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11/23/2005
Large Caps, by Victor Niederhoffer

It is instructive to look at the returns of the companies that constitute the S&P 500, versus the Index itself. At year end 1999, the Index closed at 1469, versus 1261 today, a decline of 14.2%. Yet, of the 500 companies currently in the Index, 313 are above their 1999 year end level, 158 are below, and 29 weren't publicly traded in 1999. The index itself has a current market cap of $11.6 trillion, a P/E of 18.5, and a dividend yield of 1.8%. Fifteen companies account for more than 1% each of the Index, a cut-off value of $11.6 billion market cap:

Company         % Of Index  5 Year Annualized Return                          
Altria                 1.3             21.1                                             
AIG                    1.6             -1.0                                              
Bank of America        1.6             10.8                                            
Chevron                1.2              5.3                                                
Citigroup              2.2              3.9                                                 
Exxon                  3.3              6.8                                               
GE                     3.3             -5.8                                                
Intel                  1.4             -7.9                                                
IBM                    1.2             -3.5                                               
Johnson and Johnson    1.6              4.9                                                
JP Morgan              1.2             -5.2                                              
Microsoft              2.3            -11.6                                                 
Pfizer                 1.4             -6.5                                                
Proctor and Gamble     1.7              1.0                                                 
Wal-Mart               1.1             -5.5

Just seven of the 15 companies had positive returns over the five years, versus 66% of the total that had positive returns. The average return for these 15 companies was -1% a year versus an average of 9% a year for an average stock.

From this I conclude:

  1. There is much retrospective bias in the returns for the companies now in the index versus the original companies.
  2. The small companies did much better than the larger companies.
  3. The growth companies performed much better than the value companies. This must be checked with properly adjusted prospective data.
  4. There is a tendency for big companies to have names that begin with letters earlier in the alphabet than average. just 1, Wal-Mart, is in the bottom third of the alphabet.
  5. No industry dominates the results for good companies.
  6. The technology companies did not fare well during this period, which encompassed the NASDAQ crash.

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