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Abstract
On average, investors in stocks of West Michigan-based companies lost money in 2007. Three out of four companies saw their stock prices decline. Interestingly, prices of only three of the fourteen stocks comprising the Index rose, while the others fell, often substantially. How does the Index rise by almost 7% when three-quarters of the component stocks fall, and nearly half of them fell more than 30%? It’s because the Index is weighted by the number of shares outstanding of each company. Perrigo, Gentex, and Spartan Stores, the three companies rising during 2007, account for nearly 42% of all outstanding shares among West Michigan-based companies. In contrast, the five banks together account for only 7.5% of outstanding shares. As a consequence, even though bank stock prices were decimated in 2007, their impact on the Index was relatively small. The same weighting methodology is also used by both the S&P 500 and NASDAQ Composite Indexes.