Back in the days of knights and jousting and such, kings would build a moat around their castle to make it hard for enemies to get in. The moat gave then a competitive advantage against raiders and would-be wall climbers. The wider the moat, the harder is was to get into the castle.

In the investing world when you talk about moats, you talk about Morningstar’s Economic Moat analysis. I think this is one of Morningstar’s most intriguing analysis points.

Morningstar classifies stocks by moat size. The size of the moat “refers to how likely a company is to keep competitors at bay for an extended period.” If a company has a wide moat it is less likely to be adversely affected by competitors in the marketplace.

In April of 2007 Morningstar started an index based on their Economic Moat research. The index is named, Morningstar Wide Moat Focus 20 Total Return Index. It is composed of 20 equal-weighted companies across several economic sectors and each have a Wide Moat according to Morningstar research.

Since its inception the Wide Moat Focus index has widely outperformed the S&P 500 Index. The Chart below show the ticker for the Wide Moat Focus index (WMWFT) compared to SPY which tracks the S&P 500 Index (as of May 4, 2012).

Just this year I started looking for an ETF that followed this index. All I could find was the ELEMENTS Morningstar Wide Moat Focus ETN by Deutsche Bank (WMW). I have hesitated to invest in this because I am just learning about an ETN (Exchange Traded Note). (An ETN is basically a promissory note from a Bank that is intended to provide the same return as its target index.)

Finally! Market Vectors® Morningstar Wide Moat Research ETF (MOAT)

On April 25, 2012 Van Eck added a new ETF based on Morningstar’s Wide Moat Focus Index. The ticker symbol for this ETF is MOAT. It is starting with a decent expense ration of 0.49.

On May 2, I invested nearly $5,000 in MOAT in my inMessment Game Portfolio. That is nearly 20% of the portfolio. I do like the Morningstar Wide Moat concept but there are no guarantees it will continue to outperform like it has so far. I am hopeful it will do well for me long term.

Join the inMessment Game and you can watch along with me.

To see earlier results from 2011, click the following links:

Q1 2011 | Q2 2011 | Q3 2011 | Q4 2011

I started the inMessment Game on Investopedia in December of 2010. The game now has a grand total of 11 players including me. As we start the second year, NOW is a great time to join the game!

Here is what you will see in this post:

• inMessment Game Numbers for Q1 2012
• Comparison To Benchmark
• The Good
• The Bad
• The Ugly
• Portfolio Changes in Q1 2012
• Full inMessment Game Portfolio at end of Q1 2012
• inMessment Game Trade History for Q1 2012

inMessment Numbers as of March 30, 2012

The first quarter of 2012 was a great quarter. The inMessment Game Portfolio is up more than 10% in Q1. This is when investing is really fun!

• Q4 Starting Account Value: $24,579.13
• Q4 Ending Account Value: $27,226.73 (Up $2,647.6 (10.7%) from Q4 2011)
• Annual Return: 6.73% (APY)
• Number of Securities In Portfolio: 5
• Trades this Quarter: 19
• Available Cash: $4,392.53

Comparison to Benchmark – The S&P 500 Index

The benchmark I have chosen to compare my results to is the S&P 500 Index. This is a broad index of 500 of the top US companies. Many investors and firms use this index as a general benchmark.

The Blue line is my inMessment Game portfolio. The Red line is the S&P 500 Index. The S&P is up 12% in Q1 2012.

Here is the comparison chart since Jan-2011. The S&P and my inMessment Game portfolio are fairly close together. From time to time the inMessment Game portfolio is doing slightly better than the S&P Index. At the end of Q4 the S&P is having a great run and pulling away from my portfolio.

The Good

Two of my holdings did as well or better than the S&P 500 in Q1. These I consider good for the quarter. Nike ended up over 23%. As part of my new simplified strategy I sold Nike in January. BlackRock is the only single stock I still hold. It is up over 13% so far.

The Bad

My bad list has only one stock this quarter. I list VMWare, Inc., not because it performed badly but because my trading of it was bad. In late December I had a 2% stop-loss hit on VMW so my position was sold. I still liked the stock and bought again in late January. Between the stop and the buy the price increased by nearly $7 a share. Then I saw VMW go up over $97 in February. I made a guess that it was near a top and I sold again. VMW has continued up steadily since then. What I should have done was to wait and let the stop-loss work again.

Lessons I am considering:
1) Set stop-loss orders more loosely to let stocks ride longer
2) Don’t sell if the stock is a solid choice. Let the stop-loss do the work.

The Ugly

I have two holdings in the Ugly list, EEM and SCZ. The Emerging Markets and EAFE small-cap stocks have not done as well recently. These both hit stop-loss limits on March 6 and sold. I lost nearly 10% on each of these. As part of my simplification this year, I have not bought back into these at this point.

Changes To The Portfolio

In Q4 2011 decided to simplify my portfolio and to start using stop loss orders. The biggest change from Q4 is the fact that I only have 5 holdings. I have cut my holdings in half.

I have also had some difficulty with a high number of trades this quarter. 19 total trades. 6 of these trades were stop-loss orders that hit. I am setting the stop-loos orders more loosely to allow a little more duration on holdings.

The other contributing factor in the high number of trades was decisions to sell when positions went higher. I have been looking at stochastic momentum indicators. Thinking some positions might be at a top I sold. I don’t want this to be a habit. I need to be patient with winning positions.

The high number of trades has cost me. The commissions for the 19 trades was $219.81. That is nearly 1% of the portfolio value. I would have been closer to my benchmark with fewer trades.

Below you can see the full portfolio and the trade history for Q1 2012.

Full inMessment Game Portfolio

Here is the full portfolio as of March 30, 2012.
I have categorized the investments in the following way:
Core: Long-term stable investments that will not change often.
Sub-Core: Still long-term but may trade more often.
Opportunity: Long or short-term trading opportunities.

inMessment Game Trade History for Q1 2012

Below is the trade history for my inMessment Game in Q1 2012. Too many trades and $219 in commissions hurt my portfolio this quarter.

Join the inMessment Game

Now that you have read through my results why don’t you join the game yourself? It is completely free and the best way I have found to learn about investing.
Click Here to Join the inMessment Game!

The Nikkei 225 index covers the Japanese market. The Hang Seng covers the Hong Kong market. The SSE Composite covers the Shanghai market. The Straits Times covers the Singapore market.

What Is The Nikkei 225?

The Nikkei 225 is the most widely quoted index of the Japanese stock market. The Nikkei website states, “The Nikkei Stock Average is the average price of 225 stocks traded on the first section of the Tokyo Stock Exchange, but it is different from a simple average in that the divisor is adjusted to maintain continuity and reduce the effect of external factors not directly related to the market.”

The Nikkei began in 1950. It is interesting that the Nikkei website says, “The average peaked at 38,915.87 points on December 29, 1989.” This is 10 years prior to the dot-com bubble in the US. It appears that the Nikkei has been on a downward trend since 1989.

What Is The Hang Seng?

The Hang Seng website states, “The Hang Seng index is one of the earliest stock market indexes in Hong Kong. Publicly launched on 24 November 1969, the HSI has become the most widely quoted indicator of the performance of the Hong Kong stock market.”

The Hang Seng is a market capitalization weighted index that covers 90% of the Hong Kong market.

What Is The SSE Composite?

The SSE Composite Index website states, “Constituents for SSE Composite Index are all listed stocks (A shares and B shares) at Shanghai Stock Exchange.The Base Day for SSE Composite Index is December 19, 1990. The Base period is the total market capitalization of all stocks of that day. The Base Value is 100. The index was launched on July 15, 1991.”

The SSE Composite Index covers most of the market for companies located in mainland China.

What Is The Straits Times?

The FTSE websites states, “FTSE has partnered with Singapore Press Holdings (SPH) and the Singapore Exchange (SGX) to jointly calculate the Singapore stock market’s main benchmark, the Straits Times (ST) Index, also known as the STI, and to create a comprehensive series of stock indices for the Singapore market.”

The website goes on to say the Straits Times Index is “The top 30 companies of the SGX Mainboard universe, ranked by full market capitalisation, that pass the relevant investability screens.”

Basically, the Straits Times Index takes a sampling of 30 of the top companies by market cap in the Singapore stock market. It represents Singapore in much the same way The Dow represents the US market.

In the 3rd Quarter of 2011, worry about the European debt crisis hit the market hard. From July 22 to August 8, 2011 the US market dropped 15%, that is just 11 business days. Through September the market was volatile but did not hold any gains. It bottomed out on October 3, 2011.

For 2011 my strategy was basically buy and hold. At the end of the 2nd Quarter of 2011 my portfolio was up over 13% for the year. At the end of the 3rd Quarter my portfolio was down -12% for the year. This was very painful to watch.

(NOTE: With a buy and hold strategy, watching is part of the problem. Sometimes it is best not to watch. Just make good choices in your investments and asset allocation and then let it ride.)

Thank God the market bounced back at the end of 2011. At the end of the 4th Quarter I was basically back to even with my portfolio. Now with the bull market at the start of 2012 I am back up to the high point I had in 2011.

Even though I can see signs that buy and hold works I have to think there is a way to avoid at least some of the down turn that happened in July to October of 2011.

My New 2012 Strategy

For 2012 I have added two major changes to my to my inMessment Game Portfolio strategy.

1. Set Stops to try to keep profits
2. Use Stochastic Oscillator to help determine when to buy into the market

Stop-Loss Orders

A stop-loss order is a sell order placed on your holding that will only sell if the price goes down to a certain level. You set the price level at which you are willing to risk.

In a bull market stop-loss orders can be a good way to keep the gains that are made. As the stock goes up and up you can move the stop-loss up. Then when the price turns around, the hope is that your stop sells the stock near the top of the trend.

The problem I am seeing with stop-loss orders is that they typically sell my holding at a point that could be a good point to buy into the holding. With tighter stop-losses and shorter time frames this is especially true.

Where do you Set Stop-Loss Orders?

How tightly to set your stop-loss order is not an easy decision. I have seen recommendations everywhere from 0.25% to 8% of the current or purchase price. There are several things to consider:

• How much are you willing to lose if the price goes down? If the stop loss sells, you will lose the amount you risk. I have experienced this a few times. If the prices goes back up after your stop hits, you miss the bounce. If the price continues down after your stop, then you are spared further loss.
• How long do you plan to hold the position? The shorter terms should probably use closer stops.
• What is the normal volatility of the stock? If the stock goes up and down 2% on a regular basis then you have to set the stop outside that range.
• What direction do you think the market is going? If you think it is heading up you can give yourself more room in the stop to stay in the holding longer. If you think it may go down soon, a tighter stop loss may be better.

For now, I am planning to set stops near 2% of the price as long as I think the market is going up. My goal is to hold the position as long as the price is going up. 2% will be my starting place with each holding. From there I will ask myself the questions from above and adjust as needed.

After a Stop, Stochastics Help me know When to Buy Back In

I plan for most of my holding to be market index ETFs. With that in mind, if a stop loss hits I want to get back into the ETF when the conditions are more favorable. Like I said earlier, my stops sometimes seem to hit at a point when it may be good to buy back into the position.

I have recently learned about the trading indicator called the “Stochastic Oscillator.” Investopedia defines the Stochastic Oscillator as, “A technical momentum indicator that compares a security’s closing price to its price range over a given time period”

The chart below shows a one-year history for SPY (SPDR S&P 500 ETF). This is from Yahoo’s Basic Tech. Analysis page. One of the Indicators you can choose is “Slow Stoch” or “Fast Stoch”. These will show the Stochastic Oscillator with different settings.

Below I show the Slow Stoch based on the one-year daily price chart for SPY.

The Stochastic Oscillator tries to show when a stock is oversold or overbought. When the indicator rises above 80 (see my red circles above) then the stock is considered overbought. When it falls below 20 (see my green circles above) it is considered oversold.

The Stochastic Oscillator is a mathematical formula based on the closing prices for a certain number of periods. In the one-year chart above it is based on the daily closing prices. You can also base the oscillator on hourly closing prices or just minutes if you want. It depends on the trading time frame you are working in.

For my new 2012 strategy, I will use a slow stoch based on hourly closing prices to find the next best time to buy into a position. I will not buy unless the hourly slow stoch is close to 20. I will also review the daily slow stoch to keep a longer term perspective.

Join The inMessment Game

Come and join the inMessment Game with me. You can learn along with me and others. You can set your own stop-loss orders and see how they work. Best of all, it is with play money so there is no real risk. The reward is a good education in how the stock market works.

To see earlier results from 2011, click the following links:

First Quarter Results 2011
Second Quarter Results 2011
Third Quarter Results 2011

I started the inMessment Game on Investopedia in December of 2010. The game now has a grand total of 10 players including me. As we start the second year, NOW is a great time to join the game!

Here is what you will see in this post:

• inMessment Game Numbers for Q4 2011
• Comparison To Benchmark Q4 and YTD
• The Good
• The Bad
• The Ugly
• Portfolio Changes in Q4 2011
• Full inMessment Game Portfolio at end of Q4 2011
• inMessment Game Trade History for Q4 2011

inMessment Numbers as of December 30, 2011

The fourth quarter of 2011 was a decent quarter. We had a little comeback from the third quarter drop. We ended the year down more than a percent.

• Q4 Starting Account Value: $22,482.94
• Q4 Ending Account Value: $24,579.13 (Up $2,096.19 (9.3%) from Q3 2011)
• Annual Return: -1.6% (APY)
• Number of Securities In Portfolio: 10
• Trades this Quarter: 6
• Available Cash: $5,232.14

Comparison to Benchmark – The S&P 500 Index

The benchmark I have chosen to compare my results to is the S&P 500 Index. This is a broad index of 500 of the top US companies. Many investors and firms use this index as a general benchmark.

The Blue line is my inMessment Game portfolio. The Red line is the S&P 500 Index.

Here is the Year-To-Date chart. YTD, the S&P and my inMessment Game portfolio are fairly close together. From time to time the inMessment Game portfolio is doing slightly better than the S&P Index. At the end of Q4 the S&P did slightly better than my portfolio.

The Good

Seven of my holdings did as well or better than the S&P 500 in Q4. These I consider good for the quarter.

The Bad

My bad list is not all bad this quarter. I list four holdings and they all made gains in Q4. I am listing them as bad because they lagged behind the S&P 500 so they did not keep up with my benchmark.

The Ugly

I have two holdings in the Ugly list. These both lost money in Q4. SLV really tanked as silver and gold prices continue to drop. SCZ is being hit hard the debt problems in Europe.

Changes To The Portfolio

In Q4 I have made two major changes to my portfolio.

First, I replaced my SPDR S&P 500 ETF (SPY) holding with Rydex S&P Equal Weight ETF (RSP). I did this with the idea that I want to beat the S&P index as my benchmark. SPY basically performs in line with the benchmark.

RSP weights the S&P 500 securities equally rather than by market cap. This gives more weight to the smaller companies in the index so RSP is slightly more volatile and may provide better returns over time.

The second major change is that I have started placing stop losses on the non-core holdings. This is basically due to the huge (15%) losses in Q3. Stop loss settings may have saved some of the gains from Q1 and Q2.

On December 28 three of my holdings hit their stop loss points and were sold. Since these were sold I now have a little over 20% of my portfolio in cash. I plan to reinvest this when I see a good opportunity.

Below are the three holdings that stopped out with their net gain/loss from the time I purchased each.

Full inMessment Game Portfolio

Here is the full portfolio. Since I am late getting this out I am including the details as of January 27, 2012.
I have categorized the investments in the following way:
Core: Long-term stable investments that will not change often.
Sub-Core: Still long-term but may trade more often.
Opportunity: Long or short-term trading opportunities.

inMessment Game Trade History for Q4 2011

Below is the trade history for my inMessment Game in Q4 2011. I also include the history through January 27, 2012 as I am late getting this post out.

Join the inMessment Game

Now that you have read through my results why don’t you join the game yourself? It is completly free and the best way I have found to learn about investing.
Click Here to Join the inMessment Game!

We missed the 2011 adoption cut-off by 10 days. The Adoption Tax Credit is not “refundable” in 2012. This means we will not get it all in one big chunk. We will have to take the credit over the next few years. This makes the finances a little tighter but it does not diminish the joy of adoption in any way!

We have seen the hand of God working in this adoption. Thank you to all our friends and family who have been praying for us. We have sensed His favor and seen several small miracles along the way.

On the plane trip from Chicago to Hong Kong Linda and I did not get seats together. In fact we each got center seats across the plane from each other. I explained the situation to the lady who had the window seat and asked if she would be willing to trade with Linda. She was not willing to sit in a center seat for the 15 hour flight. (I was somewhat dismayed but I can completely understand that.)

I had tried a few other people sitting around but with no luck. Then a young Asian lady came to take the isle seat next to me. I again explained the situation and she graciously agreed to take Linda’s center seat on the other side and let Linda have her isle seat. Linda was so happy to be able to lean her head on my shoulder! God is good! God bless that young lady!

In Hong Kong we did some sight-seeing. For lunch we stopped at a small restaurant and ended up sitting next to a man and his son who were from Michigan. We talked a little and told them our story. They finished their meal, went inside to pay, and then we said good-bye. We really did not think much about meeting them. We finished a little later and I went in to pay. The manager explained that the man had already paid for our meal. We were shocked!! That has never happened to us before.

Next we took a train from Hong Kong to Guangzhou. We had never ridden a train before and did not know that the seats were assigned. Our tickets were in Chinese so we could not fully read them. We got on the car and picked a seat that seemed like a good choice for us. We wanted to face forward. That was our biggest concern.

Many others started boarding and we soon realized that seats were assigned. We studied our tickets a little more and figured out that our seats we right there in the same row just on the other side of the car. So we simply got up and moved over.

Then another guy came and sat where we were sitting. A little later an Asian family came and quite gruffly let the fellow know that he was sitting in their seat. He had to get up and move. It may seem small but we were thankful that God had lead us to the right spot on the train before we got yelled at.

It truly is a miracle that the adoption was finalized on my birthday. Only our loving God could orchestrate that! As much as I wanted it to be final in 2011, we can see God’s perfect hand in the timing. I will say it again, there is truly no better birthday present!

I guess it shouldn’t surprise me but I must admit I was somewhat shocked by this. Mayoman7 is a friend of mine and I know he only has one holding in his inMessment Game portfolio. How could be beat me with only one holding?

Back on February 2, 2011 Mayoman7 bought 300 shares of Verizon Communications Inc. (NYSE:VZ). At the time he told me he thought it would be good because Verizon was going to start selling the iPhone and might get a bump from that.

I was skeptical but I was glad to have a friend in the game with me. I was also glad that he was starting to learn about investing in the stock market.

I would never recommend investing in one stock for a portfolio. This is very risky. But as a learning experience in an investing game this is just fine.

Since February VZ has not really done much in the way of appreciation. On Feb. 2 he bought at $36.04 per share. Now, as of November 11, it is at $36.65. That is less than a 2% increase.

What has pushed Mayoman7′s portfolio to the top? It is the high Dividend that VZ pays. In 2011 VZ pays quarterly divided between $0.4875 and $0.50. This works out to a yield of over 5% per year. That is pretty nice.

Mayoman7 purchased 300 shares of VZ on Feb 2, 2011. On April 6 and June 6 VZ paid a dividend of $0.4875. This works out to $292.50 for the first two quarters. Then Oct. 5 VZ pays out $0.50 which comes out to another $150.00 added to his portfolio. The Investopedia Game added the dividends directly to his game cash.

With the 2% appreciation in the stock price and the $442.50 in cash dividends, Mayoman7 is up over $471 for the year. After another down turn on Wednesday, Nov. 16, in my inMessment Game Portfolio I am only up $158 for the year.

I don’t expect his lead to last for long as I hope that I have a good portfolio. Especially if Europe and the US can get a handle on all the debt issue, then the markets should start coming back.

Join the inMessment Game today! You will start with $25,000 in game cash and no one is too far ahead at this point. This is a great way to learn about what it means to invest in the stock market.

Here are my results from earlier this year:

inMessment Game First Quarter Results 2011
inMessment Game Second Quarter Results 2011
inMessment Game Third Quarter Results 2011

In much the same way that The Dow and The S&P 500 cover the US market, these three indexes cover three major markets in Europe. The FTSE 100 indexes the UK market. The DAX covers the German market. And the CAC 40 covers the French market.

What Is The FTSE 100?

The FTSE company is jointly owned by The Financial Times and the London Stock Exchange. This is where the name comes from. The index tracks the performance of the largest 100 companies in the UK.

The FTSE 100 Fact Sheet states:

“The FTSE 100 is a market-capitalisation weighted index representing the performance of the 100 largest UK-domiciled blue chip companies, which pass screening for size and liquidity. The index represents approximately 84.35% of the UK’s market capitalisation and is suitable as the basis for investment products, such as funds, derivatives and exchange-traded funds. … FTSE 100 constituents are all traded on the London Stock Exchange’s SETS trading system.”

From the fact sheet, I found it interesting that 4 of the top 10 constituents in the FTSE 100 are “Oil & Gas Producers”. Oil and gas are 40% of the top 10. I am not sure if that is meaningful but I found it interesting.

What Is The DAX?

The DAX index represents the 30 largest companies in the German stock market. The Deutsche Börse website says the DAX “Measures the development of the 30 largest and best-performing companies on the German equities market and represents around 80% of the market capital authorized in Germany”

The DAX seems to be a well diversified index of German based companies. It is not just based on the largest companies but tries to represent the best-performing members of the market. The website says it is “Completely rule-based and transparent.”

What Is The CAC 40?

The CAC 40 is the most broadly used index to track the French stock market. The NYSE Euronext site states: “The CAC 40 index is the main benchmark for Euronext Paris. Tracking a sample of Blue Chip stocks, its performance is closely correlated to that of the market as a whole. The index contains 40 stocks selected among the top 100 market capitalisation and the most active stocks listed on Euronext Paris, and is the underlying asset for options and futures contracts. The base value is 1,000 at December 31, 1987.”

The CAC 40 pulls a diversified sampling of 40 companies from the largest 100 companies on the Paris stock exchange.

So that is a brief overview of the major European Stock Market Indexes. These are great to watch when you want to know what is going on across the pond.

The biggest shocker is, “all player accounts will be reset to their opening balance.” This means that the contest is starting over on Oct 30. We will all be starting from the same place again.

This is great news for those who were struggling. It really stinks for those who legitimately had a great run going!

Here is the full text of the email from CNBC:

Trading in CNBC’s Million Dollar Portfolio Challenge was suspended as of close of trading today [Fri, Oct 21, 2011] at 4:00 p.m. ET for one week.

It came to our attention that there was a technical glitch in the current equity trading system, which a handful of players found and exploited to jump to the top of the leaderboard. The contest accidentally allowed what our rules specifically prohibited.

Out of fairness to all registered contestants and as is our right, according to the rules of the contest, we are suspending the contest and will restart it Sunday, October 30 at 5:00 p.m. ET. Upon relaunch, all player accounts will be reset to their opening balance. Play will begin anew for the final five weeks of the contest. All winners from the first five weeks, including this week, will retain their prizes.

We apologize for any inconvenience, but fundamental fairness compels us to take this action.

Now I am not so surprised about about the numbers some of the leaders had. There were a few with 9 and 10 million dollar portfolios. I was shocked!

Below is a screen shot of the leaders as of Fri, Oct 21, 2011.

I don’t know if there was any way for CNBC to know who took advantage of the “technical glitch” but it would have been nice if they could reset those portfolios and leave the rest alone.

For me it is not a huge issue. All my portfolios were up but none of them was anywhere near being a winner. My best portfolio was at $1,142,321.00. This was the portfolio where I was using the “look for companies who are reporting earnings soon” strategy. You can see some other thoughts I have in my Trading Strategies For The CNBC Million Dollar Portfolio Contest post.

Now we can all think about how we will start over on Oct. 30.

These indexes are collections of stocks that are tracked together to represent a higher level view of the market as a whole. These are very helpful in understanding the performance and trends in the market.

These three major indexes are often used by individual investors to track the performance of their own investments. With my inMessment Game I am tracking my performance against the S&P 500 index. This allows me to compare my performance to the broad US market represented by that index.

What is the Dow Jones Industrial Average?

The Dow Jones Industrial Average (the Dow) is one of the most widely tracked indexes for the US market. You see it listed first on the two market summaries pictures below. Created on May 26, 1896, the Dow is also one of the oldest stock market indexes.

Yahoo Market Summary

The Dow is simple because its index is composed of only 30 stocks. (The original Dow Average of 1896 had only 12 stocks.) As the prices of the 30 stocks go up and down, the value of the Dow index goes up and down. This is how an index works.

The Dow is almost as simple as an average of the current prices for its 30 stocks. I say almost because the Dow calculation has been adjusted over the years for stock splits and the like. This makes it more complex but the general concept remains the same.

The 30 stocks represent a somewhat diverse sampling of US companies. The Dow overview says, “Roughly two-thirds of the DJIA’s 30 component companies are manufacturers of industrial and consumer goods. The others represent industries as diverse as financial services, entertainment and information technology.”

What is the S&P 500 Index?

As its name states, the S&P 500 Index is an index of 500 of the largest companies in the US Market. Because of this greater breadth, the S&P 500 is my favorite index for tracking the performance of the US market as a whole.

Google Market Summary

“The S&P 500® has been widely regarded as the best single gauge of the large cap U.S. equities market since the index was first published in 1957. The index has over US$ 4.83 trillion benchmarked, with index assets comprising approximately US$ 1.1 trillion of this total. The index includes 500 leading companies in leading industries of the U.S. economy, capturing 75% coverage of U.S. equities.”

The S&P 500 Index is capitalization weighted which means that the stocks included in the index are weighted according to their Market Capitalization. So the bigger a company is, the more weight it has in the index.

Over the last few months, Apple (AAPL) and Exxon Mobil (XOM) have been battling back and forth for the top position. Each have nearly 400 Billion in market cap.

What is the NASDAQ Composite?

According to the NASDAQ website, “The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The Nasdaq Stock Market.”

It goes on to say, “Launched in 1971, the NASDAQ Composite Index is a broad based Index. Today, the Index includes over 3,000 securities, more than most other stock market indices. The NASDAQ Composite is calculated under a market capitalization weighted methodology index.”

The NASDAQ is commonly considered to be more heavily weighted with Technology stocks than the other two major indexes. I have also noticed that it tends to be much more volatile. This is likely due to the fact that it is much broader index and contains mid-sized and smaller companies in its index.

The Dow, The S&P 500 and The NASDAQ are the three most widely tracked US indexes. There are many, many more indexes in the US and even more for foreign markets. I will write posts on some of these other indexes, hopefully in the near future.

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