The weekly digest — 02.10.24

A Winning Machine

What is more powerful than a 101-year-old winning machine? Since 1923, the S&P500 index has generated an annualised return of ~10.5%. For more than a century, it has:

• Beaten 99.9% of professional investors, who typically underperform the index annually by ~2-3%, with the gap widening dismally over time.

• Proven its stellar compounding potential; $1 invested in the index in 1923 would be worth more than $13,000 today.

• Comprised of the bluest of the world’s blue-chip stocks, self-regulating and re-weighting these in line with their individual performances — eliminating user selection error.

• Always regained its previous highs, surviving the Great Depression, one World War and the Covid pandemic.

Weekly Digest

On a look-through basis, we recently became entitled to our dividend from the Chicago Mercantile Exchange (CME). Founded in 1898 to facilitate the trade of eggs and butter among its members, today the CME is the world’s premier derivatives exchange with dominance across futures and options trading in interest rates, stock indices, forex, oil, gold and most agricultural commodities. For more than a century, the CME was owned entirely by its members, who had the exclusive rights to trade in CME derivative contracts until the company went public in 2002. Since its maiden dividend in 2004, the CME has established itself as a dividend champion, having multiplied its dividend more than 20x in addition to paying substantial ‘variable annual special dividends’. While there have been many attempts to unseat CME’s dominance, none have been successful. How so? In derivatives trading, money gravitates towards the most liquid markets — where traders can deal in size with minimal price impact — and this market depth and price leadership are key determinants in CME’s business edge. Plus, as derivatives become more widely used for hedging (defensive) and speculative (offensive) purposes, CME is uniquely positioned to enhance its dividend status in the future.

To Have and To Hold

The greatest threat to our investment success? Us. So, how do we get ourselves from outset to outcome? Over four years, we’ve collected more than four million data points that demonstrate how a particular methodological communication keeps investors on track. This email is part of a powerful anticipatory feedback loop that works as a bad-decision buffer. With our handholding, evidence shows investors are far more likely to hold onto their investments — long enough to enjoy their wins.