Home / Strategies / NOW 50 Index

	Email this article Format for printing

The NOW 50 Index Second Quarter Report

By Bill Mann (TMF Otter)
July 5, 2000

July 1, 2000 marked the six-month mark since the launch of The Motley Fool NOW 50 Index. In the time since the launch, various portions of the stock market have seen some levels of volatility unknown over the last decade. In fact, some pundits have begun to opine that the 17-year bull market has come to an end.

The mid-year results of the NOW 50 suggest otherwise. The NOW 50 closed on June 28 at 1985.22, a mere 0.75% below its year-beginning level of 2000. This compares with drops of 2.1% for the S&P 500, 3.7% for the Nasdaq Composite, and 8.1% for the Dow Jones Industrial Average.

But indices are not about performance. They are about measurement. We could choose to view the fact that the NOW 50 has outperformed these other major indices as some sort of victory, but it is not. In fact, it's not even really part of the equation.

Why is this? Well, because indices and portfolios are different beasts. With a portfolio, the key measure of success is to garner superior returns on investment. Not so with an index. For example, the Nasdaq Composite finished the end of 1999 more than 80% above where it began the year. Wonderful returns, but just what is this supposed to tell us? That the economy was 80% more powerful than a year before? The appropriate response is "which economy?" But deeper, unless performance of the Nasdaq Composite can be equated as a measure of something larger, it is nothing more than an aggregate of the market performance of the 4600 companies listed on the Nasdaq. It is not a good proxy for technology, nor the U.S. economy, nor the global economy. Rather, it is only a measure of how Nasdaq companies performed in the market.

Such a measure is why the granddaddy of indices, the Dow Jones Industrial Average, was formed 120 years ago. But the Dow still has some significant weaknesses: It has an outsized portion of companies that are not as relevant to global commerce or to investors; it is domestic in scope; and it is price weighted, meaning that each company has an equal effect on the index. Seriously, does Caterpillar (NYSE: CAT) -- a wonderful company to be sure -- really have so much power that it should be a critical measure of the economy?

The S&P 500 is, in our opinion, a much better measure for the economy (but like all indices, it is a market beast, not an economic one). In fact, the S&P 500 or the Wilshire Total Market Index may be the best market-based proxies for the performance of the U.S. economy. The NOW 50 is too new for us to claim that mantle. But a review of S&P 500 companies shows that a large number of them are unrecognizable to the average investor, that they are once again entirely U.S.-based, and that the top 10 components make up 24.5% of the index weighting. Still, the 70% share of total U.S. public market capitalization held by the companies in the S&P 500 make it a powerful measure. The NOW 50, on the other hand, is focused on the most relevant businesses in the global market, regardless of domicile.

For the past six months, the NOW 50 has shown a lower level of volatility than any of the above mentioned indices, with its high and low ranges varying by 15.9%, compared to 16.1% for the S&P 500, 17.3% for the Dow, and 39.2% for the Nasdaq. Given the level of doomsaying that has accompanied the recent swoon of companies in the Nasdaq and the perception of extreme volatility as a result, the relative stability of the NOW 50 comes as a pleasant surprise, as it does contain some highly speculative companies.

The NOW 50 is reweighted quarterly, with the last readjustment occurring on June 15. For more details on the method used to weight the index, check out the article on the NOW 50 Index weighting and valuation.

Below are the new weightings for each company:

Updated 7/5/00

#	Ticker	Company	Market Cap (in Billions)	Weighted Market Cap	% of Index (new)	% of Index (old)
1	BGEN	BIOGEN	8.463	16.926	0.26%	0.36%
2	ARMHY	ARM HOLDINGS	9.589	19.178	0.29%	0.35%
3	GMH	HUGHES ELECT.	14.259	28.518	0.43%	0.51%
4	COST	COSTCO	14.827	29.654	0.45%	0.69%
5	AMZN	AMAZON.COM	16.292	32.584	0.50%	0.67%
6	NWS	NEWS CORP.	26.171	52.342	0.80%	0.86%
7	GPS	GAP STORES	27.096	54.192	0.83%	1.19%
8	AUD	ADP	34.300	68.600	1.04%	0.96%
9	SCH	CHARLES SCHWAB	41.585	83.170	1.27%	1.21%
10	SLB	SCHLUMBERGER	41.826	84.751	1.27%	1.26%
11	MCD	MCDONALD'S	42.925	84.751	1.29%	1.31%
12	CWP	CABLE & WIRELESS	47.991	89.817	1.37%	1.44%
13	DD	DUPONT	50.387	92.213	1.40%	1.45%
14	ENE	ENRON	52.158	93.984	1.43%	1.39%
15	DCX	DAIMLERCHRYSLER	55.117	96.943	1.48%	1.63%
16	MDT	MEDTRONIC	60.158	101.984	1.55%	1.54%
17	PEP	PEPSICO	62.504	104.330	1.59%	1.38%
18	AMGN	AMGEN	68.216	110.042	1.68%	1.56%
19	AMAT	APPLIED MAT.	68.360	110.186	1.68%	1.65%
20	UPS	UPS	71.544	113.370	1.73%	1.65%
21	AXP	AMER. EXPRESS	74.143	115.969	1.77%	1.55%
22	PG	PROCTER & GAMBLE	74.223	116.049	1.77%	1.82%
23	SNE	SONY	74.649	116.475	1.77%	2.25%
24	YHOO	YAHOO!	75.877	117.713	1.79%	1.92%
25	BRK.B	BERK. HATHAWAY	87.305	129.131	1.97%	1.77%
26	HBC	HSBC HOLDINGS	101.400	143.226	2.18%	2.07%
27	TWX	TIME WARNER	105.800	147.626	2.25%	2.34%
28	T	AT&T	107.500	149.326	2.27%	2.60%
29	HD	HOME DEPOT	117.700	159.526	2.43%	2.50%
30	DELL	DELL COMPUTER	121.400	163.226	2.49%	2.52%
31	JNJ	JOHNSON & JOHNSON	126.000	164.146	2.50%	2.29%
32	AOL	AMERICA ONLINE	126.400	164.226	2.50%	2.52%
33	TXN	TEXAS INSTRUMENTS	131.700	165.286	2.52%	2.46%
34	KO	COCA-COLA	138.000	166.546	2.54%	2.45%
35	SUNW	SUN MICROSYSTEMS	146.200	168.186	2.56%	2.57%
36	EMC	EMC	160.800	171.106	2.61%	2.46%
37	MRK	MERCK	167.400	172.426	2.63%	2.52%
38	PFE	PFIZER	181.400	175.226	2.67%	2.51%
39	AIG	AMER INTL GROUP	190.000	176.946	2.69%	2.53%
40	LU	LUCENT	195.400	178.026	2.71%	2.75%
41	IBM	IBM	207.100	180.366	2.75%	2.69%
42	C	CITIGROUP	218.900	182.726	2.78%	2.64%
43	ORCL	ORACLE	232.400	185.426	2.82%	2.78%
44	WMT	WAL-MART	247.800	188.506	2.87%	2.80%
45	NOK	NOKIA	268.800	192.706	2.93%	2.79%
46	XOM	EXXON MOBIL	287.000	196.706	2.99%	2.92%
47	MSFT	MICROSOFT	380.900	215.126	3.28%	3.63%
48	INTC	INTEL	429.500	224.826	3.42%	3.33%
49	CSCO	CISCO	467.100	232.366	3.54%	3.45%
50	GE	GENERAL ELECTRIC	513.200	241.586	3.68%	3.45%
				sum	100%	100%

Here are some statistics about the NOW 50, calculated as of its most recent rebalance.

High YTD: 2172.84
Low YTD: 1850.56
Range: 15.9%
Total Market Cap: $6.57 trillion
YTD Market Cap Change: +$310 billion
Index Weight of Top 10 Holdings: 31.07%
Top Performers: Enron +96.8%, Oracle +84.2%, Tex. Inst. +68.4%
Worst Performers: Amazon -49.4%, Procter & Gamble -48.8%, AT&T -37.2%
Mean Market Cap: $94.4 billion

As always, we encourage you to post your opinions on the NOW 50 Index on our discussion board. The next update will be on September 15, 2000. We also have the potential to add a new company should the AOL/Time Warner merger be completed. This is scheduled to take place in November. As this date approaches, we will once again open up the floor to community nominations for the replacement company. The original NOW 50 was culled from 2700 nominations of 288 different companies.

Fool on!
Bill Mann, on behalf of the NOW 50 Trusty Trustees

David Braze
Matt Richey
Ann Coleman
David Gardner
Brian Bauer
Brian Graney
Bill Mann
Selena Maranjian
Chris Rugaber

 See Also