Over at The Wall Street Journal (and CNN/Money), we see that talk is drifting to potential changes within the Dow Jones industrial average. Recall that the Dow consists of just 30 stocks, chosen by the editors of the Journal. And, to make the index even stranger, the stocks are weighted based on share price, rather than market heft.
The components tend to change infrequently, and usually only when there is a market shakeup that demands change. Well, we now have two: Hewlett-Packard Co. is on the verge of a reorganization that has not only pummelled the stock but also threatens to make it unreflective of a cutting-edge technology company.
And then there is Bank of America Corp. , down more than 6 per cent on Monday and looking less and less blue-chip all the time. Since Bank of America was added to the Dow in early 2008, the bank stock has fallen a total of 83 per cent.
Still, there’s no arguing with success – and as we’ve pointed out in this space before, the Dow has been doing very well in recent years. Over the past 12 months, it as gained a total (after factoring in dividends) of 9.3 per cent, against 7.2 per cent in the case of the broader S&P 500. Over the past two years, it has been the S&P 500 by 20.6 per cent to 14.2 per cent. And over the past decade, to the end of July, it has returned 47.3 per cent against the S&P 500’s 29.4 per cent return.