Study of the Emergent Layer, from Victor Niederhoffer
The Bronx Botanical Gardens has a nice exhibit of the four layers of life in a tropical rain forest: the emergent at the top that get most of the sun, the canopy, where most of the trees reach and where insects and birds are mainly active, the understory, clouded in shade, and the floor, where the debris falls and provides minerals for the roots of trees and food for large animals and insects. One wonders if the ensemble of stocks is divided into similar layers, and whether there is anything predictive about those that reach a certain height. Let's start with the S&P 500 and look at the emergent layer, stocks above 100. There are 12 of them:
Name Price Market value m Perf in 2009
AAPL 192 174161 90
AZO 155 7673 59
CME 286 19079 65
FSLR 113 9462 -20 First Solar
GS 148 78572 81
GOOG 529 168135 56
IBM 122 160771 33
ISRG 328 12631 218 Intuitive Surg
MA 250 32425 84 Mastercard
PCP 105 14811 62 Precision cast parts
PCLN 195 8585 191 Priceline
WPO 434 4085 11 Washington Post
What can be said about these companies that differentiates them? Five of them are Internet based. All of them are undoubtedly led by CEOs who embody the idea that has the world in its grip. What else?
A comparison with the understory below 10 is appropriate. AMD, BSX, CPWR, ETFC, EK, FTR, HBAN, IPG, JDS, KEY, LSI, MI, PCS, MU, MOT, NOVL, ODP, RF, S, TLAB, THC, TER, XRX — twice as many companies in the understory. Many were once in the canopy. How would this best be analyzed and something useful come out of it?