Standard & Poor's

Standard & Poor's (also known as S&P) is a titan in the world of financial information and analytics. Think of it as the financial world's most influential critic and scorekeeper. Owned by S&P Global, the company wears two major hats. First, it's one of the “Big Three” credit rating agencies, alongside Moody's and Fitch Ratings. In this role, it assesses the creditworthiness of companies and governments, assigning grades (like AAA or BB+) that signal their ability to repay debt. These ratings are incredibly influential, affecting interest rates and the flow of global capital. Second, S&P is a world-leading provider of stock market indices, most famously the S&P 500. This index acts as a crucial benchmark for the health of the U.S. economy and the performance of countless investment funds. For investors, S&P is an inescapable name, providing the data and ratings that shape market sentiment and investment decisions.

S&P's credit rating service is like a report card for debt. When a company or country wants to borrow money by issuing bonds, S&P analyzes its financial health and gives it a rating. This simple grade tells investors the likelihood of getting their money back.

• Investment Grade: These are the 'A' students, ranging from the top-tier AAA down to BBB-. They are considered reliable borrowers.
• Speculative Grade (or 'Junk'): Ratings from BB+ down to D fall into this category, often called junk bonds. They carry higher risk but typically offer higher yields to compensate.

For decades, these ratings were a trusted shortcut for investors. However, a wise investor never forgets history. S&P, along with its peers, faced heavy criticism for its role in the 2008 Financial Crisis. They awarded high, “safe” ratings to complex mortgage-backed securities that turned out to be incredibly risky, contributing to the market's collapse. This serves as a powerful reminder: ratings are opinions, not infallible truths.

If credit ratings are S&P's opinion, its indices are its factual snapshots of the market. The S&P 500 is the undisputed star. It tracks the performance of 500 of the largest and most established U.S. companies, offering a broad and reliable view of the entire stock market. When you hear a news anchor say “the market was up today,” they are very often referring to the S&P 500. It's the primary benchmark against which professional fund managers and individual investors measure their success. Beyond the flagship 500, S&P manages thousands of other indices covering different market segments (like the S&P MidCap 400 for medium-sized companies) and global regions.

So, what does a value investing practitioner, a student of Benjamin Graham and Warren Buffett, make of S&P? We view its offerings as useful tools, but never as gospel. A true value investor approaches S&P's credit ratings with healthy skepticism. We don't outsource our thinking. Instead of blindly accepting a 'AAA' rating as a sign of a safe investment or shunning a 'BB' rated company, we roll up our sleeves and perform our own deep-dive fundamental analysis. The market's (and S&P's) pessimism about a company's debt can sometimes create a fantastic opportunity to buy its stock on the cheap. The real value is found in the discrepancy between the market's perception and the business's underlying reality. As for the S&P 500 index, it's an excellent yardstick. Did your hand-picked portfolio of undervalued stocks beat the market this year? Comparing it to the S&P 500's return will give you an honest answer. While Buffett himself has recommended a low-cost S&P 500 index fund for most people who lack the time to analyze individual businesses, this is a strategy of diversification, not pure value investing. The goal of a value investor isn't to buy the whole haystack (the market) but to find the needle (the wonderful, undervalued company) within it. S&P provides the map of the haystack, but the treasure hunt is up to you.