We believe index funds have immensely contributed to investors by permitting them to capture beta inexpensively.
The dot.com collapse provides insight into the fate of stocks in the S&P 500 index with a P/S ratio of over 10x. In 2010, Matt became the Managing director of Equity Research for Knight Capital Group. He received is MBA from Cornell University and a BA from Middlebury College. The first row creates a portfolio of only the stocks valued at over 10x price to sales. Dr. Bhojraj is a Chaired Professor in Asset Management and the co-director of the Parker Center for Investment Research at Cornell University’s Business School. He has a Ph.D, ACA, ACMA and B.Com. The second row creates a portfolio using all the stocks in the S&P 500 valued below 10x price to sales. The third row in the exhibit is our Large Cap Strategy’s fundamentals. The value-weighted average price to sales ratio is 7.3x sales. For a wonderful explanation of this, we encourage people to read Bloomberg writer Gary Smith’s terrific piece “ Tesla May Be Driving Itself Out of the Running.” In that piece, Mr. Smith, who owns two Teslas, explains how the stock looks like the much-vaunted British bicycle stocks in the 1800s. Over the long-term, investors have been well served to avoid chasing glamour stocks like Tesla where the fundamentals simply do not justify the price. In April 2002, Scott McNealy, the founder and CEO of Sun Microsystems, addressed a group of investors. It is an indicator of the value that financial markets have placed on each dollar of a company’s sales or revenues.” Yet, even ardent index fund supporters concede that the rapid growth of index funds raises some concerns.