rb@ccivax.UUCP (rex ballard) (02/08/86)
I remember hearing about some recent substitutions in the companies used to make up the Dow Jones Industrial Average. With the Dow now breaking 1600 yesterday, I was wandering how much of that reflects the Dow's ability to pick companies rather than the actual state of the market. Are other indicators showing similar gains?
mre@laidbak.UUCP (Mike Eisler) (02/10/86)
The companies on the Dow Jones I.A. are supposedly selected to produce a group of stocks that represent all the major industries, and also a large, if not the majority, of the revenue in the major industries. Since companies sometimes are removed from the N.Y. Exchange (for reasons of bankruptcy, going private or absorption by another company), lose their market share in an industry, or become too involved in other markets (Eg: If oil company A is on the Dow, and buys semi-conductor company B -- which is not on the Dow, but has say 5% of the IC market, then perhaps semi-conductor's will become too well represented in the average, so company A may be dropped for another oil firm.), they may have to be replaced. A replacement does NOT inflate the average, though if a lack luster stock gets replaced by a high flier, the average could move up a little faster AFTER the replacement. Note that it is possible for an entire INDUSTRY to get removed, eg. there must have been an industry that got replaced by the computer industry. I don't know if stocks get replaced due to lousy performance, even if their revenue share is still solid. But even if they do, as long as the resulting make up of the Dow is still a good representation of industry, the average is still a true measure of industry and stock market performance. Caveat, I didn't read up on this recently; these comments represent only what I recall of what I have read or been taught years ago. I also don't know which stocks were substituted recently, or with what. But considering that the Dow stocks have been going through substitutions ever since the birth of the Dow, I would say that the current Dow represents what it claims to represent. -Mike Eisler ihnp4!laidbak!mre
ekrell@ucla-cs.UUCP (02/10/86)
In article <378@ccivax.UUCP> rb@ccivax.UUCP writes: > ..about the DJIA breaking records once again ... > Are other indicators showing similar gains? Yes, most of the broad market indecies like the OTC (Over The Counter) index and the popular S&P 500 are also in new record territory. The AMEX (American Exchange) has not performed so well lately, but that is because of its high membership of Energy and Oil industries which are not doing very well after the last drop in oil prices. Changes in the DJI components are not made to pick up good stocks but rather to reflect changes in the US economy and corporate world. One of the changes was to drop one corporation that was acquired by another one that was also part of the DJI (don't recall names). It doesn't make sense to keep both in the DJI, since one is now part of the other. Changes in the DJI components are not that often. -- Eduardo Krell UCLA Computer Science Department ekrell@ucla-locus.arpa ..!{sdcrdcf,ihnp4,trwspp,ucbvax}!ucla-cs!ekrell
ka@hropus.UUCP (Kenneth Almquist) (02/11/86)
> With the Dow now breaking 1600 yesterday, I was wandering how much of > that reflects the Dow's ability to pick companies rather than the > actual state of the market. When it comes to bad stock picks, few people can beat the people who select the stocks to be included in the Dow. Depending on how you figure it, every change to the list of stocks in the Dow has consisted of replacing better performing stocks with worse performing stocks. In practice the Dow does a reasonable job of reflecting the market, although it underperforms it over the long term. The S&P 500 index is better than the Dow, although it has a lot of oil stocks in it. Kenneth Almquist ihnp4!houxm!hropus!ka (official name) ihnp4!opus!ka (shorter path)
morse@leadsv.UUCP (Terry Morse) (02/12/86)
The Dow Jones 30 is tinkered with from time to time. The latest thing they
did was to remove Chrysler and add IBM. Since then Chrysler practically
skyrocketed and IBM just plodded along. If they hadn't tinkered with these
two Dow components, the Dow Jones 30 would now be over 2000. So remember
how narrowly based the Dow 30 really is. Take a look at the S&P 500 for a
better indication of market performance. If the news media would quote a
better indicator, then we could all begin to ignore the Dow 30.
--
Terry Morse (408)743-1487
{ hplabs!cae780 } | { ihnp4!sun!sunncal } !leadsv!morsejin@hropus.UUCP (Jerry) (02/13/86)
Early in my 2.5 year sojourn at Dow Jones and Company (Information Services Division) I wrote a program that was to be used to provide the Dow Jones Averages (tm) to the rest of the corporation. In the past I taught that the industrial average represents the mean value of one share each of the original 30 stocks adjusted for splits, mergers, substitutions, and etc. To my surprise the average is *still* computed as a simple sum of of the 30 stock prices divided by a magic number published weekly in the Wall Street Journal (either Monday or Friday I think). Not only do the averages lack current relevence, they lack their purported historical relevence also. Cheers, Jerry Natowitz ihnp4!houxm!hropus
lat@druil.UUCP (TepperL) (02/13/86)
From: morse@leadsv.UUCP (Terry Morse) > .... If they hadn't tinkered with these > two Dow components, the Dow Jones 30 would now be over 2000. So remember > how narrowly based the Dow 30 really is. Take a look at the S&P 500 for a > better indication of market performance. Seems to me there was a discussion of this (DJ vs. S&P) on NPR about a month ago. Or was is PBS? Anyway, some analyst was talking about how selective the DJ was, and ended with a quip something like ... "The Dow Jones has correctly predicted 11 of the last 4 recessions." Huh? Oh. -- Larry Tepper {ihnp4 | allegra}!drutx!druil!lat +1-303-538-1759