beliavsky@[EMAIL PROTECTED]
wrote:
> Today's (Mach 26) Wall Street Journal says the annualized total
> percentage returns of various asset classes since March 1999 have been
>
> 2.46 S&P 500
> I think part of the reason for the poor performance of the S&P 500
> since then is that it was priced too high.
Or that a small subset of the index was priced too high. It's
interesting to look at the list of the top 10 issues through time, it
helps put this in perspective. This link downloads an Excel list of the
top-10, through many years, from the S&P site:
http://www2.standardandpoors.com/spf/xls/index/mktval_issues.xls
It wasn't so much an S&P 500 issue as a Nasdaq 100 issue, though of
course many non-Nasdaq stocks were swept in as well. But the S&P 500 not
only inflated in valuation, but also became dominated by companies that
were relatively unim****tant in terms of total sales and profits and role
in the US economy. Their market value (and weighting in the S&P 500)
came to dominate the index.
In 1999 Microsoft was #1, and Cisco, Intel, Lucent, and AOL were all on
the top-10 list as well. Even Proctor & Gamble got the bump. Now, only
Microsoft remains on the list and its market cap as of 12/31/07 was just
more than 1/2 of what it was back in 1999. Cisco still hasn't managed to
grow enough to earn even $1.50/share annually, though its price was over
$70 at one point - almost 10 years ago - on the basis of its future
earnings power (ostensibly).
The numbers don't look quite so glum if you view the S&P 500 ex-QQQ or,
even better, a large value index that dodged the fluffiest of growth
stocks entirely. It reinforces the lesson that buying a stock is buying
earnings and if they aren't going to be high enough, you shouldn't pay
much for the stock. One might scan the current top-10 list and see if
there's any relatively unim****tant companies that have a place on the
current list; in a way it puts 2007 vs. 1999 in perspective.
I wonder what the commodity returns would be if they adjusted for the
various costs associated with actual investments. It's not quite the
same thing as buying and holding an index fund in the asset class for 9
years.
-Tad
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