S&p 500 Futures Quotes

Investors who focus on currencies, bonds, and stock markets generally assume a normal distribution of price changes: values jiggle up and down, but extreme moves are unusual. Of course, extreme moves are possible, as financial crashes show. But between 1985 and 2015, the S&P 500 stock index budged less than 3 percent from its starting point on 7,663 out of 7,817 days; in other words, for fully 98 percent of the time, the market is remarkably stable.

For example, trading in S&P 500-linked futures totaled more than $60 trillion(!) in 2011, five times the S&P 500 Index total market capitalization of $12.5 trillion. We also have credit default swaps, which are essentially bets on whether a corporation can meet the interest payments on its bonds. These credit default swaps alone had a notional value of $33 trillion. Add to this total a slew of other derivatives, whose notional value as 2012 began totaled a cool $708 trillion. By contrast, for what it’s worth, the aggregate capitalization of the world’s stock and bond markets is about $150 trillion, less than one-fourth as much. Is this a great financial system . . . or what!

The first concerns how an investor should choose among different types of broad-based index funds. The best-known of the broad stock market mutual funds and ETFs in the United States track the S&P 500 index of the largest stocks. We prefer using a broader index that includes more smaller-company stocks, such as the Russell 3000 index or the Dow-Wilshire 5000 index. Funds that track these broader indexes are often referred to as “total stock market” index funds. More than 80 years of stock market history confirm that portfolios of smaller stocks have produced a higher rate of return than the return of the S&P 500 large-company index. While smaller companies are undoubtedly less stable and riskier than large firms, they are likely—on average—to produce somewhat higher future returns. Total stock market index funds are the better way for investors to benefit from the long-run growth of economic activity.

Shareholders have a residual claim on a firm’s assets and earnings, meaning they get what’s left after all other claimants—employees and their pension funds, suppliers, tax-collecting governments, debt holders, and preferred shareholders (if any exist)—are paid. The value of their shares, therefore, is the discounted value of all future cash flows minus those payments. Since the future is unknowable, potential shareholders must estimate what that cash flow will be; their collective expectations about the future determine the stock price. Any shareholders who expect that the discounted value of future equity earnings of the company will be less than the current price will sell their stock. Any potential shareholders who expect that the discounted future value will exceed the current price will buy stock. This means that shareholder value has almost nothing to do with the present. Indeed, present earnings tend to be a small fraction of the value of common shares. Over the past decade, the average yearly price-earnings multiple for the S&P 500 has been 22x, meaning that current earnings represent less than 5 percent of stock prices.

Research from AQR compared the returns of the S&P 500 to those of the S&P 500 with a protective put overlay on top from 1996 through 2016. The annualized return of the S&P over that time was 5.1%. While the protective put strategy reduced volatility, it came with the expense of sacrificing nearly all the returns, with an annualized rate of a measly 1.8%. The resulting Sharpe ratio of the protective put strategy was a mere 0.14, much lower than the 0.32 of the S&P 500.

To do index arbitrage, PNP developed techniques in the mid-1980s for finding baskets of stocks that did a particularly good job of tracking an index. We used this very profitably the day after “Black Monday,” October 19, 1987, to capture a spread of over 10 percent between the S&P 500 Index and the futures contracts on it. Quants have honed this to a fine art and, through their trading, generally keep the price discrepancy very small. To cut taxes, start with a tracking basket and, each time a stock drops, say, 10 percent, sell the loser and reinvest the proceeds in another stock or stocks chosen so the new basket continues to track well. If you want only short-term losses, which is usually best, sell within a year of purchase. I advise anyone considering doing this in a serious way to study it first with simulations using historical databases.

History records that there was only one Napoleon at the battle of Waterloo — and that he was too small for his job. The fact is there were two Napoleons at Waterloo, and the second one was big enough for his job, with some to spare. The second Napoleon was Nathan Rothschild — the emperor of finance. During the trying months that came before the crash Nathan Rothschild had plunged on England until his own fortunes, no less than those of the warring nations, were staked on the issue. He had lent money direct. He had discounted Wellington's paper. He had risked millions by sending chests of gold through war-swept territory where the slightest failure of plans might have caused its capture. He was extended to the limit when the fateful hour struck, and the future seemed none too certain. The English, in characteristic fashion, believed that all had been lost before anything was lost -— before the first gun bellowed out its challenge over the Belgian plains. The London stock market was in a panic. Consols were falling, slipping, sliding, tumbling. If the telegraph had been invented, the suspense would have been less, even if the wires had told that all was lost. But there was no telegraph. There were only rumors and fears. As the armies drew toward Waterloo Nathan Rothschild was like a man aflame. All of his instincts were crying out for news — good news, bad news, any kind of news, but news — something to end his suspense. News could be had immediately only by going to the front. He did not want to go to the front. A biographer of the family, Mr. Ignatius Balla, 1 declares that Nathan had " always shrunk from the sight of blood." From this it may be presumed that, to put it delicately, he was not a martial figure. But, as events came to a focus, his mingled hopes and fears overcame his inborn instincts. He must know the best or the worst and that at once. So he posted off for Belgium. He drew near to the gathering armies. From a safe post on a hill he saw the puffs of smoke from the opening guns. He saw Napoleon hurl his human missiles at Wellington's advancing walls of red. He did not see the final crash of the French, because he saw enough to convince him that it was coming, and therefore did not wait to witness the actual event. He had no time to wait. He hungered and thirsted for London as a few days before he had hungered and thirsted for the sight of Waterloo. Wellington having saved the day for him as well as for England, Nathan Rothschild saw an opportunity to reap colossal gains by beating the news of Napoleon's 1 The Romance of the Rothschilds, p. 88. 126 OUR DISHONEST CONSTITUTION defeat to London and buying the depressed securities of his adopted country before the news of victory should send them skyward with the hats of those whose brains were still whirling with fear. So he left the field of Waterloo while the guns were still booming out the requiem of all of Napoleon's great hopes of empire. He raced to Brussels upon the back of a horse whose sides were dripping with spur-drawn blood. At Brussels he paid an exorbitant price to be whirled in a carriage to Ostend. At Ostend he found the sea in the grip of a storm that shook the shores even as Wellington was still shaking the luck-worn hope of France. " He was certainly no hero," says Balla, " but at the present moment he feared nothing." Who would take him in a boat and row him to England? Not a boatman spoke. No one likes to speak when Death calls his name, and Rothschild's words were like words from Death. But Rothschild continued to speak. He must have a boatman and a boat. He must beat the news of Waterloo to England. Who would make the trip for 500 francs? Who would go for 800, 1,000? Who would go for 2,000? A courageous sailor would go. His name should be here if it had not been lost to the world. His name should be here and wherever this story is printed, because he said he would go if Rothschild would pay the 2,000 francs to the sailor's wife before

Moderate P/E ratio. Graham recommends limiting yourself to stocks whose current price is no more than 15 times average earnings over the past three years. Incredibly, the prevailing practice on Wall Street today is to value stocks by dividing their current price by something called “next year’s earnings.” That gives what is sometimes called “the forward P/E ratio.” But it’s nonsensical to derive a price/earnings ratio by dividing the known current price by unknown future earnings. Over the long run, money manager David Dreman has shown, 59% of Wall Street’s “consensus” earnings forecasts miss the mark by a mortifyingly wide margin—either underestimating or overestimating the actual reported earnings by at least 15%.2 Investing your money on the basis of what these myopic soothsayers predict for the coming year is as risky as volunteering to hold up the bulls-eye at an archery tournament for the legally blind. Instead, calculate a stock’s price/earnings ratio yourself, using Graham’s formula of current price divided by average earnings over the past three years.3 As of early 2003, how many stocks in the Standard & Poor’s 500 index were valued at no more than 15 times their average earnings of 2000 through 2002? According to Morgan Stanley, a generous total of 185 companies passed Graham’s test.

Ownership is dead. Access is the new imperative. International Data Corporation (IDC) predicts that by 2020, 50 percent of the world’s largest enterprises will see the majority of their business depend on their ability to create digitally enhanced products, services, and experiences. Focusing on services over products is also a sound business strategy. Zuora’s Subscription Economy Index, which you’ll find at the end of this book, shows that subscription-based companies are growing eight times faster than the S&P 500 and five times faster than US retail sales.