Stock prices
Q. What’s the “index effect” in the stock market? — R.J., Greensburg, Pennsylvania
A. First, understand that companies are routinely added to or removed from various indexes — sometimes because they merge with or are acquired by another company, or because they grow too big or small for the index they’re in.
The index effect refers to a change in the price of a stock after it’s added to, or removed from, a major stock index. If a company is added to the S&P 500 index of 500 of America’s biggest companies, its stock price seems likely to rise. After all, there are trillions of dollars invested in index funds. So when that stock is added to the index, all those funds tracking the index will be buying shares. You might expect that kind of demand to push up the stock price, at least for a while. The reverse would be true for stocks removed.
Interestingly, though, while the index effect has topped 7% in the past, it has nearly disappeared over the last decade; it’s now well below 1%.
Q. How can I invest in Taco Bell? — P.C., Ashland, Kentucky
A.
Technically, you can’t because Taco Bell belongs to parent company Yum! Brands — which also owns KFC, Pizza Hut and the Habit Burger Grill.
You could invest in
Yum! Brands, though. Lots of companies are actually subsidiaries of other companies. For example, PepsiCo owns Quaker Oats, Lay’s and Gatorade, while Restaurant Brands International owns Burger King, Popeyes and Tim Hortons. Nestle owns Purina and Gerber; Amazon.com owns Zappos and Whole Foods; and a company called Stellantis is home to the Chrysler, Jeep and Maserati brands.
Business and investing books
To improve your investing skills, it’s good not only to read books about investing, but also to learn about business in general and about what makes a company great. Here are some books you might check out:
“Good to Great: Why Some Companies Make the Leap ... and Others Don’t” by Jim Collins (Harper Business, $35). In this classic, Collins answers the question “Are there companies that defy gravity and convert long-term mediocrity or worse into long-term superiority?” by analyzing the histories of 28 companies.
“Business Adventures: Twelve Classic Tales From the World of Wall Street” by John Brooks (Open Road
Media, $35). Both Warren Buffett and Bill Gates have recommended this book. It offers illuminating business stories from the 1950s and 1960s about companies such as Ford Motor Co., General Electric and Xerox.
“Against the Gods: The Remarkable Story of Risk” by Peter L. Bernsstein
(Wiley, $23). This book will take you from ancient Greece to modern days, covering topics such as probability, risk, gambling and the growth of the insurance industry.
“Devil Take the Hindmost: A History of Financial Speculation” by Edward Chancellor (Plume, $20).
It’s helpful to understand how markets sometimes get carried away, creating booms that are followed by busts. This book offers eye-opening stories about speculation in tulips in the 1600s, the 1929 stock market crash and day traders in the modern era.
“The New Map: Energy, Climate, and the Clash of Nations” by Daniel Yergin (Penguin, $22). This riveting book can help you understand how the energy industry works — as well as how the world works, as it reviews geopolitics involving Russia, China, the Middle East and the United States.
“The Innovator’s Dilemma: When New Technologies Cause Great Firms To Fail” by Clayton Christensen (Harvard Business Review Press, $28). This book can teach you a lot about disruptive companies such as Apple and Amazon. com. It discusses Steve Jobs, Jeff Bezos and many others, so it can teach you about effective leadership, too.