Comments on: The silly, underperforming Dow http://blogs.reuters.com/felix-salmon/2011/01/07/the-silly-underperforming-dow/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: DrFuManchu http://blogs.reuters.com/felix-salmon/2011/01/07/the-silly-underperforming-dow/comment-page-1/#comment-23036 Tue, 11 Jan 2011 23:54:20 +0000 http://blogs.reuters.com/felix-salmon/?p=6860#comment-23036 The reason is that “Dow Jones Industrial Average” sounds much more important than “S&P 500″, and probably includes all stocks, rather than a mere 500.

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By: signdude http://blogs.reuters.com/felix-salmon/2011/01/07/the-silly-underperforming-dow/comment-page-1/#comment-22924 Mon, 10 Jan 2011 00:05:51 +0000 http://blogs.reuters.com/felix-salmon/?p=6860#comment-22924 You miss the licensing fees that DJ earn.

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By: kahmet http://blogs.reuters.com/felix-salmon/2011/01/07/the-silly-underperforming-dow/comment-page-1/#comment-22914 Sun, 09 Jan 2011 16:08:25 +0000 http://blogs.reuters.com/felix-salmon/?p=6860#comment-22914 I completely agree with you, Felix. Thanks for your clarification of the issue.

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By: TFF http://blogs.reuters.com/felix-salmon/2011/01/07/the-silly-underperforming-dow/comment-page-1/#comment-22827 Fri, 07 Jan 2011 20:59:27 +0000 http://blogs.reuters.com/felix-salmon/?p=6860#comment-22827 KD, of course it is absurd! But consider the big picture — despite being completely absurd, it serves just as well as the S&P500 for most purposes, and (unlike the S&P500) reinvests dividends so you don’t need to calculate that separately.

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By: TFF http://blogs.reuters.com/felix-salmon/2011/01/07/the-silly-underperforming-dow/comment-page-1/#comment-22826 Fri, 07 Jan 2011 20:59:24 +0000 http://blogs.reuters.com/felix-salmon/?p=6860#comment-22826 KD, of course it is absurd! But consider the big picture — despite being completely absurd, it serves just as well as the S&P500 for most purposes, and (unlike the S&P500) reinvests dividends so you don’t need to calculate that separately.

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By: KidDynamite http://blogs.reuters.com/felix-salmon/2011/01/07/the-silly-underperforming-dow/comment-page-1/#comment-22822 Fri, 07 Jan 2011 20:20:16 +0000 http://blogs.reuters.com/felix-salmon/?p=6860#comment-22822 “But the big picture, of course, is that the Dow is a ridiculous way of measuring the stock market”

YES Felix! This needs to be shouted loud and proud by people with big voices. As for why it persists? Status quo. that’s it.

TFF – I think Felix’s point is that the Dow is a portfolio that is contructed in a way that NO ONE with a brain would or should ever construct a portfolio. Thus, it’s asinine to look at and talk about so much.

For the uninitiated, if you own a Dow basket, you own the same number of shares of each stock – that’s what “price weighted” means, and it’s moronic. We all know that the price per share of a stock is a random number – it can be adjusted at will via splits and reverse splits – yet it’s the driving force behind the Dow. Said differently, if a $100 Dow stock goes up 5%, it impacts the index 5 times as much as if a $20 Dow stock goes up 5%… that’s absurd.

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By: Gotthardbahn http://blogs.reuters.com/felix-salmon/2011/01/07/the-silly-underperforming-dow/comment-page-1/#comment-22818 Fri, 07 Jan 2011 19:30:55 +0000 http://blogs.reuters.com/felix-salmon/?p=6860#comment-22818 Good column, Felix.

The Dow Jones index is a piece of historical ballast that, like the calendar and the QWERTY keyboard, should be either updated (no pun intended) or scrapped, but that’ll never happen. It probably has more to do with human perceptions and resistance to change than anything rational. As I recall, the French revolutionary leaders attempted to bring in a ‘modern’, ‘scientific’ calendar – Thermidor was one of the month names, I think – and it flopped.

Moral: Never underestimate the power of inertia in human affairs, be it calendars, keyboards or stock indices.

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By: oxman http://blogs.reuters.com/felix-salmon/2011/01/07/the-silly-underperforming-dow/comment-page-1/#comment-22814 Fri, 07 Jan 2011 19:19:07 +0000 http://blogs.reuters.com/felix-salmon/?p=6860#comment-22814 I hope that at some point, you will address today’s WSJ report that Facebook is signaling its intention to go public as early as next year, given that you’ve devoted several recent blog posts to the opposite argument: i.e. that Zuckerberg and Co. in fact have every reason and intention to remain private. Maybe you read the latest signals differently. But absent an alternate interpretation, they seem to contradict much of what you’ve been saying recently. Or am I mistaken?

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By: TFF http://blogs.reuters.com/felix-salmon/2011/01/07/the-silly-underperforming-dow/comment-page-1/#comment-22812 Fri, 07 Jan 2011 18:37:10 +0000 http://blogs.reuters.com/felix-salmon/?p=6860#comment-22812 Felix, the Dow and S&P don’t merely represent different stocks, they have somewhat different characteristics. When they diverge, it has nothing to do with whether the index is measured in the hundreds or in the tens of thousands. It is an indication of shifting market sentiment. (While I don’t pay that much attention to the DJIA, it is strongly correlated with certain baskets of stocks that I *do* track for this purpose.)

Your supposed “big picture” is actually missing the big picture. The market is not a monolith, it has several different sectors with different characteristics that ebb and flow somewhat independently of each other. Focusing on a single measure is generally uninformative.

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By: Beer_numbers http://blogs.reuters.com/felix-salmon/2011/01/07/the-silly-underperforming-dow/comment-page-1/#comment-22811 Fri, 07 Jan 2011 18:20:53 +0000 http://blogs.reuters.com/felix-salmon/?p=6860#comment-22811 I think that the Dow following the S&P 500 closely is an illustration of how much of an underlying “market component” to individual stock returns there is. I don’t believe the CAPM is literally correct, but that doesn’t change the fact that a significant proportion of idiosyncratic returns are explained by aggregate market returns.

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