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Carlson comments on SP500 historical makeup

Posted: Tue Aug 13, 2019 5:04 pm
by BlueEars
I think this article https://awealthofcommonsense.com/2019/0 ... aluations/
is interesting for the following comment:
Professor Shiller’s data goes back to 1871 but much of it was pieced together from historical data that was created after the fact. The S&P 500 was actually only formed in 1957.

The original index was comprised of 425 industrial stocks, 60 utility names, and 15 railroads. It wasn’t until the mid-1970s that financials were added to the mix. And it took until the late-1980s for Standard & Poors to adopt the current model that’s more diversified and amenable to the make-up of the economy.
SInce I use the SP500 historical data for backtest results, this summary is interesting to me.

Seems there may be issues with taking historical data too seriously. FWIW, this is why I use a rolling 30 year period for the PE10 ratio.

Re: Carlson comments on SP500 historical makeup

Posted: Tue Aug 13, 2019 7:37 pm
by usagi
BlueEars wrote:
Tue Aug 13, 2019 5:04 pm

FWIW, this is why I use a rolling 30 year period for the PE10 ratio.
So what are you suing this for and how? Are you using it as valuation metric to tactically adjust your asset allocation or???

Re: Carlson comments on SP500 historical makeup

Posted: Tue Aug 13, 2019 7:44 pm
by BlueEars
I don't think valuations are a very good timing mechanism. But I use PE10 to mildly adjust my timing. Yes, I'm one of those awful people who think they can get something out of the time element. :happy But note this is not the purpose of my post which is primarily about the variability of the SP500 over historical time periods. PE10 comes into this not just because of this SP500 index variability but because of accounting variability over longer term periods.