The Missed Apple of S&P 500!
The Missed Apple of S&P 500!
If you are using S&P 500 Index Fund to feel good about your Apple ownership, think again. S&P 500’s current near 6.5% ownership of Apple has come after a lot of legacy foregone profit from the same Apple.
Apple first became a billion-dollar company in December 1980, after its initial public offering (IPO) 1980. However, it took much longer for Apple’s market capitalization to grow from $1 billion to $1 trillion. Apple’s market capitalization first surpassed $1 trillion on August 2, 2018, when its stock price briefly reached $207.05 per share. This means that it took Apple approximately 36 years to grow from a $1 billion company to a $1 trillion company, a remarkable achievement considering the company faced significant challenges and changes in the technology industry during that time.
Out of these 36 years, Apple spent the first two outside the S&P 500. Once inside the S&P 500 in 1982, the stock spent the next 30 years at a weightage of less than 1% in the S&P 500 Index funds. The weightage of a stock when it is added to the S&P 500 can vary depending on the size of the company and other factors. However, typically a stock added to the S&P 500 will weight less than 1% and may be closer to 0.1% or less. Over time, as the company grows and its market capitalization increases, its weight in the index may also increase.
“Out of these 36 years, Apple spent the first two outside the S&P 500. Once inside the S&P 500 in 1982, the stock spent the next 30 years at a weightage of less than 1% in the S&P 500 Index funds. The weightage of a stock when it is added to the S&P 500 can vary depending on the size of the company and other factors. However, typically a stock added to the S&P 500 will weight less than 1% and may be closer to 0.1% or less. Over time, as the company grows and its market capitalization increases, its weight in the index may also increase.” The IPO price of Apple in 1980 was $22.00 per share.
The closing price of Apple on the last trading day of August 2012, when it first became more than 1% of the S&P 500 index, was $665.24 per share.
Therefore, the growth percentage from the IPO price to the August 2012 closing price is:
($665.24 - $22.00) / $22.00 = 29,968.73%
So, Apple grew nearly 30,000% from its IPO price to August 2012.
In terms of the company’s market capitalization, which takes into account both stock price and the number of outstanding shares, Apple’s market cap has grown from around $633 billion on August 31, 2012, to around $2.47 trillion as of February 18th, 2023. This represents an increase of approximately 290.6% over this period.
So one can fairly say that all Index funds based on S&P 500 have really participated in the last 1% of Apple’s growth. Of course, one can still dream of the other 99% that is yet to come, but the reality is that S&P 500 Index methodology will never give disproportionate weight to a company called Apple in 1982, when it was not a large Size winner. This is the definition of a winner’s bias. When you invest in S&P 500 Index funds, you leave a lot of foregone profit on the table. One may say that there is only one Apple, and such things are rare. To that question, we would say, that the probability of picking winners from 490 stocks, that own near negligible weight, will always be higher than picking winners from the top 10, which own a significant pie.
“This is the definition of winner’s bias. When you invest in S&P 500 Index funds, you leave a lot of foregone profit on the table.”
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