Meet The $100 Billion Company Behind The S&P 500 - YouTube

INTRO: We all know the S&P  

500 as one of the safest stock market investments  in the world. The index is regularly being updated  

to reflect the top 500 most profitable and stable  companies in America. So, you can be pretty sure  

that as long as America is still growing, the  S&P 500 will be growing as well. But despite  

the ubiquitous nature of the S&P 500, most people  aren’t aware of the company behind the index S&P  

Global. Aside from deciding who stays and leaves  the S&P 500, S&P manages dozens of indices with  

focuses on various regions and sectors such as  the S&P Asia 50 and the S&P Midcap 400. S&P also  

specializes in providing companies and governments  with credit ratings. In 2011, for example,  

S&P downgraded the US government from AAA to AA+.  Considering all these background roles of S&P,  

I don’t think you’d be surprised that  S&P pulls in quite a bit of money.  

In fact, they’re the 153rd most profitable  company in the world with a market cap  

right around $100 billion. So, here’s how  S&P Global became the king of index funds.

POOR & CO: 

Taking a look back, the history of S&P Global  circles back to a man named Henry Varnum Poor  

who was born on December 8, 1812 in Adover, Maine.  Staying true to his name, Henry’s background was  

rather poor. Henry and his brother John were the  first people in their family to go to college and  

they both got a law degree. After graduation, the  two combined forces and established a local law  

firm in Bangor, Maine. This was a rather lucrative  career, and the brothers made sure to spend and  

invest the money as effectively as possible. For  example, in the 1840s, Maine’s rapidly growing  

timber industry caught their attention. They  invested heavily into the industry which ended  

up making them quite wealthy. Now that they were  wealthy, the brothers started to pursue what they  

truly wanted. For John, this meant continuing to  grow his wealth by becoming a business tycoon.  

He went ahead and spent his time expanding  Maine’s rail network and he quickly became  

the business magnate that he dreamed of. As for  Henry on the other hand, he was mostly content  

with the wealth that he had already made, and had  little desire to continuing chasing money. So,  

he decided to spend his time trying to help other  everyday investors get to his level. To do this,  

Henry took up a job at one of his brother’s many  company’s called the American Railroad Journal  

and he became their manager and editor in 1849.  For the next 13 years, Henry regularly published  

articles regarding the financial and operational  state/future of American railroad companies.  

All this work eventually culminated into a book  called History of Railroads and Canals in the  

United States which made its debut in 1860. As  the name suggests, the book attempted to provide  

a detailed account of the entire history of US  railroads and canals. After publishing this book,  

Henry felt that he had done enough community  service, and decided to follow his brother’s  

footsteps deeper into the business world. In 1862,  he took on a role as government commissioner of  

Union Pacific Railroad and he was promoted to  secretary his very first year. But, Henry wasn’t  

all that impressed or excited about the job, and  would end up leaving soon after. Henry returned  

to spreading his knowledge about railroads, but  this time, he decided to join forces with his son,  

Henry William Poor. Together, they founded H.V.  and H.W. Poor and Co., and in 1868, the company  

published two railroad guidebooks which were  updated on an annual basis. Around this time,  

Henry’s brother John unfortunately passed away  at age 63. And this was a clear signal to Henry  

that he should start talking things easy. Over the  decade, Henry slowly stepped away from the company  

and let his son takeover completely. Ironically,  Henry had many decades left to go as he didn’t end  

up passing away till 1905 at age 92. So, there was  no doubt that Henry had lived a pretty full life,  

but his company Poor and Co was just ½ of  what would eventually become S&P Global.

STANDARD STATISTICS COMPANY: 

Moving into the 1900s, we saw more people  enter the stock market and the creation of new  

instruments called indicators. Nowadays, investors  who solely rely on indicators are often laughed  

at given that the usefulness of indicators  is usually overstated. Nonetheless, back in  

the in late 1800s and early 1900s, stock market  indicators became all the craze. And amongst the  

plethora of indicators that we were created, we  saw one from a man named Charles Dow. Charles was  

a journalist who had dedicated his entire career  to bringing transparency to financial journalism.  

He wanted to demystify the stock market by making  financial news easily digestible. Every day,  

after markets closed, Charles put together a two  page summary of the day’s financial news called  

the Customer’s Afternoon Letter. This newsletter  became so popular that in 1889, Charles decided to  

start his own publishing company. You might’ve  heard of this one, it’s called the Wall Street  

Journal. While the Wall Street Journal has become  a staple publishing company today, no one really  

associates it with Charles. Something that people  do associate with Charles, however, is of course  

the Dows Jones Industrial Average. Charles created  this stock market indicator in 1896. He wanted to  

allow his readers to guage the health of the stock  market by just looking at one number. The Dow has  

since become the most-cited stock market measure  in history. Unfortunately, Charles never witnessed  

this as he passed away in 1902, but his invention  would become the basis of the second ½ of S&P  

Global. In 1906, we saw the creation Standard  Statistics Company which was heavily inspired  

by Poor & Co. Instead of solely publishing about  the financial state of railroad companies though,  

Standard posted about the financial state of  everything execpt for the railroad industry.  

Given the lack of financial news at the time,  this simple alteration was quite successful.  

About 17 years later, Standard decided to draw  inspiration from another financial icon which was  

of course Charles Dow. Standard couldn’t just copy  the Dow Jones though, they needed something to  

make them unique. So, Standard decided to simply  beat the Dow in terms of quantity. Instead of  

creating an index based on 30 companies, Standard  decided to create a indicator that encompassed 233  

companies and 26 industries. Surely, this  was a much better indicator than the Dow.  

Simple statistics would tell you that the greater  the sample size, the more accurate the result.  

Over the next few decades, Standard also  created other indices such as the 90 Stock  

Composite Price Index which further grew  the popularity of the company. By 1941,  

it became clear that Standard was here to stay,  so Poor & Co decided to join forces with them,  

and together, they created Standard & Poors.  Over the next 16 years, their indices went to  

the moon as the stock market roared after WW2.  This garnered the company’s indicators more  

attention than ever before, and in 1957, they  came out with their crown jewel, the S&P 500.

MCGRAW-HILL: Standard & Poor didn’t stay Standard & Poor  

for very long though. In 1966, McGraw Hill, the  company that tortured us through high school and  

college, went ahead and purchased Standard &  Poor. They kept the naming scheme of the S&P 500  

and other indices, but they changed the name of  the company itself to reflect the parent company  

McGraw-Hill. Despite how popular S&P indices were,  these didn’t really make the company any money.  

At the time, no investor or hedge fund cared to  invest in index funds. Index funds were seen as  

garbage meant for unsophisticated investors. In  fact, Vanguard’s founder John C Bogle was laughed  

at for trying to create a company centered  on index funds. Now, this doesn’t mean that  

investors didn’t pay attention to the S&P 500.  They paid very close close attention to the index  

cause it was a great indicator and the perfect  benchmark to beat. In other words, indices were  

highly respected as an indicator but not respected  at all as an investment. Considering this, it made  

no sense for McGraw-Hill to create an index fund  based on their indices. Instead, they decided  

to leverage the brand name of S&P and generate  revenue by providing other financial services.  

One of these endeavors was the CUSIP Directory  established in 1969. The directory assigns each  

financial instrument a special 9 digit number that  makes it much easier to clear and settle trades.  

Today, the directory contains references to 57  million financial instruments around the world,  

and it has become the standard for clearing  and settling trades. McGraw-Hill also spent  

significant effort in expanding S&P’s credit  rating system which has become one of the most  

respected credit rating systems in the world.  McGraw-Hill also got S&P into the market analysis  

sector. For a fee, S&P will provide customers with  detailed intelligence and analysis reports into  

whichever financial market they choose. Despite  all the progress they were making with S&P,  

McGraw-Hill was still an education company  at their core, and they spent the majority  

of their effort in trying to grow the education  side of the company. For example, in 1986, McGraw  

bought out their largest education competitor  called The Economy Company. This acquisition  

made McGraw the largest education publisher in  the US. All of this growth with education put  

their financial business on the back burner,  but this would all change with the millennium.

INDEX FUND CRAZE: 

Ever since the early 2000s, people started to  come to a realization. While index funds were  

boring and unsophisticated, they were also safe  and reliable. And nothing made this clearer than  

90% of internet companies going bankrupt. But, the  pain wasn’t just limited to speculative internet  

startups. Even the biggest, most established  tech companies struggled to return to their  

dot-com peaks. And some of them like Cisco and  Intel still haven’t beaten their dotcom peaks.  

Considering this, investors became more open  to the idea of index fund investing. You might  

not make massive returns, but you can be sure that  after a recession or even a depression the indices  

will post new all-time highs. People also started  to argue that passive investing was even better  

than active investing. And one of the biggest  proponents of this argument was, of course,  

Warren Buffett. In 2007, Warren Buffett placed a  $1 million bet that index funds would outperform  

hedge funds in the next decade. Warren ended up  winning the bet, and this was the final green  

light for investors to pile into index funds. Not  only were index funds safer and less stressful,  

but they literally posted better returns than  hedge funds and even Warren Buffett himself.  

Now, just because these guys couldn’t beat  the market doesn’t mean that it’s impossible  

to beat the market. Many investors have been  beating the market for decades like Jim Simons,  

but this requires a combination of work, risk, and  luck that doesn’t seem to be worth it for most.  

Anyway, all this new interest surrounding  index funds brought in more revenue than ever  

before for McGraw-Hill. In the meantime, their  education business wasn’t doing nearly as well.  

McGraw had just spent several years trying to  grow an online study network called Gradeguru.com,  

but this never took off. So, McGraw-Hill decided  to ditch education and go all-in on S&P. In 2012,  

they sold their education division to  Apollo Global Management for $2.5 billion  

in cash. Following this sale, the company  changed their name to McGraw-Hill Financial,  

and they used this name for the next couple  of years. But, by 2016, it was clear that  

everyone knew the company for their S&P indices,  so they changed their name to S&P Global. Today,  

S&P Global has grown into a massive conglomerate  that profits $2 to $2.5 billion every quarter.  

But, the most ironic part about the business is  their stock price. Their entire brand is centered  

on the idea that index fund investing is superior  to active investing. Yet, their stock price has  

crushed the S&P 500 since the financial crisis  growing over 2000% which is roughly 4 times the  

S&P 500. Maybe, it’ll settle down over time, but  we’ll just have to see. Do you guys prefer to pick  

stocks or just invest in the S&P 500? Comment that  down below. Also, drop a like if you’re hodler.  

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