Saturday, September 22, 2012

DJIA considering structural changes: report

Remember, stock benchmarks like the Dow and the S&P are MANAGED indexes, meaning that over time changes are made to the indexes when companies change hands, die, or become irrelevant. This means that stock indexes are skewed to a positive bias to reflect changing trends (positive trends). They are thus not a completely honest portrayal of what is really going on. But so be it. Certainly adding Apple, or Google could put additional shine on the Dow. As one example, how useful is it to have a single digit stock like Alcoa as part of the Dow? The best days of AA have passed and its moves as part of the price weighted Dow Jones average have a tiny impact on the overall Dow.

It would be a barrel of monkey fun to have Apple, or Google in the 30 component Dow on days when those two stocks alone could make the Dow go ape-you-know-what! lol.

I would hasten to add that gold is not "managed". It stands amidst the financial noise as itself whether the times are bad or good for gold. There is no substitute for it.

"SAN FRANCISCO (MarketWatch) — The owner of the Dow Jones Industrial Average is considering changes to make it more relevant and will discuss possibilities at its next meeting with major index users, according to a media report Saturday. The changes are being considered by Dow owner Stndard & Poor’s because the index is supposed to be a measure of U.S. industrial titans but doesn’t include Apple Inc [s:aapl], Google Inc. [s:goog] or Berkshire Hathaway Inc. [s:brk.a], the Financial Times reported, noting they are three of the largest U.S. companies. There would be problems adding them to the Dow bedause they would dominate the 30-stock index that’s weighted by price, the FT said. David Blitzer, chairman of the index committee for S&P DJ Indices, said the issue is being discussed, the FT reported."

Dave is among my Linkedin contacts. We interviewed him regularly at Bloomberg. Should I contact him about this? No, I'm sure he has better things to do, like figure out how to m ake the Dow more relevant.

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