Index investing isn’t very interesting, right? This seems particularly true with all the large cap indicators like the S&P 500, which include large, permanent, steady titans of the worldwide market.
Or is it? The S&P 500 actually added and got rid of three stocks in the past year- Advanced Micro Devices, Raymond James, Inc. and Alexandria Real Estate Equities were added while Urban Outfitters, Frontier Communications and First Solar were deleted. This year has been consistent with the past in terms of additions / deletions.
All these tiny incremental changes can accumulate over time. Imagine if you fell asleep in 1955 holding equal shares of every company in the Fortune 500 (the S&P index did not exist then) and awakened this past calendar year, in which you instantly reviewed your holdings. You would be amazed to see that only 60 companies on the list were also present in the 500 firms in the 1955 one. Some companies merged and others lost their name value such as Armstrong Rubber, Cone Mills, Hines Lumber, Pacific Vegetable Oil and Riegel Textile.
The point is that, in the long run, there’s nothing extremely consistent with the hierarchy of big businesses in the U.S. or worldwide market. We do not know who the important corporate titans of tomorrow’s market will be, exactly how no one from the 1950s would’ve been able to predict the rise of social media or even the internet. This Is precisely why we purchase index funds or diversified portfolios. Nobody can predict which individual business rise from darkness or turn into another Pacific Vegetable Oil.