6% of companies make 50% of U.S. profit

From an analysis done by USA Today: Just 28 companies in the S&P 500 index generate 50% of all the net income. Of those, Apple and JPMorgan Chase together make 10% of the profits. Berkshire Hathaway, Wells Fargo, Gilead Sciences and Verizon round out another 10%. That’s one fifth of total profits from only six companies.

Think about that for a moment. If you believe profits drive stock market value, that means the overall returns of large scale investments such as 401k’s and pension plans have to be driven by these large cap stocks — because that’s where the profits are. Taken as a whole, there aren’t enough profits in small caps for everyone’s investments to do well. Another strong argument for market cap weighting, it seems to me.

Here’s a chart from the article:


This entry was posted in Economics, Investing and tagged , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.