The Index Number Does Not Tell The Whole Story

The S&P 500 is down about 8% year to date.  (20 January 2016)  What does that mean to each of us?

First of all, the S&P 500 is an index or an average of 500 or so companies, many of whom you have heard of.  Averages are misleading because they summarize data that may not really be similar. You cannot average apples and avocados.  The average income of all the people in Michael Jordan’s high school graduating class is quite high but the average does not tell us much.

Here is a rough breakdown of how the companies in the index are doing so far.

105 of them are down more than 15%.  9 of those more than 30%.  32 more of those are down more than 20%.  Names like Citigroup, Alcoa, Borg Warner, and Seagate are in there.

Down from 11% to 15% will pick up 91 more.  Some old reputable companies there too.  Met Life, Mastercard, M and T bank, and GM.

You get the idea.  You can find much more detail at CNN

Where it becomes more interesting is why 28 of the index companies are up year to date.  There is Perrigo at +.78%, I suppose baby strollers are immune. Campbell Soup at +2.95%, old, well managed and hard to compete with.  Hasbro at +3.5%.  Time Warner +6.5%.  Flir Systems at 7.8% (they make night vision equipment) and most surprising at least to me, is the leader, Macy’s up more than 13%.

The market as a whole does not have to make sense and you err to believe it should.  The market is an average and unless you fully understand the underlying population, averages never make sense.  The average human has roughly 1.998 legs.

Breaking down the performance to date may give you some insight into solid companies that may be attractive to buy at subnormal prices.  The down less than 5% crowd includes many such companies.

  • Walmart down 0.1%
  • Viacom down 1.2%
  • AT&T down 1.5%
  • Eli Lily and McDonalds down just under 2%
  • Kraft Heinz, Philip Morris, Waste Management, Kimberley Clark and Kellogs down less than 3%
  • Smucker, Coke, Sysco and Verizon down less than 4%

The big losers are interesting too.  Marathon Oil and Alcoa are both down more than 30%.  Could make sense, but more research is in order.

When stocks are down there will be some that are very good value.  In every crisis there is an opportunity, but it usually does not jump up and wave to you.  You will need to look or find someone who can do it for you.

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.


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One Response to The Index Number Does Not Tell The Whole Story

  1. Thank you Don as always you have nailed it.We are truly in difficult times but that can be manged.Some people out there are sparking fear in our clients as if we will wake tomorrow and all the established companies will be gone.We need to reassure our clients that the market is undergoing some correction and the investment view should be long term rather than the smash and grab mentality.Investing is not gambling but is more about patience over a longer period.This is the opportune time to buy not to panic and sell as some are advocating.This most appreciated will help in allaying the negative sentiments that abound these days

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