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  • 00:00:05,160 --> 00:00:08,940 Today, we're going to break down how the S&P 500 is actually

  • calculated.

  • And if you think you already know everything

  • there is to know about the S&P 500,

  • you hear about it all the time, stick with me.

  • I think you'll learn something new.

  • 00:00:22,560 --> 00:00:26,400 Now, one of the reasons we care so much about the S&P 500

  • is because it's actually considered a relatively stable

  • way to invest your money.

  • This is the returns of the index over the last five years.

  • So we start in October of this year, mid-October,

  • and go back five years to mid-October of 2014.

  • And as you can see, if you put your money in five years ago

  • you'd actually get a pretty stable return

  • despite a little bit of turbulence in the latest year.

  • Now, the S&P 500 is reflective of the large cap US stocks

  • space because the committee that selects the companies keeps

  • in mind how much of a sector breakdown

  • each industry should get so that it reflects the larger cap

  • stocks space.

  • So, as an example, if technology companies represent about 20

  • per cent of total large cap companies in the US,

  • they're going to make sure that the companies in the S&P 500

  • also reflect about a 20 per cent technology representation.

  • And they actually even break it down

  • into subcategories from there, but we're not

  • going to get into all that.

  • What we are going to get into is how this thing is actually

  • calculated.

  • Now, as you may know there are 500 companies in the S&P 500,

  • but don't get confused.

  • There are actually 505 listings on the S&P 500.

  • And that's because the listings refer

  • to some companies that have what's called a dual class

  • share system.

  • And dual class just means say you're Facebook.

  • You have class A shares, and you have class B shares.

  • The class A shares give more voting

  • rights to those who hold them.

  • And actually, the S&P 500 decided recently

  • we're not going to let any more companies in that have

  • this dual class share system.

  • But that is why despite there being 500 companies,

  • there are about 505 listings on the S&P 500.

  • So when we say large cap, we're talking about large

  • capitalisation.

  • And that means we do actually need to figure out what

  • the market capitalisation is of each company in the S&P 500.

  • And that's where we start.

  • 00:02:30,150 --> 00:02:32,630 OK, so let's say we're starting with Microsoft,

  • which just happens to be the largest company in the S&P 500.

  • You first start with the price of their shares.

  • And then to get the market cap what you usually do

  • is you multiply by the quantity of shares out there.

  • Price times quantity equals market cap.

  • 00:02:50,450 --> 00:02:54,390 But for the S&P 500 we have to do one additional thing.

  • See, the market cap of the companies in the S&P 500

  • are actually called float-adjusted market caps,

  • which means we need to take the quantity of shares out there.

  • And we need to actually figure out

  • what percentage of those shares are actually

  • tradeable on the markets, i.e.

  • not held closely by executives, or by other private owners.

  • 00:03:15,220 --> 00:03:18,260 So we multiply by the float - again,

  • the percentage of those shares that are out there

  • ready to trade.

  • And this gives us the float-adjusted market cap

  • of a company.

  • That's just one company, though.

  • Remember, there's 500 companies in this index,

  • so you're going to repeat this 500 times.

  • I'm not going to make 500 lines here.

  • You get the idea.

  • But once you have all of those, you're going to sum them up.

  • And what you're going to get is the total market cap

  • of all the companies in the S&P 500, which

  • right now is about $24tn.

  • 00:03:53,380 --> 00:03:55,040 But we're not done quite yet.

  • There's still one more step because the S&P 500

  • isn't $24tn.

  • Right here, you can see it's $3,000.

  • So what we do is we put a divisor under this number.

  • 00:04:08,230 --> 00:04:10,750 And S&P doesn't necessarily always share

  • what exactly the divisor is, but just

  • know it's a number that breaks the sum down to something

  • a little bit more manageable.

  • And also, don't forget.

  • The S&P 500 is changing all the time.

  • The companies in here, they issue

  • more shares, or their share price changes,

  • or they do a stock split, or their price falls

  • so low that they're not actually considered a large cap

  • company any more, and they need to drop of the index, which

  • means a new company needs to come on to take their place.

  • These changes are happening all the time.

  • And so this divisor is really key in making sure

  • that the index doesn't change dramatically

  • just because, for example, a company needs

  • to come off and have a new company relisted on it.

  • And this divisor's changed if that

  • happens at the end of the market so that the next day when

  • markets open, that index has not changed,

  • even though, let's say, there's a different company

  • with a different market cap.

  • So the way that the S&P 500 is calculated actually

  • gives us a good idea of what's happening in the large cap US

  • stock market, which is why it's become one of the most

  • popular indices in the world.

00:00:05,160 --> 00:00:08,940 Today, we're going to break down how the S&P 500 is actually

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How is the S&P 500 calculated | Charts that Count

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    洪子雯   に公開 2019 年 10 月 20 日
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