Is The Dow A Dog?

[DrStool]

In this weekend's Barrooms, there's an article of the above title, which talks about the past and possible future revisions of the Dow. As you know, any mention of the construction of the Dow and other indexes sends Doc into paroxysms of apoplexy. (paroxysms of apoplexy? Phew!)

 

In response to the article Dr. Stool sent the following email to the editors of Barrooms:

 

Mr. Martin:

 

The problem with all leading market indices is that they are managed. None give a true reflection of the market's performance over the long haul. All grossly overstate actual performance. For example, the Dow Jokes Inflatables includes only one of the original stocks. That would be Dow Joke's business partner in crime General Custer, who is leading the market to its ultimate slaughter under a mountain of worthless debt. But that is a story for another day.  

 

(By the way, no one ever answered me as to whether Mr. Abelson received the coffee mugs I sent him in appreciation for his remarks about Alfred E. Greenspewman. Geez, you people are rude.)

 

Back to my point.  So let's see now, how have those 12 original Dow stocks done in the last 100 years. Here's one, American Cotton Oil. Hmmm. And how about Distilling and Cattle Feeding, or LaClede Gas. Then there's Tennessee Coal and Iron and U.S. Leather Preferred. And of course, Nash Motors, which came later. And how can we forget Woolworth? Here's one that they added in 1930, Hudson Motor. Oops, let's not forget the Victor Talking Machine Company. Or Johns Manville and International Shoe. International Harvester either.

 

If we included all the stocks that disappeared and kept them in the index at the value they left us with, which was zero, where would the Dow be today?

 

In view of the misleading nature of the Dow, and all the other BS indexes, I propose the following. Once a stock is in the index it can never be removed. Even if it goes bust and disappears, it must be carried at its market value of zero. If you want to add a new stock to replace one that has gone under, fine. But adjust the divisor accordingly. Since the stock that went to zero still counts for zero in investors' portfolios, and they can never get that money back, to exclude its impact on the future performance of the index is nothing short of fraud. The market's real overall performance is nowhere near as good as the market averages would lead people to believe. The averages are nothing more than cheap statistical tricks used to hoodwink the public into turning their money over to Wall Street.

 

But of course, distribution is the name of the game, fraud is one of Wall Street's time honored tools, and by promulgating the myth that the Dow somehow represents something, Dow Jones is a co-conspirator.  

 

Dr. Stepan N. Stool

Publisher and Chief of Stock Proctology

Capitalstool.com

Not just the same old bull

[Flaming Turds]

Doc great letter dude. Since youre a bit of a market historian why dont you make the Real Dow Index. I would love to see all of the companies ever in the dow listed along with the current members. Make it so it doesnt need to be updated except when a new one is replaced. It would be interesting to see what years experienced the most changes too. If youre too busy with other stuff Ill make a page for it if you have a list you could send me. I suppose I could search it but Im feeling lazy today.

[Ned38]

Don't wanna sit next to Abbey Joe at the next roundtable ?

[GregFokker]

Captain my captain.

[DrStool]

FT-

 

Dude, yo are lazy!

 

http://www.djindexes.com/jsp/avgInOut.jsp

 

The original 12 are here.

http://www.djindexes.com/jsp/industrialAve...eMenu=true.html

Between the first group, and where they pick it up. Too many just disappeared I guess.

[DogBoy]

"General Custer, who is leading the market to its ultimate slaughter under a mountain of worthless debt. "

 

Doc, are you insinuating that my son's friend -- the stock boy at Bed Bath and Beyond --- is never going to be able to repay the loan on his $25,000 car with 0% interest, ) down, and no payments until (ooops!!) dare I say it --- 2003, is not going to be able to repay the loan ?