Forbes: The Bubble That Is The S&P 500 Index

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burnout454
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Forbes: The Bubble That Is The S&P 500 Index

Post by burnout454 » Tue Sep 03, 2019 6:46 pm

https://apple.news/AcB10PjW9TNK5FHePJxdUzw

What do you recognize the fallacies to be, if any, in this article?

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by willthrill81 » Tue Sep 03, 2019 6:49 pm

When people refer to the move toward indexing as "mania," I move along.
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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by fabdog » Tue Sep 03, 2019 6:54 pm

James Berman owns shares in Apple (AAPL), both for himself and in accounts he manages for clients. In some client accounts, he also owns positions in the ProShares Short S&P 500 (SH), an inverse ETFs that hedges against declines in the S&P 500.
a money manager who holds positions betting the S&P will fall... nothing like talking your book :happy

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by columbia » Tue Sep 03, 2019 7:08 pm

Perhaps. Nobody knows.

Unfortunately, some will read that and double down on their idea that emerging market small cap value, minimum volatility momentum stocks are a better idea.

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by make_a_better_world » Tue Sep 03, 2019 7:19 pm

If prices go up due to more money moving into indexing, then all companies see appreciation and all P/E ratios increase. The fact that it is cap weighted necessarily means that no particular company will get a disproportionate increase in P/E relative to the previous P/E discrepancies with other companies if you do the math.

One could argue that all prices are too high, or perhaps in certain sectors. That would be in part a reflection that institutions/investors see equities as the best place to park money in an environment of low interest rates.

For the FANG companies the author is starting the story in the middle as to why they are trading at such a premium. If he had $1 billion and a mission to hurt Amazon or Google he wouldn't make a dent. They currently enjoy a powerful monopoly in their markets. Worldwide.

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by UpsetRaptor » Tue Sep 03, 2019 7:23 pm

Fallacies? I made it just a couple sentences in, when it started talking about indexing creating a vicious self-fulfilling cycle that causes the largest caps to continuously grow unreasonably. I would say “I doubt it could much worse from there” but...

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by columbia » Tue Sep 03, 2019 7:31 pm

A classic problem is the belief that one knows what’s going to happen to large companies.

I’m a long time user - both personally and professionally - of Linux based computing environments. I was convinced that Windows would die at the server level; it effectively has. I was not, however, able to foresee that Windows would continue to dominate on enterprise PCs and all of the other ways Microsoft now creates revenue.

Beware the soothsayer, especially if it’s you.

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by iamlucky13 » Tue Sep 03, 2019 8:39 pm

burnout454 wrote:
Tue Sep 03, 2019 6:46 pm
https://apple.news/AcB10PjW9TNK5FHePJxdUzw

What do you recognize the fallacies to be, if any, in this article?
I didn't read attentively, because it didn't look worth much effort, but one fallacy that jumped out at me is the suggestion that index investing caused Facebook, Apple, Amazon, and Microsoft to outpace the indexes that contain them. :mrgreen:

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by nisiprius » Tue Sep 03, 2019 8:54 pm

The only question I have any more is whether the people who write these things honestly believe that a rise in the price-per share of Apple stock requires that an index fund buy more shares of Apple stock.

It's possible that they really do. I can't find the actual articles right now, but in late 2016 when MSCI and S&P announced that REITs would be removed from the Financial sector and given a sector of their own, there were a good handful of articles in the financial press saying that we could expect a run-up in the price of REITs because all of the S&P 500 index funds were going to need to buy a lot more of them.
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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by bluquark » Tue Sep 03, 2019 9:00 pm

Forbes isn't a real newspaper anymore. It's basically a blogging site like Medium, and you or I could sign up to write articles for it. There is literally no quality filter anymore, that's why they publish this financially illiterate stuff that wouldn't even pass muster on Jim Cramer's TV show (or even Wikipedia where the rest of the crowd can come in to correct your errors).

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by Ferdinand2014 » Tue Sep 03, 2019 9:04 pm

burnout454 wrote:
Tue Sep 03, 2019 6:46 pm
https://apple.news/AcB10PjW9TNK5FHePJxdUzw

What do you recognize the fallacies to be, if any, in this article?
They point out a few stocks with high PE ratios. That has zero to do with indexing. That has to do with active management. $1,000 into the S&P 500 goes proportionally to all stocks based on market cap. The rising tide will lift all boats of all sizes equally. The S&P 500 is essentially the market (81.5% of it anyway) so you are buying the market. Not betting on one stock like they imply. The S&P index and any market cap index is always dominated by the largest companies. The top 10 has ranged from about 12% to 34% of market cap.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by HEDGEFUNDIE » Tue Sep 03, 2019 9:49 pm

nisiprius wrote:
Tue Sep 03, 2019 8:54 pm
The only question I have any more is whether the people who write these things honestly believe that a rise in the price-per share of Apple stock requires that an index fund buy more shares of Apple stock.

It's possible that they really do. I can't find the actual articles right now, but in late 2016 when MSCI and S&P announced that REITs would be removed from the Financial sector and given a sector of their own, there were a good handful of articles in the financial press saying that we could expect a run-up in the price of REITs because all of the S&P 500 index funds were going to need to buy a lot more of them.
But that's not what the author wrote. Instead the cause-effect is described the other way: more investors piling in means more buying of the underlying stocks. Which is definitely true.

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by Big Dog » Tue Sep 03, 2019 10:00 pm

HEDGEFUNDIE wrote:
Tue Sep 03, 2019 9:49 pm
nisiprius wrote:
Tue Sep 03, 2019 8:54 pm
The only question I have any more is whether the people who write these things honestly believe that a rise in the price-per share of Apple stock requires that an index fund buy more shares of Apple stock.

It's possible that they really do. I can't find the actual articles right now, but in late 2016 when MSCI and S&P announced that REITs would be removed from the Financial sector and given a sector of their own, there were a good handful of articles in the financial press saying that we could expect a run-up in the price of REITs because all of the S&P 500 index funds were going to need to buy a lot more of them.
But that's not what the author wrote. Instead the cause-effect is described the other way: more investors piling in means more buying of the underlying stocks. Which is definitely true.
Yes, we'd be much better off as a society if, instead of buying index funds, we'd buy individual stocks based on recommendations of investment advisors. :twisted:

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by Grt2bOutdoors » Tue Sep 03, 2019 10:06 pm

bluquark wrote:
Tue Sep 03, 2019 9:00 pm
Forbes isn't a real newspaper anymore. It's basically a blogging site like Medium, and you or I could sign up to write articles for it. There is literally no quality filter anymore, that's why they publish this financially illiterate stuff that wouldn't even pass muster on Jim Cramer's TV show (or even Wikipedia where the rest of the crowd can come in to correct your errors).
+1
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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by JoMoney » Tue Sep 03, 2019 10:16 pm

Even if the author is right about too much new money flowing into stocks (I have no way of gauging if that's true or not),
stock picking or some alternative weighting doesn't make it any better. If anything, spreading the money in a cap-weighted fashion across the entire market is probably the least-bad way to do it... at least it's diffused and proportionately absorbed across the entire market and not just narrow areas. It's not the passive indexers deciding how the market weights the stocks relative to others.
"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: Forbes: The Bubble That Is The S&P 500 Index

Post by nisiprius » Tue Sep 03, 2019 10:48 pm

HEDGEFUNDIE wrote:
Tue Sep 03, 2019 9:49 pm
nisiprius wrote:
Tue Sep 03, 2019 8:54 pm
The only question I have any more is whether the people who write these things honestly believe that a rise in the price-per share of Apple stock requires that an index fund buy more shares of Apple stock.

It's possible that they really do. I can't find the actual articles right now, but in late 2016 when MSCI and S&P announced that REITs would be removed from the Financial sector and given a sector of their own, there were a good handful of articles in the financial press saying that we could expect a run-up in the price of REITs because all of the S&P 500 index funds were going to need to buy a lot more of them.
But that's not what the author wrote. Instead the cause-effect is described the other way: more investors piling in means more buying of the underlying stocks. Which is definitely true.
But nothing about that is linked to indexing. If more people buy stocks at a faster rate than new stock is made available, then because of supply and demand, the price of stocks will go up, but it doesn't matter whether they are doing it in index funds, actively managed funds, multifactor funds, or individual stocks. If anything, if people are irrationally dazzled by Apple, they are more likely to buy it if they are buying stocks individually than if they are buying an index fund, which forces them to buy all the other stocks, too. Which, I see, is exactly what JoMoney is saying.
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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by HEDGEFUNDIE » Tue Sep 03, 2019 10:51 pm

Big Dog wrote:
Tue Sep 03, 2019 10:00 pm
HEDGEFUNDIE wrote:
Tue Sep 03, 2019 9:49 pm
nisiprius wrote:
Tue Sep 03, 2019 8:54 pm
The only question I have any more is whether the people who write these things honestly believe that a rise in the price-per share of Apple stock requires that an index fund buy more shares of Apple stock.

It's possible that they really do. I can't find the actual articles right now, but in late 2016 when MSCI and S&P announced that REITs would be removed from the Financial sector and given a sector of their own, there were a good handful of articles in the financial press saying that we could expect a run-up in the price of REITs because all of the S&P 500 index funds were going to need to buy a lot more of them.
But that's not what the author wrote. Instead the cause-effect is described the other way: more investors piling in means more buying of the underlying stocks. Which is definitely true.
Yes, we'd be much better off as a society if, instead of buying index funds, we'd buy individual stocks based on recommendations of investment advisors. :twisted:
Again, putting words in the author’s mouth.

This does suggest that the S&P 500 could become overvalued relative to the S&P 400 and S&P 600, increasing expected returns of the Small factor.

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by JoMoney » Tue Sep 03, 2019 11:02 pm

HEDGEFUNDIE wrote:
Tue Sep 03, 2019 10:51 pm
...
Again, putting words in the author’s mouth.

This does suggest that the S&P 500 could become overvalued relative to the S&P 400 and S&P 600, increasing expected returns of the Small factor.
HA... :D
He doesn't say that either.

If this boards fervent portfolio tweakers , or any of the tons of asset allocation books, etc. are of any influence, or just the explosion of various alternative "indexes" and factor ETF products... then the form of "indexing" many are doing isn't investing in the market as it's weighted, but rather over-weighting/tilting to stocks (that would almost certainly be smaller than the largest parts of the market) but calling that "indexing".
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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by Northern Flicker » Wed Sep 04, 2019 2:43 am

The 3rd sentence is not a correct inference.
Given that the index is cap-weighted and that larger holdings receive a greater share of new dollars, the top stocks in the S&P 500 index continue to appreciate.
Each stock receives a new allocation commensurate with its capitalization. If the market cap of stock A is 10x the market cap of stock B, the incoming cash allocated to stock A may be 10x what stock B receives, but will be the same percentage of the value of the company and should have a similar impact on the stock price. With free float indices, cap-weighting means stocks are weighted commensurate with their liquidity.

Given that the author got this point wrong, I could see little value in reading the rest of the article.
Index fund investor since 1987.

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by jminv » Wed Sep 04, 2019 3:12 am

burnout454 wrote:
Tue Sep 03, 2019 6:46 pm
https://apple.news/AcB10PjW9TNK5FHePJxdUzw

What do you recognize the fallacies to be, if any, in this article?
This 'story' rattles off some summary statistics about a few stocks in the S&P 500. It says that apple 'is the only stock worth buying' out of the bunch since Microsoft and especially amazon valuation is stretched. For microsoft, it's pretty easy to take the opposite view that Apple is appropriately valued given that their main product is stale and revenues from it are not growing while they have an unproductive cash pile whereas Microsoft is more than windows now (cloud, etc) and is growing. The author then says that the 'mania for index investing' could turn without any evidence that there is a 'mania' in index investing or anything else. The only thing he is really saying is that investors might sell shares based on new information, depressing share prices. This is as old as the markets. These investors can be individual stock investors, mutual fund investors, institutional investors, hedge funds, index fund investors, etc. A better explanation might be that with very low interest rates, stock valuations reflect this in terms of the multiples he is citing. If the economic outlook changes, ie new information is priced in, these multiples could decrease which could be painful for people holding them. This could trigger more selling and depressed valuations.

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by grettman » Wed Sep 04, 2019 4:27 am

Forbes. Marketwatch.com. CNBC. Motley Fool. Bloomberg.

They are all a joke. Their business model is based on click-baiting speculation and poorly edited articles.

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by afan » Wed Sep 04, 2019 6:13 am

Let's say the author is correct in his implication that fundamental analysis can predict prices of individual stocks. Let's concede that the claims he makes that indexing changes the relative prices of stocks are nonsense. But let's also assume he can identify something else that indexing does that leads to predictable over and under pricing of individual stocks.

For such an investor indexing would be the best thing that has ever happened. He would have essentially infinite liquidity in these huge index funds, ready to sell to him or buy from him at prices that are advantageous to him. He should be making a fortune.

Perhaps he might take time every now and then to gleefully report to his investors how much money he has made by trading against the indexes. His tone would not be "indexing is bad." It would be "indexing is wonderful! Long may it continue and grow!"

Unless, of course, his crystal ball is cloudy, the stocks that "should" go up do not, the stocks that "should" go down do not and his clients keep pulling their money out and putting it in index funds.
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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by rascott » Wed Sep 04, 2019 9:34 am

US equity flows have been negative for years... so how exactly is it a bubble when so much money is leaving the equity market?

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by willthrill81 » Wed Sep 04, 2019 9:45 am

afan wrote:
Wed Sep 04, 2019 6:13 am
Let's say the author is correct in his implication that fundamental analysis can predict prices of individual stocks. Let's concede that the claims he makes that indexing changes the relative prices of stocks are nonsense. But let's also assume he can identify something else that indexing does that leads to predictable over and under pricing of individual stocks.

For such an investor indexing would be the best thing that has ever happened. He would have essentially infinite liquidity in these huge index funds, ready to sell to him or buy from him at prices that are advantageous to him. He should be making a fortune.

Perhaps he might take time every now and then to gleefully report to his investors how much money he has made by trading against the indexes. His tone would not be "indexing is bad." It would be "indexing is wonderful! Long may it continue and grow!"

Unless, of course, his crystal ball is cloudy, the stocks that "should" go up do not, the stocks that "should" go down do not and his clients keep pulling their money out and putting it in index funds.
I've had similar thoughts for quite a while. If active managers' claims that indexing distorts the real value of stocks, then those same managers should be able to exploit this. That they continue to bemoan indexing seems to be evidence that they cannot consistently do so.
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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by willthrill81 » Wed Sep 04, 2019 9:46 am

grettman wrote:
Wed Sep 04, 2019 4:27 am
Forbes. Marketwatch.com. CNBC. Motley Fool. Bloomberg.

They are all a joke. Their business model is based on click-baiting speculation and poorly edited articles.
The goal of all such media is to sell advertising space. They learned long ago that fear is good for their business.
“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: Forbes: The Bubble That Is The S&P 500 Index

Post by Nate79 » Wed Sep 04, 2019 10:16 am

It's a click-bait trash article. What's with all the anti-index fund scare threads recently? They seem to come in waves.

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by oldcomputerguy » Thu Sep 05, 2019 5:20 am

[A couple of off-topic posts mentioning the Michael Burry article(s) were moved to the ongoing Michael Burry thread at viewtopic.php?f=10&t=289284 -- moderator oldcomputerguy]
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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by Sconie » Thu Sep 05, 2019 6:24 am

bluquark wrote:
Tue Sep 03, 2019 9:00 pm
Forbes isn't a real newspaper anymore. It's basically a blogging site like Medium, and you or I could sign up to write articles for it. There is literally no quality filter anymore, that's why they publish this financially illiterate stuff that wouldn't even pass muster on Jim Cramer's TV show (or even Wikipedia where the rest of the crowd can come in to correct your errors).
True. Most folks don't realize it, however, the Forbes family sold their controlling ownership stake in the media company known as "Forbes."
I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant. - Alan Greenspan

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by Stinky » Thu Sep 05, 2019 7:27 am

Ignore the chattering classes.

Stay the course.
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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by Stormbringer » Thu Sep 05, 2019 8:11 am

Compare the P/E ratios:

VFAIX ... 20.4 (Vanguard S&P 500 Index Fund)
VINAX ... 21.5 (Vanguard Mid-Cap Index Fund)
VSMAX ... 19.2 (Vanguard Small-Cap Index Fund)

If the S&P 500 was a bubble relative to the rest of the market, it would have a much higher P/E.
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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by MindBogler » Thu Sep 05, 2019 8:56 am

columbia wrote:
Tue Sep 03, 2019 7:31 pm
A classic problem is the belief that one knows what’s going to happen to large companies.

I’m a long time user - both personally and professionally - of Linux based computing environments. I was convinced that Windows would die at the server level; it effectively has. I was not, however, able to foresee that Windows would continue to dominate on enterprise PCs and all of the other ways Microsoft now creates revenue.

Beware the soothsayer, especially if it’s you.
I see more enterprise environments in a year than most people will see in a career. Your statement is false. Windows Server is nowhere near dead. Linux has its niche (web) and Windows does too (everything else).

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by nedsaid » Thu Sep 05, 2019 10:02 am

I would not say that the S&P 500 is in a bubble, what I would say is that it is top heavy with certain High Tech and Internet stocks. A debate could be made if this is a problem. I would say that when the S&P 500 got top heavy with these stocks in the late 1990's, it did create a problem in that the index was more or less flat from its peak in early 2000 through about 2012. About 12 years of a market going nowhere. We see similar things today but the bubble in High Tech/Internet, if it really exists, is not nearly as big as it was in 1999. Plus we aren't seeing euphoria. So is this a problem? Not sure. But something to keep an eye on.

Another thing to keep in mind, is though new highs in the markets were set not too long ago, markets have fallen back. We are pretty close to where we were back in January 2018. So the markets have been essentially flat with some volatility in between. This is hardly a blow-off or a melt up. We seem to be in a pause. This is not euphoria.

I have posted about doing a "Swedroe Shuffle", moving money from the US Total Stock Market Index into Value Indexes in smaller amounts. Pretty much a Growth to Value rebalance. I was doing this for a little while until I decided to further de-risk my portfolio, a bit less stocks and a bit more bonds. Went from about 64% stocks to 61% stocks. At some point, I will restart the rebalance.

If you were concerned about too much concentration in the High Tech/Internet stocks like the FAANG stocks, you could just shift a portion of your S&P 500 or Total Stock Market indexes into a Value index. I thought a rebalance of 10%, 20%, or even 30% of your S&P 500/Total Market Indexes into Value indexes might be in order. So far, I shifted maybe about 5-10% of my stocks to Value. I guess I was just born to be mild.

I wouldn't go overboard on a Growth to Value rebalance. For one thing, Value has concentration problems of its own. Two big sectors represented in Value are Finance and Energy. If you overdo this, you might just be swapping one problem for another. One reason I was thinking about a 10% to 30% shift depending upon how aggressively you want to rebalance. So far, my rebalance has been pretty mild.

Not predicting disaster for the broad S&P 500/Total Stock Market indexes, just saying to keep an eye on the concentration of High Tech/Internet. Just going from memory, my foggy memory banks remember that such stocks got to be about 1/3 of the S&P 500 back in 1999, they are about 1/4 of the S&P 500 today. Its up to you if you want to do something about it.
A fool and his money are good for business.

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by willthrill81 » Thu Sep 05, 2019 10:07 am

nedsaid wrote:
Thu Sep 05, 2019 10:02 am
I would not say that the S&P 500 is in a bubble, what I would say is that it is top heavy with certain High Tech and Internet stocks. A debate could be made if this is a problem. I would say that when the S&P 500 got top heavy with these stocks in the late 1990's, it did create a problem in that the index was more or less flat from its peak in early 2000 through about 2012. About 12 years of a market going nowhere. We see similar things today but the bubble in High Tech/Internet, if it really exists, is not nearly as big as it was in 1999. Plus we aren't seeing euphoria. So is this a problem? Not sure. But something to keep an eye on.
I'm not saying that this will happen, but I can easily see the FAANG 'block' underperforming the rest of the S&P 500 over the next decade. This happened with all of the top 10 market-cap weighted stocks in 2000; all of them underperformed the S&P 500 over the next 18 years.
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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by nedsaid » Thu Sep 05, 2019 10:11 am

willthrill81 wrote:
Thu Sep 05, 2019 10:07 am
nedsaid wrote:
Thu Sep 05, 2019 10:02 am
I would not say that the S&P 500 is in a bubble, what I would say is that it is top heavy with certain High Tech and Internet stocks. A debate could be made if this is a problem. I would say that when the S&P 500 got top heavy with these stocks in the late 1990's, it did create a problem in that the index was more or less flat from its peak in early 2000 through about 2012. About 12 years of a market going nowhere. We see similar things today but the bubble in High Tech/Internet, if it really exists, is not nearly as big as it was in 1999. Plus we aren't seeing euphoria. So is this a problem? Not sure. But something to keep an eye on.
I'm not saying that this will happen, but I can easily see the FAANG 'block' underperforming the rest of the S&P 500 over the next decade. This happened with all of the top 10 market-cap weighted stocks in 2000; all of them underperformed the S&P 500 over the next 18 years.
Yes, this could easily happen. I gently point this out to the 3 fund folks as this has happened before and could happen again. Certainly don't advocate outright getting out of the broad S&P 500/Total Market Indexes, just suggesting that a Growth to Value rebalance might be in order.

Another thing to keep in mind is that market P/E ratios are quite a bit lower today than they were back in 1999. Forward P/E ratios were about 32 back then and 18 to 20 today. Trailing P/E ratios were about 45 then and probably 25 today. Haven't looked these up for a little while but the numbers cited should be pretty close.
A fool and his money are good for business.

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Nate79
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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by Nate79 » Thu Sep 05, 2019 1:38 pm

If you look at the composition of the S&P500 or the Total stock market index top 10 it mirrors somewhat the actual largest companies in the US from a revenue and/or profit perspective. There are a few differences, the order is off a little but more or less the top 10 in the index got there because they are the biggest companies in the US. When people complain about FAANG they act like these companies don't deserve to be in the top 10 of the indexes (except Netflix which isn't). But these companies (except Netflix) are the largest by sales and/or profit in the country.

Explorer
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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by Explorer » Thu Sep 05, 2019 5:10 pm

iamlucky13 wrote:
Tue Sep 03, 2019 8:39 pm
burnout454 wrote:
Tue Sep 03, 2019 6:46 pm
https://apple.news/AcB10PjW9TNK5FHePJxdUzw

What do you recognize the fallacies to be, if any, in this article?
I didn't read attentively, because it didn't look worth much effort, but one fallacy that jumped out at me is the suggestion that index investing caused Facebook, Apple, Amazon, and Microsoft to outpace the indexes that contain them. :mrgreen:
Why is this a fallacy? Market Cap weighted index funds that accumulate assets lead the big boys to grow even larger.. simple math!

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willthrill81
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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by willthrill81 » Thu Sep 05, 2019 6:05 pm

Explorer wrote:
Thu Sep 05, 2019 5:10 pm
iamlucky13 wrote:
Tue Sep 03, 2019 8:39 pm
burnout454 wrote:
Tue Sep 03, 2019 6:46 pm
https://apple.news/AcB10PjW9TNK5FHePJxdUzw

What do you recognize the fallacies to be, if any, in this article?
I didn't read attentively, because it didn't look worth much effort, but one fallacy that jumped out at me is the suggestion that index investing caused Facebook, Apple, Amazon, and Microsoft to outpace the indexes that contain them. :mrgreen:
Why is this a fallacy? Market Cap weighted index funds that accumulate assets lead the big boys to grow even larger.. simple math!
No, that's not what happens. No matter how much funds are placed into a total stock market index, for index, it cannot change the relative standing of any of the companies because it's buying each of them in the same ratio as they are already represented in the market. Buying TSM cannot make Apple's stock more valuable than Plains All American Pipeline (PAA).
“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: Forbes: The Bubble That Is The S&P 500 Index

Post by bluquark » Thu Sep 05, 2019 6:09 pm

Explorer wrote:
Thu Sep 05, 2019 5:10 pm
Why is this a fallacy? Market Cap weighted index funds that accumulate assets lead the big boys to grow even larger.. simple math!
How about you use your "simple math" to explain to us what is the weighting approach that doesn't change the relative valuation between large caps and small caps, if you're convinced market cap weighting doesn't do the trick?

It's certainly not equal weight... S&P 500 Equal Weight ETFs are well-known to closely track midcap funds.

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Re: Forbes: The Bubble That Is The S&P 500 Index

Post by jdb » Thu Sep 05, 2019 6:46 pm

grettman wrote:
Wed Sep 04, 2019 4:27 am
Forbes. Marketwatch.com. CNBC. Motley Fool. Bloomberg.

They are all a joke. Their business model is based on click-baiting speculation and poorly edited articles.
+1. Should add Seeking Alpha and Barrons and Fortune and Fox business news. In fact almost all internet and mass media business news both broadcast and print though I do make an exception for WSJ and NYT and The Economist. Stick with this site and low cost index funds and spend your extra time doing something interesting not involving money or investing. Good luck.

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