Hey Dumbasses, the Dow's New Record Is Really No Big Deal

Jee-zus, am I sick of hearing the idiots on financial television go on about the new record set this week by the Dow Jones Industrial Average as though it were the Second Coming. (I don’t have financial telly on at my desk at work, but the commentary is piped through speakers in certain parts of our building, so to some extent I can’t avoid it.) If you weren’t morons, you would realize that the record really doesn’t merit much excitement because the Dow is a piss-poor market measure for the following reasons:

  • It contains only 30 stocks.

  • The Dow’s members are picked by a committee, rather than a mechanical means such as market capitalization. While mechanical systems aren’t perfect, I think they’re preferable to committees.

  • Because the Dow is an average, rather than an index, the rules under which it is calculated give stocks trading at higher prices more influence than stocks trading at lower prices, regardless of the size of the companies. That is to say, Boeing – which has a market cap of about $67 billion – has the heaviest weighting in the Dow (5.68%) because its shares trade at almost $84, while Intel has the lowest weighting (1.40%) despite its $119 billion market cap because the stock trades at less then $21. This is simply idiotic. The S&P 500, like most indexes, is weighted by market cap, meaning that a change in the price of stock in Exxon Mobil (market value of $398 billion) has more influence than a change in the price of shares of PMC-Sierra (market value of $1.25 billion).

So can you dumbasses please shut up about the fucking Dow and its fucking record. Wake me up when the S&P 500 makes a new high, which would merely require the index to gain another 13%.

I agree with you for the most part. The price weighting of the 30 stocks is a huge flaw, if one were to use the Dow for general market analysis. But on the other hand, the Dow represents 30 of the most liquid, most price-efficient and most analyzed stocks in the US. Thus, while the market may take some time to move other less-efficiently traded stocks to their “correct” prices, the Dow 30 move immediately. One can be assured that the prices of these 30 contain all publically-available information. This gives us the quickest way to gauge investor and market sentiment. But I think that you are correct in saying that the new record is really not a big deal. And I don’t know of any investment managers that use the Dow to measure their own success. Generally, the S&P and Russell indices do a better job for US-listed stocks while other indices such as Morgan Stanley’s EAFE or ACWI work for non-US listed stocks.

I hear ya! Who the hell was shouting when I opened with a Ton 28 tonight? Yeah, I thought so! Took out the 105 as well, buddy. No love, I tell ya.

I agree completely with the OP.

Another thing that bothers me is excessive focus on a single company’s stock, especially at the company in question. I visit a lot of big energy companies (because, of course, I am evil) and one thing that really bugs me are the ones which have LED screens in every waiting room, scattered throughout the building, and even in elevators of the current second-by-second performance of the company stock. You know, because it’s supposed to inspire the workers to work harder AND smarter…since making one less photocopy or filing a report half an hour early is going to be instantly relayed to stockholders around the planet…

How many times can you sit there watching your one company’s stock waver up and down by a few percent during the day for reasons completely out of your control (unless you’re the CEO) before you come into work with a whole golf bag full of shotguns and decide to make the signs pay?

I don’t think too many people are under the illusion that a Dow record high at this point means all that much, what with problems in housing, sluggish wages and various other economic insecurities.

What’s bizarre has been coverage in the New York Times, which wants to be absolutely sure no one is under the delusion that this is any kind of good news, coming so close to the election and all. Their articles on the subject have been full of wary and pessimistic language. Truly classic was the Times front page headline when the record was set:

**Dow Jones Index Hits a New High, Retracing Losses **

Uh, right! The market went up, sure, but don’t forget it was down before!!
I’m sure this is all a Republican plot, like with gasoline. I’m going to keep on hiding under the bed.

MMMmmmm, how YOU doin’?
In other news, GM overtakes Porsche in market cap at 18.8bn vs 18.7bn, still behind Fiat SpA at 20.5bn and Renault at 29bn. At same time, Toyota Market cap exceeds 180bn.

I do it 8 hours a day. However, I"m paid to do it.

I fail to see what’s wrong with a news agency providing context. And this is relevant context. Better to provide a little relevant history than to jump up and down shouting “The Dow is up!”, surely.

I still remember the banner day when the Dow hit 1,000. Which was widely considered never to happen. THAT was a big deal.

Somehow, setting its 457th new high up in the stratosphere lacks the same gravitas.

I remember when the Dow hit 11,000 for the first time ever and some of my friends were touting a certain Administration as being the reason for the high mark. Not making a political point, though some will inevitably come in to do so, but the market is the market.

11,000 is 11,000. Someday we may hit 12,000, or we may go back to 10,000. Or 5,000. It’s not that big of a deal. I’m with the OP on the significance of the number posted.

Is it really, or should those numbers only be compared after correcting to inflation adjusted dollars?

Not quite that simple. It isn’t like comparing prices of goods in 1970s dollars with today’s dollars.

The wikipedia article on the DJIA