By Allan Sloan
This has been a bad year for stocks so far, but it’s sure been an interesting year.
Thanks to the combination of the Federal Reserve planning to raise interest rates and Russia’s invasion of Ukraine, we’ve got stocks lurching around wildly, posting big daily ups and downs. We’ve seen the stock market’s two most popular indicators — the Dow Jones Industrial Average and the Standard & Poor’s 500 index — going in and out of what Wall Street calls “correction territory.” That’s a euphemism for a decline of at least 10%.
Some popular, well-known big stocks that helped drive the market higher have been getting clobbered. For example, as of Thursday, Facebook was down 38% for the year and Tesla was down 24%.
But to me, the most interesting things that we’ve seen in the stock market this year are the biggest one-day dollar decline ever in a U.S. stock, followed the next day by the biggest one-day dollar increase ever.
I’m talking about the Feb. 2 fall in the stock of Facebook’s parent company, Meta Platforms, which lost $237.1 billion of value, according to Refinitiv Eikon data. On the following day, Amazon rose by a record $190.6 billion, Refinitiv Eikon says.
I don’t own stock in either Meta or Amazon (whose founder Jeff Bezos owns The Washington Post, where I’m a contractor), and I suspect that may be the case for many of you, too. But that doesn’t mean that we weren’t affected by the Facebook fall or by the Amazonian expansion. That’s because many of us own shares of mutual funds that own one or both of these stocks.
I was curious to see how much money was lost from the Facebook flopperoo and gained from the Amazon expansion if you owned Standard & Poor’s 500 or total stock market index funds. These are low-cost, so-called “passive funds” designed to match the results of the S&P 500 or the total stock market rather than to try to beat the market.
Vanguard, which did this analysis at my request, told me that the Facebook fall knocked a bit more than half a percent off the value of Admiral shares of the Vanguard 500 Index Fund, which meant a loss of about $50.14 for someone who owned $10,000 of the fund on Feb. 3.
Meanwhile, the Amazon price rise the following day added about $46.02 to a $10,000 stake in the fund.
Similarly, Facebook’s Feb. 3 fall cost the holder of $10,000 worth of Admiral shares of Vanguard’s Total Stock Market Index Fund about $42.22, and the Feb. 4 rise of Amazon added about $37.90.
Even though I’m showing you specific numbers, I’m saying “about” because Vanguard’s calculations are based on the stocks’ Jan. 31 weight in the two index funds, the most recent available data. But even though these gain-and-loss numbers may be off by a few cents, you can see that the two stocks’ big moves had a measurable impact.
I’m giving you these numbers for two reasons.
The first is show that you’re much less prone to whiplash by owning broad index funds than by owning individual stocks. Losing half a point of value by owning Facebook in an S&P 500 fund is a lot less traumatic than taking a 26% hit as an owner of the stock. And gaining 0.46 of 1% on your S&P 500 fund the next day because of Amazon’s record dollar rise is a lot less exciting than the 14% increase that Amazon owners got.
The second reason I’m giving you these numbers is to show that even though you can mitigate the impact of nine-digit, single-stock rises or falls by owning a diversified mutual fund, it’s almost impossible to totally avoid having your portfolio affected.
To paraphrase what the late, great heavyweight champion Joe Louis said about one of his title-bout opponents, the late, great light-heavyweight champion Billy Conn: you can run but you can’t hide.
Allan Sloan lives in Millburn and has written about financial markets for more than 50 years. He is a seven-time winner of the Loeb Award, business journalism’s highest honor.
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