

Apple to replace AT&T in Dow Jones on March 18 - kudu
http://www.reuters.com/article/2015/03/06/us-apple-dow-idUSKBN0M21H020150306

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lode
The Dow is a ridiculous stock index. It doesn't adjust for inflation, and -
more importantly - just looks at the stock price, not the underlying market
cap. So if Caterpillar (market cap 49.44B) rises 5$ from 80 to 85, the Dow
rises 32 points. If Exxon Mobil (market cap 362 Billion) rises from 86 to 91,
the Dow rises the same 32 points, even though the first rise means CAT grew
only in 3,3 billion Market cap, while XOM grew 20,95 Billion.

NPR's Planet Money has a great episode on the DJI:
[http://www.npr.org/blogs/money/2013/03/12/174139347/episode-...](http://www.npr.org/blogs/money/2013/03/12/174139347/episode-443-dont-
believe-the-hype)

~~~
etrain
Agreed, but given their differences, the historical correlation between the
S&P and the dow is absurd.
[https://www.google.com/finance?q=INDEXDJX%3A.DJI&ei=Wef5VPmw...](https://www.google.com/finance?q=INDEXDJX%3A.DJI&ei=Wef5VPmwNsX9sQeQtoEw)

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throwawayaway
are index linked funds linked to other indices?

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bdcs
Usually S&P500

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throwawayaway
i suspected that. do you think that would explain the absurd correlation?

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clacomdty
Index portfolio manager here.

The one thing the article fails to mention is that the addition of Apple will
coincide with a 4:1 stock split in Visa[0]- the index's highest priced (and
thus highest-weighted) holding.

Although the addition of Apple had been anticipated, Visa's split was
definitely a catalyst. Had they not added Apple, the technology sector within
the index would have dropped significantly, in line with Visa's split. The
addition of Apple will minimize the impact.

0.[http://neworleanscitybusiness.com/blog/2015/03/06/visa-
stock...](http://neworleanscitybusiness.com/blog/2015/03/06/visa-stock-split-
to-put-apple-in-place-of-att-on-dow-jones-industrial-average/)

~~~
MichaelGG
...

That sounds utterly ridiculous. Why would they base anything off the price of
the stocks? If they all issue a 2:1 split, then what, the index drops by half?

Why would anyone use such a measurement? Why would anyone continue to cite
such a measurement? It makes me wonder what other widely-used things are shams
but I lack the knowledge to judge.

Or am I getting this totally wrong?

~~~
clacomdty
It's not terribly rare that a stock splits in the Dow.

The index value itself doesn't change on account of the split (that would be
ridiculous). Visa's weight will drop, and every other stock in the index will
increase accordingly. They use an index divisor to maintain the current level
of the index when corporate actions like this occur:
[http://www.investopedia.com/terms/i/indexdivisor.asp](http://www.investopedia.com/terms/i/indexdivisor.asp)

At this point, the Dow is only cited because "it's been around forever." That,
and Dow Jones is owned by News Corp. So of course the media wants to keep
promoting its own subsidiary.

~~~
tsuyoshi
Actually, both the DJIA and the S&P 500 (the index that's actually worth a
damn) are produced by the same entity these days:
[http://en.wikipedia.org/wiki/S&P_Dow_Jones_Indices](http://en.wikipedia.org/wiki/S&P_Dow_Jones_Indices)

I wonder who actually does care about the Dow? Are there actually a lot of
investors that don't know any better? Or is it just people who think the stock
market is important (itself questionable) but don't know anything about it?

~~~
slfnflctd
> Or is it just people who think the stock market is important (itself
> questionable) but don't know anything about it?

As a kid, for many years, the first and only exposure I had to the concept of
the stock market was the clockwork reference to DJIA on public radio or tv. I
think the founding of the exchange might have been mentioned in school, too
(and not much else).

So, later in life, when I wanted to understand things better, I started
reading about the Dow and picking it apart. It was an entry point for me; I
assume it must have been for many others as well.

Now that I have more knowledge, I question - as you apparently do - whether
any of it is worth getting too deeply involved in for the average person.
Still, I'm glad I know more about it now, and I do think we need far better
financial literacy built into our school system.

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mef
Earlier this week Reuters took a look at the Dow's past performance had Apple
replaced one of its components [http://graphics.thomsonreuters.com/15/apple-
djia/index.html](http://graphics.thomsonreuters.com/15/apple-djia/index.html)

~~~
stygiansonic
Interesting chart! While this does show the potentially drastic impact that
one company can have in a 30-constituent index, the S&P 500 (with its market-
cap weighting) is not completely immune from one company potentially
dominating as well.

For example, IVV, an index ETF that tracks the S&P 500, currently has > 4% of
its assets in AAPL[0], due to Apple's immense market cap.

0\. [http://www.ishares.com/us/products/239726/ishares-core-
sp-50...](http://www.ishares.com/us/products/239726/ishares-core-sp-500-etf)

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tempestn
This post[1] from back in 2012 looks at how different things would have been
for all the DJIA-referencing articles if Apple had been included in the
average all along, instead of Cisco. (It also points out ridiculousness of the
index that makes this possible.)

For a time before computers it made sense, but it's amazing that it's remained
relevant this long. These days, there's no real reason to even use the S&P 500
as a market proxy given the existence of more comprehensive indexes, but at
least it has a logical basis.

[1]
[https://news.ycombinator.com/item?id=9161242](https://news.ycombinator.com/item?id=9161242)

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minikites
The DJIA is so flawed I'm surprised this is news. A dollar change to an $800
stock affects the DJIA just as much as a dollar change tn a $30 stock so the
DJIA is nearly meaningless.

~~~
Alupis
> A dollar change to an $800 stock affects the DJIA just as much as a dollar
> change tn a $30 stock so the DJIA is nearly meaningless.

You'd have to look at how many outstanding shares there are. A stock valued at
$800 a share might appear stronger at first, but if the $30 per share stock
has 30 times more outstanding shares... that's a stronger stock.

~~~
Retric
Your wrong.

The DJIA ignores market cap and just uses share price. So, # of outstanding
shares has no effect. Stock splits do not count as changes in share price
though.

"To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a
divisor, the Dow Divisor." The Dow Divisor was 0.15571590501117 on September
27, 2013.
[http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average#Ca...](http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average#Calculation)

"Presently, every $1 change in price in a particular stock within the average,
equates to a 6.42 (1/0.15571590501117) point movement."

~~~
Alupis
> Your wrong. The DJIA ignores market cap and just uses share price.

I'm fairly certain I made no claims this was how the DJI currently behaved --
I was making the point that a better market valuation could be achieved by
examining the market cap in addition to share price.

~~~
Retric
Uhh, sorry no idea how else to parse what you wrote. Could you clarify?

In response to "> A dollar change to an $800 stock affects the DJIA just as
much as a dollar change tn a $30 stock so the DJIA is nearly meaningless." You
say "You'd have to look at how many outstanding shares there are. ..."

Edit: Unless you assumed they meant 1$ change in market cap, but as he was
actually discribing the way the DJIA works assing he was wrong if you know how
it works seems odd.

PS: Sure, we can make a new index using different math, but at that point were
simply talking about something else not the DJIA. What's really surprizing is
how useful the DJIA is as a simple indecator of market trends that never get's
that big. IMO, 1000 * Log(market basket of stocks) might be just as handy, but
they pick stocks in part as good proxy for the ecnomy so the DJIA is more
useful than you might think.

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s_q_b
Given the relatively recent passing of its founder, a founder who remained so
intensely and directly and involved with new product development up until the
very end, Apple's stock is so bizarrely difficult to value right now that I
can't fathom making it part of a bellwether indicator like the DJIA.

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PaulHoule
I used to be puzzled about Apple's stock price but then I notice that it
really tracks revenue and the product cycle, that is, it really is earnings
driven, and it is volatile because the earnings are volatile.

~~~
s_q_b
I realize this is unpleasant, but I firmly believe it needs to be said: there
is an element of volatility inherent in the firm at least until it goes
through a major product launch without Steve Jobs.

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mikeash
Is the watch major enough? If so, we'll see pretty soon. Personally, I'm not
optimistic, although I don't know that Steve would have made any difference.

~~~
IBM
Were you optimistic about the iPad when it was announced?

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mikeash
I think so, but it's hard to accurately remember that sort of thing in
hindsight. I definitely remember thinking tablets in general were cool, and
hoping Apple would finally make one worth using. I find smartwatches
profoundly uncool and can't see regular people buying them, although I
certainly could be wrong.

