A Comprehensive Look at the Index
The Value Line Composite Index is a pivotal stock index that tracks approximately 1,700 companies from the NYSE, American Stock Exchange, Nasdaq, Toronto, and over-the-counter markets. This index splits into two forms: the Value Line Geometric Composite Index (the original equally weighted index) and the Value Line Arithmetic Composite Index (an index focusing on equal portfolio amounts of stocks). Originated by Arnold Bernhard, the Value Line Index has become an integral tool for assessing broad market trends.
Key Takeaways
- The Value Line Composite Index offers a diverse mix of roughly 1,700 stocks across major North American market indexes.
- There are two variations of the index: the Value Line Geometric Composite Index and the Value Line Arithmetic Composite Index.
- The Geometric Composite Index employs a geometric average, reflecting a daily change close to the median stock price change.
- The Arithmetic Composite Index uses an arithmetic mean to represent the daily change reflecting a portfolio held in equal amounts.
The Essence of the Value Line Composite Index
The term “Value Line” signifies a multiple of cash flow superimposed over a price chart to standardize company values. As one of the most respected investment research firms, Value Line boasts a strong performance record, with its model portfolios frequently outperforming the market in the long run.
The Value Line Composite Index is aligned with the companies documented in the Value Line Investment Survey, apart from closed-end funds. The number of included companies can vary due to factors like additions or delistings on exchanges, mergers, acquisitions, bankruptcies, and Value Line’s coverage decisions. The goal is to capture a broad representation of the North American equity market.
Noteworthy Timeline: 1961
The original Value Line Geometric Composite Index made its debut in 1961.
The Value Line Geometric Composite Index
Originally launched on June 30, 1961, this index uses a geometric average and is equally weighted. The daily price change is calculated by multiplying the ratio of each stock’s closing price to its previous closing price, elevating that result to the reciprocal of the total number of stocks.
The Value Line Arithmetic Composite Index
Introduced on February 1, 1988, the Arithmetic Composite Index mirrors the model of a portfolio containing equal amounts of each stock, using an arithmetic mean. The daily price change is achieved by summing the daily percent change of all stocks and divided by the total number of stocks.
Related Terms: NYSE, Nasdaq, Toronto Stock Exchange, geometric mean, arithmetic mean, Value Line Investment Survey, Arnold Bernhard
References
- Securities and Exchange Commission. “Form 10-K 2020”, Page 6.
- Value Line. “In Arnold Bernhard’s Own Words”.
- Value Line. “The Value Line Ranking System”.
