Category Archives: investing

The S&P 500’s Trillion Dollar Market Cap Club Doubles Its Membership

In January 2023, there were only two components of the S&P 500 (Index: SPX) whose market capitalization exceeded one trillion dollars.

As of the close of trading on Friday, 2 June 2023, there are now four. The membership of the S&P 500's trillion dollar market cap club has doubled!

Together, those four companies account for 20.4% of the entire index' market capitalization of $37.27 trillion. The next six largest components of the index account for another 10.1% of that market cap. The following chart shows Top 10 firms' market cap as a share of the whole S&P 500:

S&P 500 Market Capitalization, Snapshot on 2 June 2023

The other 495 firms in the S&P 500 have a collective market capitalization of $25.88 trillion, or 69.4% of the index' total valuation.

Here is the list of the top 10 components of the S&P 500 index as of 2 June 2023:

  • Apple (NASDAQ: AAPL)
  • Microsoft (NASDAQ: MSFT)
  • Amazon (NASDAQ: AMZN)
  • Nvidia (NASDAQ: NVDA)
  • Alphabet (A) (NASDAQ: GOOGL)
  • Alphabet (C) (NASDAQ: GOOG)
  • Meta Platforms (A) (NASDAQ: META)
  • Berkshire Hathaway (B) (NYSE: BRK.B)
  • Tesla (NASDAQ: TSLA)
  • UnitedHealth Group (NYSE: UNH)

The Top 10 firms of the S&P 500 have increased their overall share of the index' total market capitalization, rising from 29.5% in our snapshot a little over 13 months ago to 30.6% on 2 June 2023.

Since that snapshot, the rankings of several firms within the Top 10 have changed. The most notable changes are Nvidia's recent surge to join the trillion-dollar valuation club, while Tesla's market cap has dropped from fourth to ninth place. Although it didn't change its ranking, Amazon has seen its market cap rise above the $1 trillion threshold. Meanwhile, Meta Platforms (formerly known as Facebook) has risen while Berkshire Hathaway has dipped.

But maybe the bigger story is that the 495 firms at the bottom of the market cap ratings within the S&P 500 have seen their collective market cap's decline, falling from $28.15 trillion in April 2022 to $25.88 trillion in June 2023. The growth of the index over the past 13 months has been highly concentrated within its largest market-cap weighted members.

That might explain MarketWatch's Brett Arends' latest opinion piece, in which he calls the concentration of the index' valuation "ridiculous":

The S&P 500 has become ridiculous. It has become so top-heavy that it is effectively just a bet on a handful of stocks. If you want to bet your retirement on the fortunes of a small number of companies, that’s your choice. But you should at least know you’re doing it. I suspect most people have no idea.

Apple alone now accounts for nearly 8% of the S&P 500 by market value. That is more than the bottom 200 companies in the index.

Put another way, if you invest in a typical U.S. (large cap) mutual fund, you are betting more of your money on Apple alone than you are on such household names as Walgreens Boots Alliance Darden Restaurants (Olive Garden, Ruth’s Chris, LongHorn Steakhouse), Royal Caribbean Cruises and Carnival cruise operators, kitchen table staples Kellogg Campbell Soup and JM Smucker casino giants MGM International Las Vegas Sands Caesar’s Entertainment and Wynn Resorts booze companies Molson Coors and Brown-Forman (Jack Daniel’s) toys giant Hasbro (G.I. Joe, Monopoly, Peppa the Pig) airlines United American and Southwest plus around180 other U.S. companies…put together.

Apple may be a wonderful company. But for $2.8 trillion, if I had to choose, would I rather own one company or these 200?

That's a good question. If you value diversification, what should you do? In his article, Arends suggests an equally-weighted index of S&P 500 component stocks might be more desirable.

That's good timing, because a little over a week earlier, Cullen Roche weighed the two types of indexing and compared how they have performed with respect to each other over the time that equal-weighted funds have existed as an available investing option.

We now have 20 years of real-time market data from live market cap and equal weight ETFs (SPY vs RSP). The performance is interesting because the equal weight index has outperformed by almost 1% per year. But it’s also come with added risk along the way where the standard deviation has been 2% higher and the maximum drawdown was 5% deeper. On the whole they’ve looked very similar though, but to earn that slight premium you needed a little stronger stomach.

Roche continues with an informative discussion of the nature of how the risks of investing in an equal-weighted index differs from a market cap-weighted index. But for our purposes, he does get to the bottom line:

The bottom line is, in the long-run these are very similar indices on a risk adjusted basis and there’s nothing wrong with owning the equal weight index as long as you know you’re using a factor tilt that takes a little more risk. At the same time, it’s useful to understand that while this is true in the long-run it’s not always true in the short-term. And now is one of those times where the market cap weighted S&P 500 is generating that 8.5% return by taking a much more concentrated risk relative to other broad markets.

Does the long or the short investment horizon matter more to you today?


Standard and Poor. S&P 500 Index Earnings and Estimates. [Excel Spreadsheet]. Accessed 2 June 2023.

Standard and Poor. S&P Market Attributes. [Excel Spreadsheet]. Accessed 2 June 2023.

Slickcharts. S&P 500 Companies by Weight. [Online Database]. Accessed 2 June 2023.

Ycharts. S&P 500 Market Cap. [Online Database]. Accessed 2 June 2023.

Gross and Net Profits

Woman reading Profit First - Photo by Natasha Hall via Unsplash:

Investors have made Apple (NASDAQ: AAPL) worth more than $2 trillion dollars. But how profitable is the company?

That depends on how you measure profit. If you want a raw number, calculating a company's gross income is a good place to start. That's just the difference between its total sales and its total cost of goods sold, ignoring its other costs of doing business. This figure is useful for comparing the basic profitability of a company's core business with that of other companies like it. It's also useful if you track it over time. If you see a company's gross profit swinging wildly from one period to the next, that can be a sign its core business is either highly volatile or, in the worst case, is not well managed. Which if you're going to invest in the company, is probably something you ought to know.

As an investor however, that's not enough information to tell you how profitable the company really is. For that, you need to take its operating costs, how much it pays in interest expenses, how much it pays in taxes, and its other income and expenses into account. Doing that will tell you the company's net income (sometimes called its net earnings), which is the real bottom line. A company with positive net income is making money and a company with negative net earnings is losing money.

For comparing companies, you will find its useful to standardize these measures of profitability by dividing each by the company's total sales revenue and expressing the result as a percentage. For gross income, the result of that math is called the gross profit margin and for net income, the result is called the net profit margin. These percentages will let you directly compare the profitability of companies with very different amounts of profit. And of course, will let you assess trends in a single company's profitability performance if you follow it over time.

All that said, we've built a tool to make it easy for anyone to do this math. All you need is the business' income statement. In the tool below, the default data comes from Apple's December 2022 10-K SEC filing [also available in PDF format], so the tool's results will tell you just how profitable Apple was at the end of 2022. If you're reading this article on a site that republishes our RSS news feed, please click through to our site to access a working version of the tool.

Income Statement Data
Input Data Revenues Expenses
Total Net Sales  
Total Cost of Sales  
Total Operating Expenses  
Interest Expenses  
Income Taxes  

Gross and Net Profits
Calculated Results Income Profit Margin

Of course, you're more than welcome to substitute the financial data for other companies in the tool to assess their profitability.

We've made a point of the importance of tracking a company's gross and net profit margins over time, so to that end, we'd like to point you to a very useful resource. Macrotrends features an online application that will chart a company's gross, operating and net profit margins over its recent history using information from its database. Follow this link to see where they've done that for Apple's profit margins going back to December 2009.

Image Credit: Photo by Natasha Hall on Unsplash. The book being read in the photo is Profit First by Mike Michalowicz, which has the enchanting subtitle "Transform Your Business from a Cash-Eating Monster to a Money-Making Machine". At this writing, the book has 7,091 reviews on Amazon, with 85% giving it five stars. Goodreads gives it a 4.27 rating, 51% of which are five star reviews. Most of the critical reviews point out the whole concept of the book could be summarized in five pages or less. Or perhaps just one blog post, but that's a challenge for another day.

The S&P 500 Dividend Engine

Did you ever wonder how much money you could earn in the form of cash dividends if you were invested in the S&P 500 (Index: SPX)?

Josh Scandlen of Heritage Wealth Planning did, discovering he could use one of our signature tools, The S&P 500 at Your Fingertips, to extract the information he was after. He put together the following 14 minute YouTube video to explain both how dividends work for you as an investor and how to get cash dividend payout information from our tool:

After watching the video, we had two thoughts:

  1. That's an incredibly useful idea for investors, particularly those looking for dividend income after they retire.
  2. There's got to be a much easier way to get that dividend payout data.

Long time readers will already see where this discussion is heading! We've built a new tool, one that ties directly into the quarterly dividend data that Standard & Poor reports in spreadsheet form for its heralded S&P 500 index. In it, we put you in the shoes of someone who has either just bought into the index or has just flipped the switch to begin collecting cash dividends from it during the month ending a historic calendar quarter.

Based on the value of the investment at that point of time, it estimates the equivalent number of shares of the S&P 500 you own. It then calculates how much dividend income you would have collected at a later point of time, assuming you never sell any of the shares you own. It will also tell you how much your investment in the S&P 500 is worth at that later point of time you selected.

But that's not all! The tool also extracts how much you would have earned in dividends during the first calendar year of your investment, during the final calendar year, and also during any calendar year that might interest you in between. It will also identify the highest and lowest amount of dividends earned in any calendar year throughout your full period of interest.

If you're ready, here's the tool. If you're reading this article on a site that republishes our RSS news feed, please click through to our site to access a working version of the tool.

S&P 500 Investment Value and Dividend Payout Period
Input Data Investment Value Year Quarter
Enter Starting Investment Value and Select Starting Year and Quarter
Select Ending Year and Quarter
Optional Input Data Year
Select Year Between Starting and Ending Years to See Annual Dividend Payout

Investment and Dividend Payouts
Results Investment Value Dividends Paid Out
At the End of the Selected Period
Dividend Payout Milestones
Milestone Year Value
Dividends Paid Out By End of First Calendar Year
Dividends Paid Out Through Selected Quarter in Final Calendar Year
Dividends Paid Out During Optional Selected Year
Highest and Lowest Annual Dividend Payouts
Lowest Annual Dividend Payout
Highest Annual Dividend Payout

We've set the default data in the tool up to reflect the example Josh Scandlen worked in his video, but we've made all the quarterly dividend data we have for the S&:P 500 and its predecessor indices and component stocks going back to 1871. If you want to see that historic data, you can access it either through our The S&P 500 at Your Fingertips tool, which is updated monthly, or at our Quarterly Data for the S&P 500, Since 1871 resource, which we update annually.

Speaking of updates, we plan to update this tool in January 2023 after 2022's dividend data is available, then quarterly afterward.

Using the tool, we recommend selecting different periods and paying attention to when the lowest annual dividend payout data differs from the first year's data. The idea here is that you would want your investment to handle a worst case scenario when the market experiences a major downturn. While this will depend on what periods you might cover, we found that 1896 and 1933 represent major low points for a multi-decade investment holding period.

That said, we're celebrating our anniversary today, and what better way to do it than building on the capabilities of a tool we featured in one of our earlier anniversaries!

Celebrating Political Calculations' Anniversary

Our anniversary posts typically represent the biggest ideas and celebration of the original work we develop here each year. Here are our landmark posts from previous years:

  • A Year's Worth of Tools (2005) - we celebrated our first anniversary by listing all the tools we created in our first year. There were just 48 back then. Today, there are over 300....
  • The S&P 500 At Your Fingertips (2006) - the most popular tool we've ever created, allowing users to calculate the rate of return for investments in the S&P 500, both with and without the effects of inflation, and with and without the reinvestment of dividends, between any two months since January 1871.
  • The Sun, In the Center (2007) - we identify the primary driver of stock prices and describe a whole new way to visualize where they're going (especially in periods of order!)
  • Acceleration, Amplification and Shifting Time (2008) - we apply elements of chaos theory to describe and predict how stock prices will change, even in periods of disorder.
  • The Trigger Point for Taxes (2009) - we work out both when, and by how much, U.S. politicians are likely to change the top U.S. income tax rate. Sadly, events in recent years have proven us right.
  • The Zero Deficit Line (2010) - a whole new way to find out how much federal government spending Americans can really afford and how much Americans cannot really afford!
  • Can Increasing the Minimum Wage Boost GDP? (2011) - using data for teens and young adults spanning 1994 and 2010, not only do we demonstrate that increasing the minimum wage fails to increase GDP, we demonstrate that it reduces employment and increases income inequality as well!
  • The Discovery of the Unseen (2012) - we go where so-called experts on income inequality fear to tread and reveal that U.S. household income inequality has increased over time mostly because more Americans live alone!

We marked our 2013 anniversary in three parts, since we were telling a story too big to be told in a single blog post! Here they are:

  • The Major Trends in U.S. Income Inequality Since 1947 (2013, Part 1) - we revisit the U.S. Census Bureau's income inequality data for American individuals, families and households to see what it really tells us.
  • The Widows Peak (2013, Part 2) - we identify when the dramatic increase in the number of Americans living alone really occurred and identify which Americans found themselves in that situation.
  • The Men Who Weren't There (2013, Part 3) - our final anniversary post installment explores the lasting impact of the men who died in the service of their country in World War 2 and the hole in society that they left behind, which was felt decades later as the dramatic increase in income inequality for U.S. families and households.

Resuming our list of anniversary posts....

The Best Tools for Investors to Detect Potential Accounting Fraud

A lonely accountant uses advanced internet based analytical models to detect fraud at a publicly-traded firm.

What are the best tools investors can use to detect potential accounting fraud at the firms in which they might invest?

That's not an easy question to answer. That's because accounting fraud is almost invariably an inside job, where most investors are on the outside looking in. Most investors simply don't have the access to information about the transactions that constitute the bulk of accounting fraud where it exists.

But for publicly-traded firms, investors can access their financial statements. If the scope and scale of potential accounting fraud at a firm is big enough, the signs of it can show up in them. Accounting professionals have developed tools to help them identify known signs of fraud within financial statements.

That brings us back to the beginning. What are the best tools investors can use to find the signs of potential accounting fraud in financial statements?

A 2021 paper by Messod Beneish and Patrick Vorst, who evaluated seven fraud prediction models. They sought to identify the tools that could successfully identify firms where real accounting fraud may be occurring, without triggering too many costly false positives in the process. Here's the list of tools they evaluated, which are identified by their creator(s) and the year the tool was introduced:

  1. Beneish (1999) M-Score
  2. Cecchini et al. (2020)
  3. Dechow et al. (2011) F-Score
  4. Amiram et al. (2015) FSD Score
  5. Alawadhi et al. (2020)
  6. Bao et al. (2020)
  7. Chakrabarty et al. (2020) ABF Score

The M-Score was developed by Messod Beneish, so as the analysis goes, we should recognize that he has skin in the game for the evaluation.

Let's cut to the chase and go straight to the conclusion to find out which tools the authors evaluated came out on top in their analysis and why they did:

We compare seven fraud prediction models that have been proposed in prior research. We find that the higher true positive rates in recent models come at the cost of higher false positive rates and that even the best models trade off false to true positives at rates exceeding 100:1. Indeed, the high number of false positives makes all seven models considered too costly for auditors to implement, even when we consider extreme subsamples where a priori firms’ management has higher incentives and/or ability to misreport. We believe this could explain audit practitioners’ apparent reluctance to use these models, despite the fact that models have nearly doubled their success at identifying fraud when compared to the initial models in Beneish (1997, 1999).

For investors, M-Score and the F-Score when used at higher cut-offs are the only models providing a net benefit when applied to the sample as a whole. We conjecture this occurs because the M-Score and the F-Score exploit fundamental signals that have been shown to predict future earnings and returns, and the main component of investors’ false positive costs is the profit foregone (or the loss avoided) by not investing in a falsely flagged firm. In addition, we find that most models are economically viable if applied to top or bottom quintiles of characteristics of firms in which managers a priori have greater incentives and/or ability to misreport.

At this point, we'll point out that we also have skin in the game, which is why the conclusion of this paper attracted our attention. Political Calculations has tool based on the F-Score fraud detection model: Using the F-Score to Detect Accounting Fraud. Meanwhile, a tool based on Beneish's M-Score model is also freely available in both spreadsheet and online tool formats.

Aside from having built a tool based on one of these potential accounting fraud prediction models, we'll recommend using either or both. It's hard enough as an investor to do proper due diligence to choose which companies you might invest in. If the potential for fraud is a concern, it's worth the time and effort to use the most effective tools to either rule it in or out of your portfolio.


Messod D. Beneish and Patrick Vorst. The Cost of Fraud Prediction Errors. The Accounting Review. DOI: 10.2308/TAR-2020-0068. [SSRN Preprint]. 30 December 2021.

Image Credit: Stable Diffusion DreamStudio beta "A lonely accountant uses advanced internet based analytical models to detect fraud at a publicly-traded firm."

Will FedEx’ Dividend Crash?

From time to time, Political Calculations will follow a single stock. To qualify as a stock we follow, we look for one major characteristic: the stock must be on the verge of a major potential change involving its dividend, when the question of whether the company will change its dividend is still up in the air.

Stock Market Chaos!

In 2018, that stock belonged to General Electric (NYSE: GE), which followed through on our prediction that it would cut its dividend by a large amount. In 2020, we identified Iron Mountain (NYSE: IRM) as a promising investment based on the hypothesis it would not cut its dividend despite its depressed stock price.

Last Thursday, 15 September 2022, FedEx (NYSE: FDX) came roaring onto our radar screen when, after the market had closed, the firm tossed out the earnings guidance it presented to investors just three months earlier, because of the deterioration of the U.S. and global economy's outlook over the summer.

The company's stock price was hammered in the next day's trading, falling over 21% from the previous day's close, its "biggest plunge ever". But although the firm withdrew its previous earnings guidance and announced plans to shutter retail stores, park its cargo transport aircraft, freeze its hiring and cut back labor hours of its staff, it left one big cash-preserving option unaddressed. FedEx' leaders haven't announced what they might do about the company's quarterly dividend.

The following chart illustrates how we see FedEx' options potentially playing out:

Fedex (NYSE: FDX) Adjusted Closing Stock Price per Share vs Trailing Year Dividends per Share at Dividend Declaration Dates from March 2002 through August 2022

Superficially, FedEx' current situation is similar to what we found for Iron Mountain back in 2020. The company's current stock price is well depressed, where a handsome reward awaits if its outlook improves and no dividend cut is needed, or a major dividend cut needs to be on the table because its outlook remains grim.

The chart shows FDX lived through a very similar experience back in June 2020 as faces the company today. Then, the company's executives were presented with similar options. If the company's prospects improved, leaving the dividend alone would see its stock price soar back to the level the long term relationship between it and the company's trailing year dividends per share would place it. If they didn't, a dividend cut of 61% would make sense given the level of its stock price.

Ultimately, the prospects for the global economy and FedEx rapidly improved in the following months, and investors who might have bought into the company at that time were well rewarded. But what would happen today?

If the "outlook gets better" scenario holds, given where its stock closed on Friday, 16 September 2022, our simple analysis suggest FDX could double in value. But if the "things stay grim" scenario is the right one, FedEx' board of directors could cut the dividend by as much as 64%.

We have one more bit of information to consider that may tell us which way FedEx' board will go. In June 2022, they boosted FedEx' quarterly dividend from $0.75 to $1.15 per share, a 53.3% increase. When they implemented that dividend, it was based on the company's earnings outlook from that time. The one they just trashed. Since they've thrown out that forecast, we think FDX' dividend is now also on the cutting board, with at least a 50% reduction up for consideration. That's despite the company's history in avoiding cuts to its dividends for its shareholding owners.

The only question is now is how long it will be before the board acts. In ordinary circumstances, the company could wait to announce a cut when it will next declare dividends in early November. In an economy with deteriorating prospects, it would be to their advantage to act much sooner than that.


NASDAQ. FDX Dividend History. [Online Database]. Accessed 17 September 2022.

Yahoo! Finance. FedEx Corporation (FDX) Historical Data. [Online Database]. Accessed 17 September 2022.