul 11, 2018 10:57 am
letsgobobby wrote:
Wed Jul 11, 2018 10:45 am
House Blend wrote:
Wed Jul 11, 2018 10:07 am
letsgobobby wrote:
Wed Jul 11, 2018 9:41 am
House Blend wrote:
Wed Jul 11, 2018 9:28 am
The only meaningful way to attribute proportions of returns to a (cap weighted) index is by market cap.
I assume they did that?
I think you misunderstand what I meant.

For example the 10 largest holdings in VFINX account for ~22% of the assets (as of 5/31/18). So they account for ~22% of the returns (by my reckoning). There's no meaningful sense in which 6 stocks account for 98%.
I understand the claim to mean that the market cap weighted return of the other 494 stocks is 2% of the s&P's 2018 return, which is for arguments sake 2%, for a total contribution of 0.02*2% or 0.04%. Meaning the six stocks contributed 1.96%. You think it means something different?
Actually now that I've re-read the article, I have no idea what they mean when they say (for example), that Apple contributed 12% of "both S&P 500 and Nasdaq 100 returns".

Suppose (inventing numbers) that Apple was up 10% YTD, and the 500 index was down 5% YTD. What percentage of the 500 index's returns did Apple contribute?
I assumed the denominator is market cap of each stock times its ytd gain in percentage points, and the numerator would be AAPL's market cap times its YTD gain in percentage points.

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by inbox788 » Wed Jul 11, 2018 1:45 pm

letsgobobby wrote:
Wed Jul 11, 2018 12:29 pm
House Blend wrote:
Wed Jul 11, 2018 10:57 am
letsgobobby wrote:
Wed Jul 11, 2018 10:45 am
House Blend wrote:
Wed Jul 11, 2018 10:07 am
letsgobobby wrote:
Wed Jul 11, 2018 9:41 am

I assume they did that?
I think you misunderstand what I meant.

For example the 10 largest holdings in VFINX account for ~22% of the assets (as of 5/31/18). So they account for ~22% of the returns (by my reckoning). There's no meaningful sense in which 6 stocks account for 98%.
I understand the claim to mean that the market cap weighted return of the other 494 stocks is 2% of the s&P's 2018 return, which is for arguments sake 2%, for a total contribution of 0.02*2% or 0.04%. Meaning the six stocks contributed 1.96%. You think it means something different?
Actually now that I've re-read the article, I have no idea what they mean when they say (for example), that Apple contributed 12% of "both S&P 500 and Nasdaq 100 returns".

Suppose (inventing numbers) that Apple was up 10% YTD, and the 500 index was down 5% YTD. What percentage of the 500 index's returns did Apple contribute?
I assumed the denominator is market cap of each stock times its ytd gain in percentage points, and the numerator would be AAPL's market cap times its YTD gain in percentage points.
They're quoting "gains". I saw the SP500 was up 4.4% YTD when the CNBC number was reported. I just calculated YTD gain today and got 2.9%. As the number gets smaller and smaller, this comparison gets less and less meaningful. Around zero, one stock or any number of stocks could account for over 100% of the gains.

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by arf1410 » Wed Jul 11, 2018 1:49 pm

I think that is grossly misleading. I am confident those six stocks represent 98% of the gains, measured in actual $$, not in percentage. An individual investor cares about % gain. If Apple goes from $900 a share to $1000 that is a hundred per share increase, but I'd much rather own XYZ that went from $15 to $20 a share... even though that's a much smaller increase, as far as the S&P index in concerned !

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by willthrill81 » Wed Jul 11, 2018 3:19 pm

arf1410 wrote:
Wed Jul 11, 2018 1:49 pm
I think that is grossly misleading. I am confident those six stocks represent 98% of the gains, measured in actual $$, not in percentage. An individual investor cares about % gain. If Apple goes from $900 a share to $1000 that is a hundred per share increase, but I'd much rather own XYZ that went from $15 to $20 a share... even though that's a much smaller increase, as far as the S&P index in concerned !
In a cap-weighted index, it's the same result either way.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by Index Fan » Wed Jul 11, 2018 4:29 pm

jminv wrote:
Tue Jul 10, 2018 4:15 pm
Historically, the majority of gains come from a small number of stocks so this isn't surprising. In addition, gains occur on a small number of days. Combined, that's a good reason to hold the market index and forget.
Excellent observation. Wish I could upvote this.
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by linenfort » Wed Jul 11, 2018 4:38 pm

Never mind that. What are the six for 2019? ______________________
bogleheads, don't knock state lotteries. They helped defund the mafia.

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by JoMoney » Wed Jul 11, 2018 5:02 pm

It is a misleading way to state what's going on, but it's not entirely out of line either.
The cap-weighted S&P 500 has been outperforming the S&P 500 equal-weighted
Morningstar Growth Chart
Which on it's own, implies the larger stocks held in larger weights are doing more of the heavy lifting (but it's not like the rest of the market is tanking)
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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by TeamArgo » Wed Jul 11, 2018 5:42 pm

My opinion is that this is "clickbait" from CNBC with little real meaning and nothing actionable. I'm surprised the second sentence didn't read: "Stock number four will blow your mind!" :oops:
"A man hears what he wants to hear, and disregards the rest" -Paul Simon (The Boxer, 1970)

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by KyleAAA » Wed Jul 11, 2018 5:44 pm

It's been a very good year indeed for those of us with very large stakes in one of those companies. I share your concerns about what the lack of breadth may imply, but I don't get the sense this situation is as unusual as we might guess. I wonder how often gains are this concentrated.

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by HenrySouthernCal » Thu Jul 12, 2018 12:05 am

The stock price of Netflix is quite mystery to me. From value investor point of view, the company financial is quite garbage with regard to its near 300 P/E ratio, 15+ years after IPO, still negative free cash flow, still heavy in debt and depends on borrowing for growth instead of internal cash flow. Its bond rating is several notches in junk territory. At peak growth mid 1990s time, Microsoft had 40% revenue growth, 40% net profit margin and zero debt, only had P/E ratio of 50. I don't understand what justify Netflix that kind of valuation. I don't know why wall street is so crazy about the company, maybe we now no longer have high quality growth companies like Microsoft, Cisco, Intel and Dell in mid 90s any more.

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Re: Six stocks make up 98% of S&P 500 gains in 2018

Post by selters » Thu Jul 12, 2018 4:41 am

mlz wrote:
Tue Jul 10, 2018 4:40 pm
I suspect the 98% number is relatively meaningless. Based on the numbers given in the article, it looks like each company's contribution to S&P 500 returns as w * r / R, where:
- w is the weight of that company in the S&P500
- r is the return of that company for the last year
- R is the total return of S&P500 for the year

With this definition, the total contribution of all companies is 100%. But since the S&P500 returns include companies with negative returns, there must be a more than 100% contribution coming from the companies with positive returns. For example, if you added just one more large company with decent returns for the last year, I'd bet the total contribution of the 7 companies would exceed 100%.

Therefore, this number isn't really a percentage of anything really meaningful. I think it only signals that there have been both winners and losers in the market in the last year.
This!

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