- Let's Talk Finance
- Posts
- Let's Talk... The S&P 503
Let's Talk... The S&P 503
I thought it was the S&P 500?
I’m sure you already know that the S&P 500 consists of 500 of the largest publicly traded U.S. companies (hence the name S&P 500).
But did you know there are 503 different stocks in the index? Some companies have multiple shares of stock in the S&P 500 because they have more than one class of stock. This is known as a Dual Class Stock.
For example, Alphabet (Google’s parent company) has three different share classes, two of which are in the S&P 500. Google's dual class shares are a structure that gives certain shareholders more voting power than others:
Class A shares ($GOOGL)
These shares are the most common type of share and give investors one vote per share. They trade on the Nasdaq under the ticker symbol $GOOGL.
Class B shares
These shares are held by Google insiders, such as the executive management team and board of directors, and give them 10 votes per share. They are not publicly traded.
Class C shares ($GOOG)
These shares give stockholders an ownership stake in the company, but they do not have voting rights. They trade on the Nasdaq under the ticker symbol $GOOG.
As you can see, the different shares carry different voting rights. In a dual-class structure, executive management team and board of directors are usually given access to a class of shares with more control and voting rights (Class B shares), while retail investors and the general public are given a class of shares with little or no voting rights (Class A and C shares).
Companies issue multiple share classes so they can:
Raise capital without giving up control
Shares with unequal voting rights allow insiders to maintain control, but still tap into the public equity market to provide financing
Focus on the long-term
Shares with unequal voting rights allow insiders to pursue a long-term vision, rather than face pressure to focus on short-term results.
So is a dual-class structure good or bad?
Well, there is some controversy because it doesn’t allow retail investors (such as you and I) a say in running the company. Investors are providing most of the capital and taking on the majority of the risk.
Now you know the S&P 500 is really the S&P 503.
See you next week,
Darrell