6
Month Market Review
The
Dow Deception
The Dow
Changes
by David Forrest
(TMF [email protected])
For the third straight year, the Dow Jones Industrial Average is running
wild. The popular market index is up almost 21% this year after climbing
24.5% in 1996 and 34% in 1995. Historically, the Dow returns about 10-12%
per year, so recent performance doesn't fall in the "normal" range. The
backslapping, cigar-smoking big whigs over at Dow Jones & Co. must be
dancing in the streets as their precious index keeps climbing. The folly
of all of this is that the Dow Jones Industrial Average is for all intents
and purposes nothing more than a large marketing gimmick. Heaven knows, it
certainly isn't a legitimate market index.
The Dow Jones Industrial Average is a grossly limited, inaccurately represented,
and remarkably slanted snapshot of our nation's industry. The inclusion of
certain companies and the exclusion of others, most notably the remarkable
absence of both Intel and Microsoft, is almost certainly political. When
the editors at Dow Jones had the opportunity this year to include a new
technology company, did they pick Intel or Microsoft? Nope, they picked
Hewlett-Packard. Now, while I have nothing against HP (it is an awesome company),
I just can't imagine how Microsoft or Intel don't get included. Oooooooh!
Wait a minute! I just figured it out.
Microsoft and Intel trade on the Nasdaq.
Guess how many companies listed in the Dow Jones Industrial Average index
trade on the Nasdaq? Zero. Nada. Zilch. Anyone want to place bets that Microsoft
would have been added if it traded with the symbol <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: M)") else Response.Write("(NYSE: M)") end if %>?
This year, the folks at Dow Jones made a few tweaks in the index by replacing
Westinghouse, Woolworth, Bethlehem Steel, and Texaco with Wal-Mart,
Hewlett-Packard, Johnson & Johnson, and Travelers Group. Why did the
old stocks get ousted? According to Dow Jones, the new stocks were added
to better reflect the "changing economy." I suppose the premiere software
and microprocessor companies in the world aren't part of the changing economy.
The editors at Dow Jones claim they don't change the index all that often
because they like to maintain a degree of consistency. However, another oddity
with this year's changes is that Travelers Group is a new inductee. Travelers
Group, for those of you not up on your history, used to be Primerica. In
1991, Primerica was removed from the Dow to make room for J.P. Morgan. Gone
one day, back the next. Now that's consistency.
John Prestbo and Paul Steiger are the markets editor and managing editor
at Dow Jones, and they are largely responsible for making changes to the
Dow. According to these two gentlemen, the process of changing the index
is "remarkably informal."
Remarkably informal?
This is the best known and most widely talked about stock market index on
earth (and various other planets) and the entire process is decided mostly
by two men in an informal way? According to Prestbo, it's "an art, not a
science." Hmmm? Prestbo also admits that changing the index is somewhat of
a "pain in the ass" because of all the publicity it generates.
This is an index to take seriously? You decide. |