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NewsMaterial3 min readDisconfirmAI Editorial

Ben Carlson: Market Structure Has Changed, Historical Valuations Are Not Directly Comparable

Starting with a comparison of the S&P 500 sector composition in 1960 versus today, Ben Carlson highlights historical shifts in transaction costs, fund fees, minimum price increments, and information regulation. These changes have fundamentally altered market structure, making direct comparisons between current valuations and historical data difficult. While investors have never had better net returns than they do today, the vastly different market conditions require extreme caution when relying on simple historical benchmarks.

2026-10-24 04:30 GMT+8

Ben Carlson is a portfolio manager at Ritholtz Wealth Management. His article begins with a small anecdote: a friend cleaning out a rental property found a business section from a 1960 newspaper showing the S&P 500's sector composition at that time—425 industrial companies, 25 railroad companies, and 50 utilities. Carlson then lists today's S&P 500 breakdown: 83 industrials, 76 financials, 75 information technology, and 60 health care, with other sectors also represented. He acknowledges that while the modern market is indeed more concentrated in top names, the types of companies represented by the index are far more diverse than in 1960. His conclusion is that historical valuations are difficult to compare directly to today's markets precisely because the objects being compared are not the same.

Carlson cites this week's column by Wall Street Journal writer Jason Zweig, which details specific structural changes in the market over recent decades. When individual investors bought or sold small lots of stock, commissions often reached 2% or higher, and institutional costs were no less than 1%. Mutual fund purchase loads typically ranged from 5% to 8%, plus annual management fees of 0.5% to 2%; Vanguard's first index fund carried a purchase load as high as 8.5%. Regarding minimum price units, stocks traded in increments of one-eighth of a dollar (12.5 cents) until 1997. Zweig gives an example: if a small-cap stock closed at a bid price of $1, and someone bought it the next day at an ask price of $1.125, a 12.5% return was generated out of thin air. Today, stocks trade in increments of one cent or less, rendering such bid-ask bounces immaterial. Carlson points out that while gross returns from the stock market may be lower in the future than in the past, investors have never been in a better position regarding net returns after costs.

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Carlson argues that Regulation FD (Fair Disclosure), implemented by the U.S. Securities and Exchange Commission in 2000, may be the most important yet least discussed change to market structure this century. Before this regulation, companies could disclose material information to select individuals without revealing it to everyone simultaneously. Once regulators required that any significant corporate information be made available to all investors at once, it became much harder for hedge fund managers and other large active investors to win using proprietary information. He writes that this is why there haven't been nearly as many legendary investors beating the markets recently—the playing field has been leveled. In his new book, A Fabulous Debt, Robin Wigglesworth dedicates a chapter to explaining how Michael Milken essentially created the high-yield bond market in the 1970s. In college, Milken came across an old book by Walter Braddock Hickman containing an exhaustive study on corporate bond performance from 1900 to 1943. The study concluded that investors paid lower prices and demanded higher yields for lower-quality bonds; default rates on these bonds were higher; and higher yields more than compensated for the higher default rates. This seems obvious today but wasn't at the time. Wigglesworth quotes a future colleague of Milken's at Drexel: "Maybe 2,000 people read Hickman's book, and 1,999 ignored it." Milken was the exception; he devoured the jargon-filled text, dense footnotes, and bond yield charts. Milken went on to largely control the junk bond market in the 1980s, though his story did not end well. It is incredible to consider how little people knew about fixed-income markets back then.

Carlson concludes that the market has indeed changed significantly—there are more products and services than ever before, costs are lower, and automated investing makes it easier to maintain discipline. However, human nature remains the only constant across all market cycles. In a world with unprecedented amounts of information, market knowledge, data, and analysis, one must fight against overconfidence about the future. Knowing more about what happened in the past and having more data about the present does not make predicting the future any easier.

Sources

  • awealthofcommonsense.comA Wealth of Common Sense↗
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