Meaningful Returns

Bear with me. When I was in college my mom worked at JC Penney, and once she copped me a pair of khaki shorts made by a company called “American Living.” They were on sale. I still own the shorts, they’re nice and comfy, they’re khaki, I put them on one leg at a time like any and every other pair of shorts and pants made by anyone ever.

But anyways, I was in college when I got these, and my friend Seth worked for the Polo outlet in Smithfield at the time, at least when we weren’t at school. And I guess when you work at a clothing store for enough years you recognize that brand’s clothes by sight, so one day I was wearing my American Living khaki shorts and he said, “Hey Korver, did you get those from Polo?” And being accustomed to Seth getting these things right mostly all the time, I was startled that he would have gotten this one so impossibly wrong. I said, “Nah, these are the JC Penney specials–American Living or some lame name like that.” I mean this was close to ten years ago so I don’t know if those were my exact words, but it was something like that.

Well, Seth’s eyes lit up in a way that told me there was more to this story. And there was: Apparently, American Living was a partnership between JC Penney and none other than–you guessed it–Polo Ralph Lauren. (Maybe it’s just Polo, or just Ralph Lauren–I should have asked Seth before I published this). Everything under the American Living label was designed and manufactured by Ralph Lauren, just as everything in Ralph Lauren’s (did you know he was born Ralph Lifshitz? RALPH LIFSHITZ?) stores are designed and manufactured by Ralph Lauren. Only, and here’s the real kicker, the logo was different and the clothes were cheaper.

I’ve talked about logos before, and this is a prime example of what I talked about there. Back in 2008 (and in every year since buying things became a thing), you had a choice before you: two exactly-the-same-things-except-the-logo. One is twice as expensive as the other. Which do you choose?

The S&P 500 is nothing more and nothing less than a list of the common stocks issued by the 500 largest public corporations in the US. The list is known as an index. You can “buy the index,” which just means you can own a fractional share of each of those 500 stocks, and many people do this. Now, there is nothing at all special about this list. If I give you the list, or Frankie Castalezzo (made that name up) the schmoozy stock broker gives you the list, the two lists will be exactly the same, because definitionally they must be.

But this being 2016, you can of course choose to pay way, way, way more for Frankie’s list. And apparently gobs and loads of people are doing just that, with “gobs and loads” being a colloquialism for 23 BILLION DOLLARS.

Look. You can pay 0.10% per dollar or less for an S&P 500 Index fund. Or you can pay 1.5% for exactly the same thing. And I guess choices are fun and yay capitalism, but that smells like a lose money and make other people rich scheme to me.

Hat tip to Michael Batnick on this one