Some people were surprised to hear that I'm open to updating S&P Dow Jones Indices' requirements for which companies are included in the S&P 500.

I think their methodology is very good. But I wouldn't say it's perfect. Most would agree that it has its weaknesses. And admittedly, I couldn't tell you what perfect would look like.

I do know that rules are rarely perfect the first time they're written. The U.S. Constitution has been amended 27 times. The NBA regularly updates the rules of the game. Even casual fans of soccer have noticed that FIFA has introduced new rules for World Cup play. And of course, S&P Dow Jones makes changes to inclusion requirements for its many indexes.

Ultimately, I think that if we discover and agree on ways an index can better deliver on its aims, we should make changes.

Changes in methodology don't have to mean big changes to performance ⚖️

As I mentioned in Wednesday's newsletter, I'm not crazy about S&P Dow Jones' requirement for positive GAAP net income for "the most recent quarter, and the sum of the most recent four consecutive quarters." It's a backward-looking metric, and I'm in the camp that believes stocks trade largely on expectations for future profits.

SpaceX (NASDAQ:SPCX) is an example of a massive, unprofitable company that's largely trading on expectations ...