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Top 52. Oct 29, 1999 11:35 AM

» DennisL - Jen,

I just love the pictures and graphics you post to these threads. Your command of HTML and bagful of tricks and treats are awesome! Thanks for adding spice to Suite101.

-- posted by DennisL

Top 53. Oct 30, 1999 10:53 AM

» JenL_3 - Dennis...

Thanks....It's fun! Suite 101 is a great creative outlet. We're lucky to have a discussion site that allows use of HTML when posting messages.....Jen

-- posted by JenL_3

Top 54. Oct 31, 1999 9:47 PM

» DennisL - The New Dow vs. S&P 500

Following is a very interesting article from TheStreet.com about whether the newly reconstituted DJIA will outperform the S&P 500 going forward. Arguing for the DJIA is Charles Carlson, manager of a fund based on the DJIA. Arguing for the S&P 500 is Gus Sauter, Vanguard's S&P 500 index fund manager.

I'm not sure about which one I agree with. It wasn't until today when BB talked about the new DJIA on Moneytalk that I knew that the DJIA is a price-weighted index rather than a market cap-weighted index like the S&P 500 is. In the long run, I think I still prefer the broader diversification that the S&P 500 offers.

Personal Finance : Mutual Funds

New Dow Components Will Enhance the Growth/Value Cha-Cha for Index Funds
By Alison Moore
Senior Writer
10/30/99 12:17 AM ET

Is a juiced-up Dow a better bet than the S&P 500?

It is to Charles Carlson -- though as co-manager of a mutual fund based on the Dow Jones Industrial Average, Carlson is admittedly biased. When high-octane stocks Microsoft (MSFT:Nasdaq), Intel (INTC:Nasdaq), Home Depot (HD:NYSE) and SBC Communications (SBC:NYSE) on Monday replace low-wattage Chevron (CHV:NYSE), Sears (S:NYSE), Union Carbide (UK:NYSE) and Goodyear Tire (GT:NYSE) in the DJIA, the 103-year-old index will become an even more powerful bogey than its 43-year-old counterpart, the S&P 500, Carlson says. (Don't miss Carlson this weekend when he makes a guest appearance on "TheStreet.com" show on Fox News Channel.

"The new stocks will bolster the growth segment while still preserving a value bent in the [Dow] index," says the Strong Dow 30 Value manager. "I think the changes make a very compelling case for the Dow to be much stronger going forward," he says. If that's so, then investors betting on the Dow could have reason to party beyond 1999 (the first year the DJIA has run hotter than the S&P 500 since 1996).

DJIA vs. S&P 500
Total return
..........YTD*..1998...1997...1996....1995
DJIA.......14%..18.1%..24.9%..28.7%...37%
S&P 500...5.4...28.6...33.4...23......37.5
*Through Sept 30. Source: Morningstar

While a popularity shift from growth to value stocks gave the laggard Dow an edge over the S&P 500 this year, the S&P's lineup of fast-growing tech stocks awarded the younger index a clear advantage in the two prior years. Adding tech, telecommunications and retail businesses that are more representative of the "new economy" will help to fuel the Dow during periods where growth culls favor over value. At the same time, Carlson says, the price-weighted Dow will limit investors' exposure to highflying growth stocks, which can have greater downside risk.

The cap-weighted S&P 500 can't perform the same balancing act between growth and value. Price weighting, where each stock's allocation in the index is based on the price of a single share, provides a built-in self-adjusting mechanism in the form of stock splits, says Carlson. That will keep stocks with exploding market caps like Microsoft -- which currently trades at about 90, but has a market cap of $462 billion -- from becoming too significant in the Dow (the way such heavyweights become in the S&P 500).

TSC on FOX: Join the discussion on TSC Message Boards.

So, while the Dow has far fewer stocks than the S&P 500, Carlson argues that as long as fast growers continue to split shares, portfolios pegged to the Dow will enjoy broader diversification. "It's the S&P 20 that drives the S&P," he says.

Vanguard's 500 Index fund manager, Gus Sauter, disagrees. While he acknowledges the top-heavy nature of his $89 billion fund, "You do have a higher weighting in Microsoft, GE (GE:NYSE) and the largest-cap companies in the S&P 500." He says the allocation is more reflective of the market than the Dow's. "Investors in general have more exposure to these stocks, so your bogey should reflect that."

And Sauter says that even a new and improved DJIA will still fall short of the S&P's broad market diversification: "Historically, the S&P 500 has included all types of companies, whereas the Dow was an industrial index," says Sauter. "The Dow is becoming more reflective of the market, and it will be better next week than it is this week, but it's still narrower than the S&P 500." And Sauter argues that while stock splits do rebalance the DJIA index, they also force Dow fund managers to rid portfolios of extra shares -- a move that could encourage capital-gains distributions and edge up the cost of owning a Dow fund.

Of course, only time will tell which benchmark investors will benefit the most. For now, there seems little question in these managers' minds that, come Monday, the performance race between the two will be forever altered -- even if only slightly.

-- posted by DennisL

Top 55. Oct 31, 1999 9:55 PM

» DennisL - Ratio of Market Cap/GDP

At the risk of resurrecting a subject that Roger has beaten to death in the past, I would like to mention that today on Moneytalk, BB discussed the historical ratio of total stock market capitalization to gross domestic product. BB read off the levels at which the ratio stood before the beginning of various bear markets and bull markets throughout history. I didn't write down all of the dates and ratios, but the general drift was that the ratio stood at around 80 before the bear markets that began in 1929, 1972, and 1982. It stood at around 30 or 40 before the beginning of the bull markets that began after the end of the aforementioned bear markets. Right now, today, the ratio stands at about 140.

BB seemed a bit bothered by this. Now that BB has mentioned it to his legions of listeners, does anyone have any additional thoughts about it?

-- posted by DennisL

Top 56. Nov 1, 1999 8:16 AM

» Kirk - Same thoughts I gave Roger.

Same thoughts I gave Roger.
There is much more stock in the public sector today that used to be private. Hard to make an apples to apples comparison.

Remember in the 1980's what happened? Levereged buyouts that took companies with tons of value in assets that was not reflected in the book value. Appreciated real estate was a biggie. People came in, bought the companies, raped the shareholders led by ineffective management and then sold off the assets. Many were underperforming assets and many in the rust belt had to find new jobs. Painful medicine that was good for the economy overall. None of this is reflected in raw numbers.

Goldham Sachs going public....UPS going public.... all these add to the market cap and are really just a shift from Private to public. Also, we used to get dividends. Now these dividends are reinvested to give us better returns after taxes. The "dividend" is now higher stock prices. It might only be 2% a yr, but do that for 20 yrs and there you go!

I just love how so many blindly read statistics and make an issue of it as their lack of looking deeper makes for investment opportunity for us!
Roger would say I am a nut, but I have made good coin from my nutcake recipe.

-- posted by Kirk

Top 57. Nov 5, 1999 1:36 PM

» Rande - Interesting to see the "Tale of the Indexes" since the middle of

Interesting to see the "Tale of the Indexes" since the middle of October (10/14 close through today):

Nasdaq +10.5%
S&P 500 +6.8%
R2000 +5.5%
DJIA +4.1%

Looks like the smalls have had a nice little run.

-- posted by Rande

Top 58. Nov 5, 1999 2:03 PM

» DennisL - The Run of the Smalls

I wonder how much longer it will continue. I hope the S&P 500 doesn't become the wrong place to be.

-- posted by DennisL

Top 59. Nov 5, 1999 2:05 PM

» Rande - Dennis,

Dennis,

Easy answer -- Wilshire 5000, Total Market Index.

-- posted by Rande

Top 60. Nov 5, 1999 2:19 PM

» DennisL - Rande, I Got It

I have the total stock market index wherever it is offered to me (my two retirement plans at work). Unfortunately, the fund family where I have some personal money outside of work does not offer a total stock market index fund. Rather, it offers, separately, the S&P 500, the S&P 400 mid cap, and the S&P 600 small cap. I have it all in the 500 because I didn't want the hassle of three different accounts. The good part of it all, I suppose, is that about 75% of my stock market money is in my retirement plans and 25% is the personal money.

I'm doing the best that I can with what is offered to me, without complicating matters too much. Would you agree?

-- posted by DennisL