Happy Dow Day! (grumble, grumble)

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I don't usually observe historical anniversaries unless they come with a summertime holiday. However, I'll make an exception with the Dow Jones industrial average's 115th anniversary bash on Thursday because it gives me another opportunity to kick the index and praise it.

New York City major Michael Bloomberg has reportedly proclaimed May 26 as "Dow Jones Industrial Average Day," calling the index "the most recognizable, most frequently quoted, and longest-serving market indicator of its kind."

Fair enough. I use it in my market update headlines because of this recognition factor - not to mention that our software doesn't handle ampersands well, which rules out the S&P 500 from headlines.

That said, it is an archaic beast. Though it has expanded over the past century, it still tracks just 30 stocks which makes it an exceptionally narrow reflection of the U.S. market. The way it weighs stocks - based on actual stock prices - also seems at odds with the times, as does the fallible member selection process: Human beings decide which stocks get in, and this has created some laughable moments.

In 2009, the Dow's overseers replaced failed General Motors Corp. with Cisco Systems Inc., bypassing Ford Motor Co. Since then, Cisco shares have slumped 18 per cent while Ford shares have risen 129 per cent. Similarly, the Dow added Microsoft Corp. at the height of the Internet bubble in 1999 and ditched Chevron Corp. at a low point for oil prices.

Okay, so the Dow isn't supposed to be a mutual fund. But investors do hitch money to it in the form of exchange traded funds that track the Dow. And this is where, surprisingly, the Dow deserves some praise.

In January, I wrote an article outlining the performance differences between the Dow and the S&P 500. Over the past 10 years, to the end of 2010, the Dow had risen a total of 7.3 per cent, while the S&P 500 had fallen 4.7 per cent - marking a substantial 12-percentage-point difference. And after factoring in dividends, the Dow has beaten the S&P 500 by more than 21 percentage points.

Well, the Dow has continued to beat the S&P 500 in 2011. Since the start of the year, the Dow has returned 8.2 per cent after including dividends, versus 5.9 per cent for the S&P 500. Perhaps this is as good a reason as any to pop open a bottle of champagne on Thursday in honour of the Dow.