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PaperclipPerfector  27d ago (text post)   2278 thread views

Small-Scale Question Sunday for December 22, 2024

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

This is your opportunity to ask questions. No question too simple or too silly.

Culture war topics are accepted, and proposals for a better intro post are appreciated.

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I wonder what an "S&P 500, but weighted by profit rather than by market capitalization" index fund would look like.

It probably wouldn't look too different. Most of the megacap tech companies are very profitable. And the S&P 500 already has a profitability filter that keeps out the worst garbage.

On the other hand, something like 40% of the Russell 2000 companies (ranked #1001–3000 by market cap) are unprofitable. A significant percent are essentially zombies, kept afloat by cheap debt and shareholder dilution.

In the last 20 years, stock market breadth has been decimated by software eating the world. I wouldn't be surprised if software has captured >100% of the increase in corporate profits in the last 20 years, with non-software being in a deep depression.

It probably wouldn't look too different.

Actually, according to this (not-very-trustworthy-looking) website, it would look quite different.

Very lazy assessment of the 28 companies that are in the top twenty of either capitalization or profit

Some notable differences:

  • Apple: 12.9 % of capitalization, 6.5 % of profit (6.4-% decrease)

  • Nvidia: 11.2 % of capitalization, 4.0 % of profit (7.3-% decrease)

  • Microsoft: 10.9 % of capitalization, 6.0 % of profit (4.9-% decrease)

  • Amazon: 7.9 % of capitalization, 3.4 % of profit (4.6-% decrease)

  • Saudi Aramco: 6.0 % of capitalization, 12.0 % of profit (6.0-% increase)

  • Berkshire Hathaway: 3.3 % of capitalization, 7.6 % of profit (4.4-% increase)

  • CEMIG: 0.0 % of capitalization, 14.2 % of profit (14.2-% increase)

  • Toyota: 0.8 % of capitalization, 2.3 % of profit (1.5-% increase)

If you pick the most extreme companies by any two metrics, even highly correlated ones, they'll exhibit that kind of divergence, because the tails come apart (you'll also select for anomalies like data entry errors or fraud).

No, this isn't accurate.

Saudi Aramco, CEMIG?, and Toyota are not members of the S&P 500.

Also, the numbers for CEMIG defy logic and are likely the result of some sort of currency translation or data entry error.

Sincerely and Bah Humbug! -Ebeneezer Scrooge

They're called value ETFs (perhaps not exactly but they're an approximation of what you want)

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