This is my 2nd post today. My earlier post was Get Angry. So now it’s time to take a deep breath or 2 and relax. I moved on to financial news and found yet another reason to be optimistic about the S&P 500.
And for those who’ve forgotten, the S&P 500 is a stock market index. It is a list of the 500 largest publicly traded US companies, weighted by market capitalization (company value). S&P 500 funds are popular because they track the index and they give us a small investment in 500 great US companies. And for those skeptics, it does provide international exposure. Companies like McDonalds, Starbucks and many many others make a large chunk of their revenue overseas.
So Why Do I Love the S&P 500 Even More Today?
Check out this story from the folks at the Motley Fool.
Datadog
I wrote about Datadog just last week. Check it out here.
The crux of the post was that we should buy what we know (Duh, like Peter Lynch told us).
Not every company we know is a great business, but we have greater insight into companies that we know. We may know things that the average investor wouldn’t pick up from a 10-k or an annual report.
Read the post.
So, yeah, I used Datadog’s products and my teams raved about it. This started me looking at the company and here we are.
Victory Lap
So, yeah, I’m taking a quick victory lap today. I shared my evaluation of the company last week and its stock price pops today. That’s cool, but I’m in it for the long haul. I expect Datadog to double many times over as its business grows. I’m sometimes wrong, but Datadog is only one of many of my investments. Some pan out, some don’t.
But, feeling good today.
The S&P 500?
Thanks for reminding me. I got distracted and started searching for where I could stream Trading Places. It’s streaming for free on the Roku channel. go watch and come right back.
But anyway, the S&P 500.
It’s an index that lists the 500 largest companies. Juniper was company #500. Datadog was #501. Datadog is growing leaps and bounds while Juniper is fading. Datadog has now joined the index and Juniper is out.
As an investor who owns an S&P 500 fund, I have essentially sold shares of Juniper and bought shares of Datadog. I’ve enjoyed the growth of Juniper over the years. Here’s the 5 year chart.
But now, I’m poised to take advantage of the potential of a fast growing small company called Datadog. And isn’t that a great company name and logo?
Wrap Up
The S&P 500 index and all the funds that track it need better marketing.
They do pretty well. At this point many in the media have recognized that the S&P 500 is a winner for the average investor. Your advisor may not tell you this because he likes to look like he’s working hard by selecting exotic investments for the huge commissions you’re paying.
But, index funds, like an S&P 500 fund are always referred to as “passive” investments. That sounds dull.
And it is made up of the 500 largest…you know the story. Sounds dull too.
But it is actively managed in a way. The index is constantly removing companies that are declining and adding companies that are growing.
I bought Datadog in my personal portfolio, but now I’ll own more. Now that Datadog has been added to the S&P 500, at the next rebalance, every S&P 500 fund and ETF will sell its shares of Juniper and buy shares of Datadog.
This new buying creates more demand than supply so the Datadog price pops in the short term. But that’s not the beauty. We haven’t missed the boat. I believe Datadog is a good business poised for many years of growth. We’ll see.
But our boring index fund has made a change that eliminates a shrinking company and replaces it with a growing company. That’s cool.