1. 股价指数， S&P 500 Jane Chou Carolyn Lee

2. 股价指数 Dow Jones Industrial Index started in 19 th century by Charles Dow. He started with 12 stocks (10 railroad stocks and 2 industrial stocks). Dow Jones Industrial Average  components change over time.

3. Table 3-1

4. Dow index’s calculation & trend The index is a “price-weighted index”, ie, the price of the component stocks are added together and then divided by the number of firms in the index. Using the trend line to predict future could be misleading, we need to consider inflation.

6. S&P 500 index S&P 500 started in 1923, 1957 changed the name from Standard & Poor’s Composite Index to Standard & Poor’s 500 index. The index included 425 industrial companies, 25 railroad companies and 50 Utilities companies S&P 500 index is value weighted index (components are weighted according to the total market value of their outstanding shares).

7. Nasdaq National Association of Securities Dealers Automated Quotations In Nasdaq, most companies are newly public companies or small companies 。 In 1971 first trading day, they set the index to 100 points. In 10 years it went to 200 points, another 10 years (in 1991) it went to 500 points. In July 1995, the index went to 1000 point. March 10, 2000 it hits historical high, 5,048.62 points. After the tech bubble, it went from 5000 to 1150 in just 2 ½ years, only until end of 2006 it rebounded back to 2400. Now is 2187.

8. S&P 500 Index 10 sectors: Material, Energy, Utility, Telecom Service, Consumer Discretionary, Consumer Staples, Healthcare, Financial, Information Technology. Sector Rotation In the S&P 500 Index: Steel, Chemical, Auto and Oil companies once dominated the economy. Now, healthcare, technology, finance, and other consumer services firms hold sway.

9. Sector Percentage Changes

10. 1957-2006 Sector Return Changes

11. 1957’s Original Components Return

12. Best performer in 1957 - 2006

13. Philip Morris From 1925 to 2006, the compound return on Philip Morris is 17.2%, higher than the market index by 7.4%. If you invest $1000 in this company in 1925, and reinvest the dividend, in 2007, you will have 380 million 。 The company also acquired 10 original S&P 500 index companies.

14. Utilize Company’s Bad News Phillip Morris spent several billions in law suit. It demonstrated the power of long term investment. By using dividends to reinvest, company’s bad news becomes investors’ good news.

15. The Best Performer of Original Firms If you only invest those firms, the return is higher than the index. 11.72% vs 10.83%. Only companies in consumer discretionary sector beat original firms. Eg, Firestone, Goodyear, JC Penny and Woolworth.

16. Conclusion Growth stocks often are priced too high and often induce investors to pay too high of a price. Should reinvest dividends.

17. Conclusion Heinz ketchup, Wriggly Gum, Coca-Cola, Pepsi- Cola and Tootsie Rolls are as profitable today as they were when their products were launched. Some companies make good investment by merging into stronger companies. Eg. Dr- Pepper Celanese, National Can, and Flintkot