What happens if a company outgrows S&P 600?
What happens if a company outgrows S&P 600?
What happens if a company outgrows S&P 600?
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Re: What happens if a company outgrows S&P 600?
If it no longer meets the definition of the index, it will get dropped from the index, and the funds will have to sell it.
(It might or might not get picked up by the midcap index)
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Re: What happens if a company outgrows S&P 600?
S&P has inclusion criteria for their S&P 500, 400, and 600 indexes that go beyond just market cap (profitability, liquidity, free float, etc). But assuming a company satisfied those criteria for the Small Cap 600 (because you used the term "outgrow"), then it would still satisfy those criteria for the Midcap 400 as well (they have the same standards). The Small Cap 600 goes from ~$850M - $3.6B market cap, while the Mid Cap 400 goes from ~$3.6B - $13.1B so a company that crosses the $3.6B market cap level would likely move to the Mid Cap 400 at the next rebalancing unless S&P has other reasons not to move them.
Re: What happens if a company outgrows S&P 600?
Dumped. Sell the winners to buy more losers.....
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Re: What happens if a company outgrows S&P 600?
Or buy the next winner; we do not know which it will be.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Re: What happens if a company outgrows S&P 600?
Actually, this is an interesting point, tax-wise...
SP 500 is a pretty tax-efficient fund, because the only way to get dropped from the fund is because a stock is doing poorly (therefore no capital gains when the SP500 Index drops it).
But if a stock grows too big for a small-cap fund, and has to be sold because it is doing so well, that small-cap fund will incur a lot of capital gains, right?
Edit: I guess a stock in the SP500 could be taken private and all shares bought out... That would cause capital gains for a large-cap fund, too.
SP 500 is a pretty tax-efficient fund, because the only way to get dropped from the fund is because a stock is doing poorly (therefore no capital gains when the SP500 Index drops it).
But if a stock grows too big for a small-cap fund, and has to be sold because it is doing so well, that small-cap fund will incur a lot of capital gains, right?
Edit: I guess a stock in the SP500 could be taken private and all shares bought out... That would cause capital gains for a large-cap fund, too.
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Re: What happens if a company outgrows S&P 600?
S&P 600 pays less dividends than S&P 500. It balances out usually.HomerJ wrote: ↑Sat Oct 23, 2021 11:45 am Actually, this is an interesting point, tax-wise...
SP 500 is a pretty tax-efficient fund, because the only way to get dropped from the fund is because a stock is doing poorly (therefore no capital gains when the SP500 Index drops it).
But if a stock grows too big for a small-cap fund, and has to be sold because it is doing so well, that small-cap fund will incur a lot of capital gains, right?
Edit: I guess a stock in the SP500 could be taken private and all shares bought out... That would cause capital gains for a large-cap fund, too.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Re: What happens if a company outgrows S&P 600?
Not generally a problem with ETFs but could be for traditional mutual funds.HomerJ wrote: ↑Sat Oct 23, 2021 11:45 am Actually, this is an interesting point, tax-wise...
SP 500 is a pretty tax-efficient fund, because the only way to get dropped from the fund is because a stock is doing poorly (therefore no capital gains when the SP500 Index drops it).
But if a stock grows too big for a small-cap fund, and has to be sold because it is doing so well, that small-cap fund will incur a lot of capital gains, right?
Edit: I guess a stock in the SP500 could be taken private and all shares bought out... That would cause capital gains for a large-cap fund, too.
I don't think many S&P 500 firms have been taken private.
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Re: What happens if a company outgrows S&P 600?
Stock buybacks are a step towards such an action.000 wrote: ↑Sat Oct 23, 2021 3:52 pmNot generally a problem with ETFs but could be for traditional mutual funds.HomerJ wrote: ↑Sat Oct 23, 2021 11:45 am Actually, this is an interesting point, tax-wise...
SP 500 is a pretty tax-efficient fund, because the only way to get dropped from the fund is because a stock is doing poorly (therefore no capital gains when the SP500 Index drops it).
But if a stock grows too big for a small-cap fund, and has to be sold because it is doing so well, that small-cap fund will incur a lot of capital gains, right?
Edit: I guess a stock in the SP500 could be taken private and all shares bought out... That would cause capital gains for a large-cap fund, too.
I don't think many S&P 500 firms have been taken private.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Re: What happens if a company outgrows S&P 600?
What?
Re: What happens if a company outgrows S&P 600?
Not necessarily. ETFs are able to divest of these companies without selling anything. Vanguard and iShares are good about that, while State Street used to struggle with it.
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
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Re: What happens if a company outgrows S&P 600?
The holders are increasing their ownership using the earnings. Those who do not sell will eventually own the company; it is going private in slow motion.
Why does this seem absurd?
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Re: What happens if a company outgrows S&P 600?
It is absurd because you have not shown that buybacks will reduce the ownership to the point where the company will be delisted.secondopinion wrote: ↑Sat Oct 23, 2021 8:03 pm The holders are increasing their ownership using the earnings. Those who do not sell will eventually own the company; it is going private in slow motion.
Why does this seem absurd?
Re: What happens if a company outgrows S&P 600?
Not by percentage, but it happens pretty regularly: https://en.wikipedia.org/wiki/List_of_S ... components
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
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Re: What happens if a company outgrows S&P 600?
It might not be anything meaningful, but it is closer than before. It is definitely not the opposite.000 wrote: ↑Sat Oct 23, 2021 8:08 pmIt is absurd because you have not shown that buybacks will reduce the ownership to the point where the company will be delisted.secondopinion wrote: ↑Sat Oct 23, 2021 8:03 pm The holders are increasing their ownership using the earnings. Those who do not sell will eventually own the company; it is going private in slow motion.
Why does this seem absurd?
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Re: What happens if a company outgrows S&P 600?
Most of those events weren't due to being taken private.drk wrote: ↑Sat Oct 23, 2021 8:19 pmNot by percentage, but it happens pretty regularly: https://en.wikipedia.org/wiki/List_of_S ... components
Re: What happens if a company outgrows S&P 600?
I would be more concerned about the shrinking number of publicly listed firms (~5000 20 years ago to ~3500 today) primarily due to voluntary delisting because of regulatory burden placed on public firms.secondopinion wrote: ↑Sat Oct 23, 2021 8:29 pmIt might not be anything meaningful, but it is closer than before. It is definitely not the opposite.000 wrote: ↑Sat Oct 23, 2021 8:08 pmIt is absurd because you have not shown that buybacks will reduce the ownership to the point where the company will be delisted.secondopinion wrote: ↑Sat Oct 23, 2021 8:03 pm The holders are increasing their ownership using the earnings. Those who do not sell will eventually own the company; it is going private in slow motion.
Why does this seem absurd?
Stock buybacks OTOH are really just a gimmick to avoid taxes and pad the value of executive stock options. I don't think one need be concerned enough to view them as a road to delisting.
Re: What happens if a company outgrows S&P 600?
Not sure why you chose to pick that nit, but OK.000 wrote: ↑Sat Oct 23, 2021 8:32 pmMost of those events weren't due to being taken private.drk wrote: ↑Sat Oct 23, 2021 8:19 pmNot by percentage, but it happens pretty regularly: https://en.wikipedia.org/wiki/List_of_S ... components
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
Re: What happens if a company outgrows S&P 600?
It's not a nitpick. You were trying to correct me, but my statement was in response to the previous poster who said: "Edit: I guess a stock in the SP500 could be taken private and all shares bought out".drk wrote: ↑Sat Oct 23, 2021 9:02 pmNot sure why you chose to pick that nit, but OK.000 wrote: ↑Sat Oct 23, 2021 8:32 pmMost of those events weren't due to being taken private.drk wrote: ↑Sat Oct 23, 2021 8:19 pmNot by percentage, but it happens pretty regularly: https://en.wikipedia.org/wiki/List_of_S ... components
You are correct that there is regular shakeup in the S&P 500. No disagreement.
Re: What happens if a company outgrows S&P 600?
I was adding color/context, not trying to correct your opinion. If you go look at the link, you'll see examples of companies being taken private (e.g., Staples) or being merged into foreign companies (e.g., LVMH buying Tiffany). Again, it's not many as a percentage of S&P 500 companies, but it does happen regularly (surprisingly so, IMO).000 wrote: ↑Sat Oct 23, 2021 9:12 pm It's not a nitpick. You were trying to correct me, but my statement was in response to the previous poster who said: "Edit: I guess a stock in the SP500 could be taken private and all shares bought out".
You are correct that there is regular shakeup in the S&P 500. No disagreement.
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
Re: What happens if a company outgrows S&P 600?
My apologies for any misunderstanding. I was not trying to nitpick you. The relevant difference from my view in the context of this thread was the differing tax situation from a private buyout versus acquisition by another public firm.drk wrote: ↑Sat Oct 23, 2021 9:43 pmI was adding color/context, not trying to correct your opinion. If you go look at the link, you'll see examples of companies being taken private (e.g., Staples) or being merged into foreign companies (e.g., LVMH buying Tiffany). Again, it's not many as a percentage of S&P 500 companies, but it does happen regularly (surprisingly so, IMO).000 wrote: ↑Sat Oct 23, 2021 9:12 pm It's not a nitpick. You were trying to correct me, but my statement was in response to the previous poster who said: "Edit: I guess a stock in the SP500 could be taken private and all shares bought out".
You are correct that there is regular shakeup in the S&P 500. No disagreement.
Related to your most recent comment I seem to recall at one point S&P 500 ETFs reporting some foreign holdings, I believe from a firm that had redomiciled in Ireland, but I no longer see it.
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Re: What happens if a company outgrows S&P 600?
If the company is no longer part of the index, and you desire to retain the security, best to invest in Total Stock Market index, ie VTSAX or VTI and it will capture all phases of growth from small to mid cap and large.
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Re: What happens if a company outgrows S&P 600?
How was Dell handled when they went private several years ago?drk wrote: ↑Sat Oct 23, 2021 8:19 pmNot by percentage, but it happens pretty regularly: https://en.wikipedia.org/wiki/List_of_S ... components
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Re: What happens if a company outgrows S&P 600?
Not sure what you mean. The company was removed from the index, but each fund has some discretion in how to handle that. If you check out interviews with the fund managers for Vanguard 500 (e.g., Bogleheads on Investing), you'll hear a lot of interesting details about how they think about this kind of thing.BMWrider1986 wrote: ↑Sat Oct 23, 2021 9:57 pm How was Dell handled when they went private several years ago?
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
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Re: What happens if a company outgrows S&P 600?
It does allow them to dilute the stocks later on. Like paying off a bond with earnings, it is a way to get back some ability to capital-raise in the future. Diluting stock is like the act of making it public; think of the actual rationale of making it public in the first place: to raise capital.000 wrote: ↑Sat Oct 23, 2021 8:46 pmStock buybacks OTOH are really just a gimmick to avoid taxes and pad the value of executive stock options. I don't think one need be concerned enough to view them as a road to delisting.secondopinion wrote: ↑Sat Oct 23, 2021 8:29 pmIt might not be anything meaningful, but it is closer than before. It is definitely not the opposite.000 wrote: ↑Sat Oct 23, 2021 8:08 pmIt is absurd because you have not shown that buybacks will reduce the ownership to the point where the company will be delisted.secondopinion wrote: ↑Sat Oct 23, 2021 8:03 pm The holders are increasing their ownership using the earnings. Those who do not sell will eventually own the company; it is going private in slow motion.
Why does this seem absurd?
I know there are some tax tricks and other reasons, but it is marginally like going private to buy stocks back with earnings. The state of being public is binary, but a company with only 3% of share available is more or less privately owned in voting terms. Buybacks reduce the voter base; diluting it increases the voter base.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.