
S&P 500 Return Attribution: Its 1% economy - Ballu
https://www.putnam.com/advisor/content/perspectives/7816
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pmiller2
What's with the editorialized title? The actual title is "S&P 500 Return
Attribution," and the phrase "1% economy" appears nowhere in it.

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metal13
It's not editorialized. "Those 5 stocks are up 37% on average while the S&P
500 is up 2%, and the remaining 495 stocks are down 5%."

5/500 = 1%.

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icedchai
The title is different from the title on the article, so it _is_
editorialized.

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Ballu
It can be mine mistake, is it not allowed?

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pmiller2
Generally not. The guidelines say you should submit the actual title, unless
the title is clickbait, uninformative, otherwise misleading, or longer than
the character limit.

~~~
Ballu
Thanks. Should not have added my text.

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pdog
Stock market returns have always been about a small handful of big winners.
It's one of the reasons why indexing usually outperforms stock picking.

The median stock actually performs worse than short-term treasury bills. In
other words, cash is a better investment than most companies.

~~~
marta_morena_25
Yeah, except that when you pick a company to invest in you are not just
picking randomly. Just because most companies perform poorly, says nothing
about the ability to single out high performing companies. This advise is
completely flawed. Of course if you don't want to spend time on picking the
right companies to invest in, an index will likely be a better and safer
choice. But with an index, your gains will always be excessively capped. It's
trading gains for effort spend. Not even risk. If there is a crash, indices
will go down as well. By picking your companies wisely, you can run circles
around any index.

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pavlov
Buying wisely is difficult enough. Another challenge in picking stocks is
selling wisely.

It can be difficult to hold onto the winners and not sell them too early even
as they suddenly seem expensive, you’re already up 3x or whatever, and besides
there’s this shiny new IPO/turnaround/whatever where you could put the money
instead...

Sticking with the index saves you from these bad decisions.

(I had some Apple stock in 2002 that I sold a year later; some Tesla in 2013
that I sold in 2016; some AMD and Nvidia that I sold in 2017; and some Shopify
that I sold last year.)

~~~
reducesuffering
Buy and hold is the better strategy. Even when you think a stock may be
overpriced, you incur capital gains to sell and switch somewhere else. Usually
better to just hold and defer the gains indefinitely.

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IanDrake
Stay away from following anything that looks like advice in these comments.
I'm frankly shocked at some people's opinions on investing here.

I meet so many investors who think they are geniuses because the portfolio
they constructed did so well.

One of the best lessons I've heard about risk is that you don't judge a
decision by the outcome, but by the risk being taken when the decision is
made.

For example, go to a casino and put your life savings on 10. If you win, did
you make a good decision? No.

That's what people who pick stocks are doing. Just massive amounts of
hindsight bias and survivorship bias.

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TekMol
I would prefer to see this comparison (top 1% vs the rest) for the NASDAQ.

To me it seems kind of normal, that tech is eating the world and is more
volatile. So FAAMG making the rest of the S&P 500 look stuck in comparison is
no surprise.

But does the same hold true if we compare FAAMG to the rest of the tech
market? How about the rest of the software market? If so, that would be
alarming.

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throw0101a
It should be remembered that the S&P 500 is market cap weighted, and so will
always be concentrated. This is nothing new:

* [https://theirrelevantinvestor.com/2018/11/26/the-nifty-fifty...](https://theirrelevantinvestor.com/2018/11/26/the-nifty-fifty/)

* [https://awealthofcommonsense.com/2020/07/the-nifty-fifty-and...](https://awealthofcommonsense.com/2020/07/the-nifty-fifty-and-the-old-normal/)

* [https://en.wikipedia.org/wiki/Nifty_Fifty](https://en.wikipedia.org/wiki/Nifty_Fifty)

And while the article isn't wrong, it may not show the whole story:

> _While the S &P 500 is up a 3% or so this year, there are 142 stocks (as of
> yesterday’s close) in the S&P 500 that are up at least 10% or more. On the
> other hand, there are 220 stocks down 10% or more this year._

* [https://awealthofcommonsense.com/2020/08/concentrated-in-the...](https://awealthofcommonsense.com/2020/08/concentrated-in-the-stock-market/)

When the above article was posted (8/4), the top ten YTD percentage risers
were, largest first: Carrier Global, DexCom, NVIDIA, West Pharma, PayPal,
Abiomed, Regeneron Pharma, AMD, Amazon, Cadence Design Systems. Was anyone
surprised that Clorox (53.7%) rose more than Apple (49.1%)?

The S&P 500 being concentrated is the same as it always was over the decades:

* [https://etfdb.com/history-of-the-s-and-p-500/](https://etfdb.com/history-of-the-s-and-p-500/)

* [https://www.qad.com/blog/2019/10/sp-500-companies-over-time](https://www.qad.com/blog/2019/10/sp-500-companies-over-time)

* [https://ritholtz.com/2013/02/visual-history-of-the-sp-500/](https://ritholtz.com/2013/02/visual-history-of-the-sp-500/)

AT&T was in the top ten for _seventy years_.

Absolutely no one was excited about the S&P 500 during the "Lost Decade" of
2000-2009, but now people are probably too excited. Everyone is freaking up
about the un-reality of the stock market: let's see how things go for the next
ten years and decide then.

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hammock
>There are a handful of stocks doing the heavy lifting and driving YTD returns
in the S&P 500 index.

This is interesting, and this analysis is done for 2020 returns only. Were the
same analysis be done for any other year, like 1995 or 1985 or 1975, we might
find a similar dynamic. Which might make the insight here less interesting.

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alexpetralia
I would love to see a return distribution, not by day, but rather by stock, to
see to what extent the distribution is right tailed. I suppose the answer is
very.

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hankchinaski
i would be interested to see how the return distribution varies (if it does at
all) over the medium/long term 5yrs+ - i bet it does varies - and that’s the
whole point of the index - it’s not news that some stocks do better in the
short terms than others. the real question is which ones are good in the long
run... so i think this article is rather pointless in its essence

~~~
throw0101a
> _i would be interested to see how the return distribution varies (if it does
> at all) over the medium /long term 5yrs+_

As the P/E goes up, the expected return goes down; see Schiller / CAPE:

[https://en.wikipedia.org/wiki/Cyclically_adjusted_price-
to-e...](https://en.wikipedia.org/wiki/Cyclically_adjusted_price-to-
earnings_ratio)

This has happened to popular companies before:

* [https://en.wikipedia.org/wiki/Nifty_Fifty](https://en.wikipedia.org/wiki/Nifty_Fifty)

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chromaton
Is there an S&P 5 index fund or ETF?

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leetcrew
if you're only dealing with five stocks, why not just rebalance your holdings
yourself every month or so? plenty of zero-commission options these days.

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zeckalpha
No need to rebalance if it is market cap weighted

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shoo
You need to rebalance if the stocks included in your top 5 index change, i.e.
if some new stock displaces one of your original 5. Otherwise you've got a
fund of 5 stocks chosen by some metric on historical date blah -- which may be
a reasonable idea but doesn't seem to align with the spirit of "S&P 5".

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cj
The Russell 3000 is also up YTD, but is also cap-weighted and therefore I
suspect most returns are from the mega corps.

Many people (politicians?) like to point to the S&P 500 when talking about
stock market growth.

What is a better index or metric that captures the overall health / growth of
the economy?

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tempsy
none of them?

stocks have never been more detached from the underlying economy than now - i
mean look at the total market cap of US stocks to GDP - it’s something like
170%

~~~
throw0101a
> _stocks have never been more detached from the underlying economy than now_

Economic indicators (CPI, GDP, unemployment) are backwards looking, while
stocks are generally forward looking.

The S&P 500 peaked around mid-February and then started tanking. Meanwhile, in
early March:

> _On March 2, New York City Mayor Bill de Blasio tweeted that people should
> ignore the virus and "go on with your lives + get out on the town despite
> coronavirus."[73][74] At a news conference on March 3, New York City
> Commissioner of Health Oxiris Barbot said "we are encouraging New Yorkers to
> go about their everyday lives."[75]_

* [https://en.wikipedia.org/wiki/COVID-19_pandemic_in_New_York_...](https://en.wikipedia.org/wiki/COVID-19_pandemic_in_New_York_\(state\)#March)

Cuomo then declared a state of emergency on March 7— _at least_ two weeks
after stocks started 'acting'.

The stock market (as 'an entity') dislikes _unexpected_ news: as new
information ripples out, the Efficient Market Hypothesis purports that will
effect prices. So if a company says a quarter or two will be good, and it
turns out bad, their stock price will effected by that _new_ information. But
if everyone already knows that things will be bad, when the bad news is
announced there won't be much of a reaction.

You can have bad news as long it's expected: the pandemic was unexpected and
so everyone had to re-organize their strategies. That was February to March.

Now that the pandemic is more of a know quantity, and its effects of society
are more well-known, people can focus on how companies will deal with it: it's
generally bad for cruise lines and airlines (stocks down), it's generally good
for companies that help with work/shelter-in-place stuff like Zoom/telcomm and
cloud (stocks up). What was April onwards.

Yes, the economy does suck. But stocks are about forward looking expectations,
not about the now or past.

~~~
tempsy
i don’t think you can look at Tesla surpassing Walmart in market cap today and
rationalize it as normal forward looking behavior when there’s been zero news
over the last 10 days outside of a stock split, which in theory should have
zero impact on the market cap

my point is we aren’t living in a world where a stock is simply the present
value of future cash flows and no one should rationalize the market as such

~~~
throw0101a
It's going up because it has gone up. See the momentum investing factor:

* [https://www.investopedia.com/terms/m/momentum.asp](https://www.investopedia.com/terms/m/momentum.asp)

Also, it has just recently become eligible to become part of the S&P 500
(through some perhaps 'amusing' accounting), so a bunch of folks may be front
running it's possible actual inclusion:

* [https://www.thebeartrapsreport.com/blog/2020/07/19/gaming-th...](https://www.thebeartrapsreport.com/blog/2020/07/19/gaming-the-sp-500-inclusion-process/)

Though long-term stock holders may not actually want inclusion:

* [https://www.nber.org/papers/w27593](https://www.nber.org/papers/w27593)

~~~
tempsy
that has nothing to do with forward expectations, which is my point.

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idoh
If that's what you believe then you can always put your money where your mouth
is and go short on Tesla.

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tempsy
there’s no point in trying to act rationally when the market is in extreme
moral hazard mode.

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defertoreptar
How does this compare to pre-covid S&P 495?

