One of the fundamental flaws in our culture’s approach to stock market monitoring can be found in how the “Financial Media” refers to “The Market”.“The Market” did this or “The Market” did that! The market is overvalued; the market is undervalued! What’s “The Market”? Ah ha! A very good question!!The most often quoted index is the Dow Jones Industrials - just 30 stocks. A tiny slice of the market - only large USA companies and only a portion of them! It’s amazing to me that we put up with this very poor coverage of the global markets.The S&P500 and NASDAQ are often reported. Neither of these tell us what's happening with small company stocks, developed countries outside of USA or emerging markets.How many times (I should keep a count!) has the the market been categorized as flat or down - when the US Small companies were up 1% that day as measured by the Russell 2000? Did you know the asset class of Emerging Markets is up 17% this year? Of course not - the financial media apparently doesn’t believe in asset classes - yet that is how markets behave. Statistical studies have shown that 96% of stocks' price movement can be attributed to their asset class.What would I do differently if I were in the financial media - to have an impact on increasing the knowledge base of US investors?I would start with instilling three indices in our culture:
- S&P500: 500 large US stocks - a major portion of the US large company stocks - represents behavior of large US stocks.
- Russell 2000: 2,000 small US stocks - represents behavior of small company US stocks.
- MSCI All Country World exUSA: About 1,800 large/mid-cap stocks in developed countries other than USA and emerging markets.
With just three indices we give the public more complete information on what’s happening in “the global market”. It would be impractical to try to cover everything all the time for the public - but this is a nice compromise. Only three indices and covering the entire world. Small company stocks are important because most of the time they outperform large company stocks.Next I would regularly include information on the most recent 10 to 20 year performance (annualized) of these same three indices. Most people don't know that due to statistical noise in stock market data, that you need 15 to 30 years of data minimum. This data gives investors an expectation of performance of these asset classes over time.