S&P Times Google--And Pats Self on Back

So much for the fiction that the S&P 500 is an un-managed index.  Committee Chairman David Blitzer sounded like a veritable hedge-fund manager when he explained to the WSJ why the Committee took until now to make this obvious decision:

S&P Index Committee Chairman David Blitzer said a big reason why S&P didn't add Google to its index late in 2005 is because the stock was surging – setting it up for a big decline. "There were a couple of spots last fall, when [the stock] went straight up, and when something goes straight up it gives one pause because it'll also go straight down," he said.

So does this mean that we index-fund owners can sue S&P for not booting stocks before they plummet?  Perhaps Blitzer just wants to erase the nightmares of S&P's having top-ticked Yahoo!, AOL, et al (and blaming those disasters on being oblivious to price).

In any case, now that the freebie Google catalyst is out of the way, it's back to business: How to generate that hefty $3 billion in 2006 free cash flow that Wall Street's looking for. 

Comments

[mr fuckedgoogle]

Everyone knows the S&P is a market timing cabal in bed with wall street. I remember in the dot.com mania days and whenever a popular dot.com stock appeared to be plunging, suddenly the S&P would come to the rescue and add it into the index.

This happened about a dozen times.

And now, this clown comes out and admits that the entire mantra of the S&P committee is one gigantic lie and that they actually DO try to time stocks?

Henry, this is about as big a gaffe as when you admitted on the record that companies you were touting to the public were actually "pieces of shit"

I think the S&P just lost a huge amount of credibility. Up until this point they have always flatly denied any market timing. This is a revolutionary admission, and one that I don't think will help the index. The S&P 500 is supposed to be a passive investment that reflects the prevailing companies in various industries.

But now, on the record, the chairman of the S&P has just admitted it has been a lie all along.

Wow. I'm speechless.

[Neal Lachman]

Mr FGoogle,

It strikes me odd that a guy with such an amazing nickname and even more so amazing website/blog thinks he is ever going to be taken serious.

It is an art what you are doing. I am also wondering why I am taking the time to say this. I guess it is your charisma. Do you also think the whole world is conspiring against you and your portfolio?

[mr fuckedgoogle]

What is a conspiracy? It's an action between two or more people.

In 1998-2000 there was a "conspiracy" among nearly every large brokerage to steal as much money from suckers as they possibly could. At the end, they all paid billions in fines and walked away to play the same game again. How about Dick Grasso getting 200 million bucks as a "going away present" from the NYSE- which was a non-profit institution at the time?

The S&P selection committee has stated FOREVER that they do not market time entries into the index. Their chairman just admitted today that in fact, that is a lie.

How is pointing that out a consipiracy? Henry's the one that said it on his top post today. Or do you think Henry's a conspiracy nut too?

[Robert]

Henry, SI, Neal Lachman, mr fuckedgoogle, that long-haired short-seller
from Seattle and all you other naysayers just cannot keep goog down
by your ranting and raving. Now it is S & P finagling with Fidelity,
Goldman, and others to rig the game against you.
WHEN will you admit that this is a great company and make some money
the honest way.......buy and hold this stock.
Let's see......no matter what the reason....goog began its short
history a year and a half ago and is now the 19th largest company
in the USA by market cap. As a reminder, the stock came public
at 85 and is about 370 this morning. Not bad.
I love Henry's column and the erudite responses it engenders.....
just reinforces for this individual investor the reason why I,
just another small investor, can go against the tide of the best
and the brightest on and off Wall Street and make
a significant amount of money by finding great, young, fast growing
companies and staying with them. MSFT, 20 years after its IPO,
is up 288 times. Its IPO price after the 9 splits is 7 cents a share.
And, I am sure MSFT had its severe pullbacks as well.

[Henry Blodget]

I have said often that Google is a great company. As an index-fund owner, moreover, I will now be a Google shareholder again. My point was that S&P should have added the stock to the index more than a year ago--and probably would have, had S&P not been pretending that it doesn't try to time stocks.

[Gassy]

Your concerns touch on the methodology used to construct an index that best represents the "market".

S&P has competition for constructing the best index from sources like MSCI, Wilshire, Dow Jones, Russell, NYSE, etc. For whatever reasons, S&P500 has evolved to become the "standard" measure of what criteria best represents risk and return of the US stock market. S&P has incentives to remain the standard measure. Its use as a proxy for "the market" has been studied in depth for decades in academia and Wall Street. There seems to be consensus that it’s not ideal, but nonetheless, still has value as a real-world tool.

Are there index methodologies and construction techniques available that are better than the one(s) used by S&P? Is there a better way to prevent the index methodology, its construction and maintenance from being "gamed"? Are the methodologies, algorithms and other decision criteria used by S&P and other index constructors optimal?

Portfolio theory and market hypotheses are an integral part of "finance". Ironically, answers to these finance questions are no where to be found at finance.Google, finance.Yahoo and finance.Other web sites.

Search algorithms for the inclusion/exclusion of individual components of an index surely have similarities to the search algorithms used by internet search engines. To suggest that their design criterion is flawed to the extent of criminality seems to be a stretch.

By the way, many tenants of portfolio theory, efficient market hypothesis’s and the like, seem relevantly applicable to current theories surrounding the epistemological implications of “Wisdom of Crowds”. Crowds, like markets are nothing more than grouped components. Perhaps a better understanding of market construction algorithms would be beneficial in other arenas.

[Neal Lachman]

Robert,

Great points. I hope you don't mind me disecting your commentary.

>>all you other naysayers just cannot keep goog down
by your ranting and raving. Now it is S & P finagling with Fidelity,
Goldman, and others to rig the game against you.

That's ok. I can only only speak for myself, but I think you see it wrong if you find it ranting and raving only. I try to find a balance in everything I do, also in analysing GOOG. I think there are special interests, indeed, that are part of some of the ongoing fiesta. But that is to be taken as part of the game. It makes it so much funner to play.

>>>WHEN will you admit that this is a great company and make some money
the honest way.......buy and hold this stock.

Greatness is relative to the methodes you are measuring with. In management term they had some goof ups. But in general, I agree that they are a great company.

>>>Let's see......no matter what the reason....goog began its short
history a year and a half ago and is now the 19th largest company
in the USA by market cap. As a reminder, the stock came public
at 85 and is about 370 this morning. Not bad.

That is until some kind of correction sets in. I think that is the current status.

>>>I love Henry's column and the erudite responses it engenders.....
just reinforces for this individual investor the reason why I,
just another small investor, can go against the tide of the best
and the brightest on and off Wall Street and make
a significant amount of money by finding great, young, fast growing
companies and staying with them. MSFT, 20 years after its IPO,
is up 288 times. Its IPO price after the 9 splits is 7 cents a share.
And, I am sure MSFT had its severe pullbacks as well.

Yeah. And take a quick look at where Google stands today, where Yahoo stood just a few years ago. It is all relative, and you have the right to own or sell or to stay on the sideline.

[Anon]

Robert,
You are a fucking idiot. Excuse the foul mouthed cursing but when someone is so obviously ignorant I lose impulse control.

Fidelity, Goldman and others do not CONTROL the markets. If the bid ever drops out from under the market, Google will go with it. Did Goldman and Fidelity save your investments in 2000-2002? Yeah, they lost trillions in investor's equity.

Anecdotally, this is a sign of euphoria. You, are a dipshit destined to continue to lose money on your investments until someone cracks your knuckles really hard. Don't worry, it will happen.

Now, Google has a big assed gap that the short sellers and market makers will load up to fill on the down side because dumb fuckers like you bought in after hours. Hurry and buy here so they can take your money you stupid fuck. Arrogance and stupidity are not a pretty combination. You exhibit both.

[Anon]

Update #1 on "The Idiot".

After hours smart money drove Google up to fill a short term gap that already existed. They started selling before after hours ended. This morning retards plowed into Google on strong opening volume. The smart money was more than happy to unload their shares to the retards. Around 11AM, after the retards filled their bids, there were no more buyers at the price. So, Google started heading south. To where it sits right now. That price is a drop of 30% of the gain made in after hours.

Did you buy any more? DOH!

[Ed]

Henry,
Thanks a lot for the “So much for the fiction that the S&P 500 is an un-managed index.” reporting. This was news to me. Here’s another (bigger) truth that’s well-ignored:
http://homepage.mac.com/ttsmyf/cov.html
also see
"the compelling Real DJIA, 1924-now" at
http://homepage.mac.com/ttsmyf
"the 3 Fed Chair warnings, Real DJIA" at
http://homepage.mac.com/ttsmyf/3warnsRD.html

[Robert]

Anon.:
relax, my friend.
If you read a bit more carefully you would have seen that I have said that I am a long term investor in goog. I bought the stock at 85, 100, 108, 190, 178, and so on. I did not buy the stock in after hours yesterday or ever.
My reference to the Wall Street firms was in response to Henry's post which stated that S & P was managing the timing of goog's entrance into the index and indicating that Mr Blitzer et al were doing this for the benefit of the aforementioned.
How you took my post and turned it into a tirade is beyond comprehension. But thanks for responding anyway. And thanks to the First Amendment guaranteeing free speech to all.
By the way i had sold all my tech stocks in late September 1999, a bit before the top but before the deluge and loaded up on Phillip Morris at 19. Some of us small guys are not so stupid as you might believe.. if you do not believe me, I would be happy to show you my statements from Merrill Lynch.

[Neal Lachman]

If Blitzer would be one of blame, Spitzer could easily enter the game.

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[web20guy]

If you scale the google hype down exponentially, you get mine.

Then why am I not making money?

[Neal Lachman]

web20guy,

You may say what you want about Google, but they were 8 or 9 years (if not ten or longer) in the making before they hit the jackpot. It is easy to compare oneself, but one should also remain realistic. If you have a great product, your time will come! (Now I am sounding like ...)

[Mr Wave theory]

Mr WaveTheory explains Google Gets Added to S&P 500: Post Addition Performance is Disappointing

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