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The Motley Fool NOW 50 Index Weighting & Valuation Format
By
Bill Mann (TMF Otter)
January 3, 2000
One of the issues that led the Motley Fool to consider creating its own index was the question of inappropriate weighting of the other major indices. The Dow Jones Industrial Average is calculated daily based on the price of each company, without any regard to relative size of each component. The S&P 500, on the other hand, measures on market capitalization, which is a preferable scale, but has often been called the "Microsoft Index" for the amount of influence that one company and its $500 billion market cap has on the performance of the S&P 500. The smallest company in the S&P 500, at a mere $345 million market cap, has almost no effect on the movement of the Index, a scenario we sought to avoid.
After several consultations with indexing companies and mathematicians, we elected to use a sliding scale with regression toward the median market cap companies. In other words, we would raise the influence of the bottom dollars for each company and discount the additional dollars beyond a certain measure. Such a methodology will allow the largest companies to increase in market cap and influence without overwhelming the NOW 50 Index.
The calculations are made based on market capitalization, and the performance of the index will be based on each company's increase or decrease as an investment from the base date. Each company's performance will be assigned a percentage of weight to the index. These weights will be recalculated quarterly, on December 15, March 15, June 15, and September 15, with any mergers or unscheduled changes in the NOW 50 components being recalculated immediately. The original weightings are based on the market capitalization for each company as of December 15, 1999.
The method of weighting is simple and elegant. Each company is assigned a market cap and then ordered from smallest to highest and ranked 1 to 50. The 10th and 30th companies are noted. For every company, all dollars of market cap below the level of the 10th company is doubled. For every company bigger than the 30th company, each dollar ABOVE the level of that company's market cap will be multiplied by 0.2. In doing this we give the smaller companies some additional weight while eliminating the need for a firm cap. Note that for Berkshire Hathaway we will track the performance of its B Class shares, which normally differ slightly in performance from the A Class.
In the chart that follows there are several columns. The first is the rank, from smallest to largest. Second is the company name and ticker symbol. Third is the company's actual market cap as of the date of calculation; fourth is it's modified market cap ratio; and finally the company's current weighting for the NOW 50. This weighting will be updated next on March 15, 2000.
| # |
Ticker |
Company |
Market Cap
(in Billions) |
Weighted
Market Cap |
% of Index |
| 1 |
BGEN |
BIOGEN |
10.300 |
20.600 |
0.34% |
| 2 |
ARMHY |
ARM HOLDINGS |
10.600 |
21.200 |
0.35% |
| 3 |
GMH |
HUGHES ELECT. |
11.900 |
23.800 |
0.40% |
| 4 |
NWS |
NEWS CORP. |
19.900 |
39.800 |
0.66% |
| 5 |
COST |
COSTCO |
20.000 |
40.000 |
0.67% |
| 6 |
ENE |
ENRON CORP. |
26.500 |
53.000 |
0.89% |
| 7 |
SCH |
SCHWAB CORP. |
29.400 |
58.800 |
0.98% |
| 8 |
AUD |
ADP |
31.400 |
62.800 |
1.05% |
| 9 |
SLB |
SCHLUMBERGER |
31.700 |
63.400 |
1.06% |
| 10 |
AMZN |
AMAZON.COM |
32.200 |
64.400 |
1.08% |
| 11 |
CWP |
CABLE & WIRE. |
38.200 |
70.400 |
1.18% |
| 12 |
GPS |
GAP INC. |
39.500 |
71.700 |
1.20% |
| 13 |
MDT |
MEDTRONIC |
41.100 |
73.300 |
1.22% |
| 14 |
AMAT |
APPLIED MAT. |
41.400 |
73.600 |
1.23% |
| 15 |
AMGN |
AMGEN |
45.500 |
77.700 |
1.30% |
| 16 |
PEP |
PEPSICO |
49.600 |
81.800 |
1.37% |
| 17 |
MCD |
MCDONALD'S |
56.200 |
88.400 |
1.48% |
| 18 |
DD |
DUPONT |
66.700 |
98.900 |
1.65% |
| 19 |
AXP |
AMER. EXPRESS |
68.400 |
100.600 |
1.68% |
| 20 |
DCX |
DAIMLERCHRYSLER |
74.300 |
106.500 |
1.78% |
| 21 |
SNE |
SONY CORP. |
76.600 |
108.800 |
1.82% |
| 22 |
UPS |
UNITED PAR. SVC. |
76.800 |
109.000 |
1.82% |
| 23 |
TXN |
TEXAS INST. |
78.200 |
110.400 |
1.84% |
| 24 |
BRK.B |
BERK. HATHAWAY |
81.700 |
113.900 |
1.90% |
| 25 |
TWX |
TIME WARNER |
84.300 |
116.500 |
1.95% |
| 26 |
YHOO |
YAHOO! |
88.900 |
121.100 |
2.02% |
| 27 |
EMC |
EMC CORP. |
96.800 |
129.000 |
2.15% |
| 28 |
HBC |
HSBC HOLDINGS |
109.000 |
141.200 |
2.36% |
| 29 |
DELL |
DELL COMPUTER |
113.200 |
145.400 |
2.43% |
| 30 |
SUNW |
SUN MICRO. |
118.000 |
150.200 |
2.51% |
| 31 |
ORCL |
ORACLE CORP. |
126.200 |
151.840 |
2.54% |
| 32 |
PFE |
PFIZER INC. |
130.700 |
152.740 |
2.55% |
| 33 |
JNJ |
JOHNSON & JOHNS |
131.500 |
152.900 |
2.55% |
| 34 |
KO |
COCA-COLA |
144.000 |
155.400 |
2.60% |
| 35 |
PG |
PROCTER & GAMB. |
145.100 |
155.620 |
2.60% |
| 36 |
HD |
HOME DEPOT |
147.700 |
156.140 |
2.61% |
| 37 |
MRK |
MERCK |
161.600 |
158.920 |
2.65% |
| 38 |
AIG |
AMER. INTL. GRP |
164.400 |
159.480 |
2.66% |
| 39 |
T |
AT&T |
171.400 |
160.880 |
2.69% |
| 40 |
C |
CITIGROUP |
180.600 |
162.720 |
2.72% |
| 41 |
NOK |
NOKIA CORP |
187.700 |
164.140 |
2.74% |
| 42 |
AOL |
AMERICA ONLINE |
191.700 |
164.940 |
2.76% |
| 43 |
IBM |
IBM |
196.300 |
165.860 |
2.77% |
| 44 |
LU |
LUCENT TECH. |
241.100 |
174.820 |
2.92% |
| 45 |
XOM |
EXXON MOBIL |
287.300 |
184.060 |
3.07% |
| 46 |
INTC |
INTEL |
287.700 |
184.140 |
3.08% |
| 47 |
WMT |
WAL-MART STORES |
300.300 |
186.660 |
3.12% |
| 48 |
CSCO |
CISCO |
336.800 |
193.960 |
3.24% |
| 49 |
GE |
GENERAL ELECTRIC |
476.900 |
221.980 |
3.71% |
| 50 |
MSFT |
MICROSOFT |
583.100 |
243.220 |
4.06% |
| |
sum |
100% |
| |
The beginning market weighting will be 2000, so as of Jan. 3, 2000, opening of business, 2.15% of this 2000, or 43 points, will be determined by the performance of EMC, for example. On each day thereafter, until the next recalculation in March, EMC's performance will affect the rise or fall of those 43 points. If for example, at the first recalculation, EMC becomes a 2.20% component of a NOW 50 at the level of 2100, EMC would then affect the performance of 46.2 points, and so on. In doing so, the NOW 50 will retain a dynamic functionality by allowing the performance of each component be balanced by the performance of all other components.
So welcome to the NOW 50. Send any questions to us at now@fool.com, or post on the NOW 50 Index message board.
Some NOW index statistics (as of December 15, 1999):
Total Market Cap of NOW 50 Companies: $6.260 trillion
Mean Market Value: $125.2 billion
Median Market Value: $88.9 billion
Email this page to a friend Format for Printing
 See Also
NOW 50 Message Board
Fool Announces NOW 50 Stocks
The Call for NOW 50 Nominations
Stock Strategies
Quotes and Data
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Format for Printing
NOW 50 Index
Daily Numbers |
| 1961.88
-0.07 (0%) |
| as of 3/2/00 10:09:56 AM ET |
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