S2N spotlight

I have to compliment Norgate Data for their excellent survivorship bias-free database. I looped through every month and extracted each symbol in the S&P 500 index for that month going back decades. Here is what I found.

Survivorship bias analysis: S&P 500 (using CSV data) comparing 2006-11-01 vs 2025-10-01

 The current index includes 656 constituents, not 500. The S&P 500 index had 858 constituents in its index 19 years ago.

Plain English

I am sure that some of you reading this are still struggling to understand what I mean by survivor bias. Let me describe it in more practical language.

Let us assume that you have a filter that only allows you to trade symbols that are part of the S&P 500 that meet certain criteria. You run your backtest starting 19 years ago with the current S&P 500 constituents, and it shows a buy for Tesla 10 years ago. We have a bias issue, as Tesla was only added to the S&P 500 in December 2020.

There is another expression of this same bias. Once again, if you are using the constituents of the index today, you are not going to have invested in, say, Lehman Brothers because it is no longer in the index. However, if you were using the correct index at the time in 2008, your system would have been buying it, as it was oversold in 2008. So the bias is giving you a free pass which would not have existed in reality.

If you want to do proper analysis, you really have to build a filter that takes the changing index constituents into account. Stay tuned; I have built software that takes all of this into account and does the heavy lifting for you. I will share more about its launch in due course.

S2N Observations

I am sharing the next chart for some historical perspective on how things can go disastrously wrong even for once-mighty empires. My late dad used to always say to me, 'The bigger you are, the harder you fall.’ So I am showing this chart for some personal reflection, because I recently said that gold was extremely overbought. There are times that overbought is nowhere near the level of overbought you thought possible, just saying.

On the 14th, Jamie Diamon, the CEO of JP Morgan, had this to say about gold: “It could easily go to $5,000 or $10,000 in environments like this. This is one of the few times in my life it’s semi-rational to have some in your portfolio.”

I personally do not believe that the US dollar can be directly compared to the Weimar German mark. I am a true believer in America’s superpower status and its ability to foster capitalism like no other country. However, strange things can happen when you are on a slippery slope.

JP Morgan’s chief strategist David Kelly is now “urging investors to diversify away from US assets before “going broke slowly” turns fast.” I applaud the brave call. So few Wall Street titans are prepared to say what they really think, especially during a major bull market. There will be so many strategists jumping on the post-bubble decline, saying how obvious it was in hindsight. The truth being that it was evident in foresight; only when it would end was unknown.

Just to confuse my comments about America’s superpower status above, I am sticking with my long China (via the Hang Seng index) and short US. I am looking for the green ratio to reach or exceed the red dotted mean. I think we are about to enter the testy end of the trade war; this will be a war of attrition. I am glad to see the WSJ agree with my thesis that the stock market is the US’s Achilles heel, which China’s long game looks to exploit.

S2N screener alert

I don’t know about you, but I am thirsty. Orange juice is on its way to being affordable again. Down 65% from its highs.

Another commodity that shot to bubble territory that we caught for the first leg down was cocoa. Currently down 51% from ATH. I am not only thirsty; I am craving something sweet as well.

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