Wall Street’s Oligarchy

An important aspect of the stock market that’s not often discussed is how much of Wall Street is an oligarchy. By that, I don’t mean economic inequality.

Rather, I mean that with investing, Wall Street is comprised of a small number of stocks that are very, very large, and several thousand stocks that are tiny.

Here are some rough numbers: The market cap of the S&P 100 makes up about 62% of the market cap of the S&P 500. So one-fifth of the number of stocks is worth more than three-fifths of the entire index. The smaller four-fifths comprise the remaining two-fifths.

The S&P 500 makes up about 77% of the entire value of the Wilshire 5000. Despite its names, that index has 3,663 stocks. From that, we can say that the S&P 100 is about half of the Wilshire 5000. The remaining 3,563 make up the other half.

Note that these numbers aren’t precise, but many companies own shares in others (think Berkshire Hathaway). Despite this, I think these are reasonable estimates of the effect large stocks have.

The truth is that if you choose wisely, you can mimic the entire market with a surprising degree of accuracy by using only a few stocks.

Posted by on April 24th, 2014 at 12:37 pm

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.