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The Daily Dow LEXINGTON, Ky. (July 18): Dow Order Alert!! Caterpillar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CAT)") else Response.Write("(NYSE:CAT)") end if %> drops out of the current top ten list with today's big sell-off in AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:T)") else Response.Write("(NYSE:T)") end if %>. (Remember that when a stock's price plunges, its dividend yield goes up.) So, today's action shook up the Current Dow Approach order a bit. Read the order carefully and double check all your numbers before making any decisions on these stocks.
In this morning's Investor's Business Daily (Keyword:IBD), the "Investor's Corner" article questions the relevance of the Dow Jones Industrial Average as the most well-known barometer of the American stock markets. And to a degree, I share the criticisms of the index that are thrown around easily: it's not truly representative of American business (with three major oil companies and no Microsoft or Hewlett-Packard or Intel?); it's price weighted, meaning the more expensive stocks dominate the index and swamp moves by lower-priced companies; and the way it accounts for splits by adjusting its divisor tends to lock in gains for the index.
The critics argue that the S&P 500 is a much better measure of the overall market. And to get the real flavor of the market's tone, one needs to include the Nasdaq and the Russell 2000.
The interesting point they failed to mention is that over many years, the S&P 500 Index and the Dow Jones Industrial Average have moved in virtual lockstep. In any given year, of course, one may be a few percentage points ahead of or behind the other, but over a longer time span, their returns have been close to identical.
What's all this mean for Dow Approach investors? Nothing much. That's why we track our model against all three indices. But even if we were just tracking the portfolio against the DJIA, or just measuring it against the S&P 500, that's good enough. Either way, we're looking at an approach that has beaten whatever market index you look at for decades.
I found one line particularly funny, though, which is probably why I bring the whole thing up today in the first place. Charles Lemonides of Sterling Advisors claims "the Dow is irrelevant for those who own Iomega." Well, not for those Iomega owners who are wearing belled-caps, anyway!
Transmitted: 7/18/96
Today's Dow Numbers
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