Value Line Geometric Index

The american market (I focus on S&P 500) has recuperated 40% of the value since March where it touch the minimum value.

It’s an impressive “come back” while the macro economy data is showing terrible numbers about unemployment, consumption, industrial production….

The economy and the market are driving themselves in the opposite direction. So, so many questions come to my mind:

  • Is the market crazy?
  • is the market completely disconnected from the economy?
  • are we looking at the right numbers?

Well, Mr. Market does what he wants, and we cannot do anything about it. Disconnected from the economy? I do not think so, maybe there is a bubble, but sooner or later it will adjust. Well, my answers are poor, and it’s basically because I have not a concrete answer to these questions.

The last question: “are we looking at the right numbers?” makes me to go to Value Line Geometric Index

Value Line Geometric Index

This index includes all the american market. For more information the Wikipedia.

“All companies in the Value Line Composite Index are publicly listed on one of the major exchanges listed below. The number of companies in the Value Line Composite Index fluctuates based on factors including: the addition or delisting of the companies on the exchanges themselves, mergers, acquisitions, bankruptcies, and the coverage decisions made by Value Line for the Value Line Composite Index. Value Line’s decisions as to which companies to include are undertaken with the intention to create a broad representation of the North American equity market.

Exchanges in The Value Line Composite Index are:

  • American Stock Exchange
  • NASDAQ
  • New York Stock Exchange
  • Toronto Stock Exchange

Well, comparing the VALUG (blue) with SPX (red), you can see that Value Line Geometric Index is more closed to the reality that I had in mind that is that we still have not recuperated.

If we look the comparison of the indexes from February 12th, the result is that draw-down is bigger for VALUG, and that the recuperation is below than S&P:

To do: I will add this index to my reviews, I have first to learn from it.

Spanish market issue: script dividend as extended policy

One of the big issues of the stock market in Spain is the one represented in this picture.

Dividends? No, “papers”

Some of the popular investment methods is based on dividends, some others at least recognize that dividends is an incentive to invest on a company.

The main companies in the IBEX-35 market, so many times, instead of cutting the dividend or ask for money to the market, they have created a mechanism to do two things at the same time: script dividend.

They define a process with different steps that you have to follow. Mainly there are 2 options:

  • you grab the dividends and run.
  • you grab a set of new stocks (a new amount of stocks published to inject extra money into the company).

The process to do it

Once that is declared the “script dividend” you have to learn how to go through the process of claiming the new stocks or to take the dividend itself. This process is not straight forward, it’s a very complex process that requires you time to understand it, and then you have to pay attention the key days where you have to make a decision.

In a nutshell, so many small investors fall in the trap and they capture more stocks that they really do not want, diluting the value of the company.

My opinion

is that an incentive turns into an obligation to the investor, making him to decide on something that is not initially their responsibility. The result in the long term is not working well for the companies that are following this policy.