The Dow and S&P 500 have mapped each other almost exactly since time began, except for a short period between 1999 and 2001, when MSFT was first incorporated.
The S&P Index has gained 68% since Jan 2005, the Dow 64%.
The Dow and S&P 500 have mapped each other almost exactly since time began, except for a short period between 1999 and 2001, when MSFT was first incorporated.
The S&P Index has gained 68% since Jan 2005, the Dow 64%.
Randy Oldman wrote:
The Dow and S&P 500 have mapped each other almost exactly since time began, except for a short period between 1999 and 2001, when MSFT was first incorporated.
The S&P Index has gained 68% since Jan 2005, the Dow 64%.
the issue is not over the long term - most randomly picked sets of stocks will perform around the same over decades - it's year to year that the dow serves as a poor proxy for the market.
I could find many other examples.
But anyway, your assertion that the dow and sp500 have mapped each other is completely false.
roughly:
1 year - apart by 300 bps
3 yrs apart by 300 bps
5 yrs apart by 140 bps
in each, the SP 500 did better than the Dow.
longer than that and they do come much closer
so the bottom line is that if you want to understand the perofrmance of the US stock market over decades - fine, use the Dow. If you want to understand it over a year or 5 or less, then you have to use something else.
the Sp500 isn't perfect either because of the power of 20 or so gigantic companies to lead it around, but it's much better than the dow.
there's the datalink
DIA is an ETF that tracks the Dow
agip wrote:
Cheif Howe wrote:And how exactly did being removed from the Dow impact Alcoa?
huh? I think you are missing the point - the point is that the DJIA is a poorly constructed index of 30 handpicked companies. A committee makes the decision to expel a company and replace it with something else.
This kind of randomness, combined with the inherent problem of a price-weighted index (wherein a $200 stock would be 10x as important to the index as a $20 stock), makes the Dow a crap piece of work.
But to your question -
Alcoa stock probably suffered for a short time as funds that track the Dow had to sell it, but clearly the stock bounced back. The change has no real affect on Alcoa.
See above
agip you apparently do not realize that the removal from the DJIA of an imminently outperforming stock and the subsequent correspondence of the DJIA with the SP500 is a point in favor of the committee's efforts to reflect a broader market using only 30 stocks.
Buy Gold! wrote:
agip you apparently do not realize that the removal from the DJIA of an imminently outperforming stock and the subsequent correspondence of the DJIA with the SP500 is a point in favor of the committee's efforts to reflect a broader market using only 30 stocks.
huh huh huh?
first of all, there is no subsequent correspondence - since 9/20/13 (date of removal), here's what we have:
Dow: +17.4%
SP500: + 21.9%
So no subsequent correspondence.
second of all, three stocks were removed and three were included:
On September 20, 2013, Goldman Sachs, Nike, and Visa replaced Alcoa, Bank of America, and Hewlett-Packard.[7][8]
I'm not going to look them all up, but I will point out Hewlett is up 94% since it was removed - just amazing stuff.
third of all - you think these clowns in the committee can predict the direction of the stock market as a whole and figure out which 1 or 2 or 3 stocks they have to change to mimic the market? Seriously? that's crazy talk - obvi no one can do that.
why is anyone taking the effort to defend the DJIA? seriously. what is the point of defending it?
agip wrote:
huh huh huh?
first of all, there is no subsequent correspondence - since 9/20/13 (date of removal), here's what we have:
Dow: +17.4%
SP500: + 21.9%
So no subsequent correspondence.
second of all, three stocks were removed and three were included:
On September 20, 2013, Goldman Sachs, Nike, and Visa replaced Alcoa, Bank of America, and Hewlett-Packard.[7][8]
I'm not going to look them all up, but I will point out Hewlett is up 94% since it was removed - just amazing stuff.
third of all - you think these clowns in the committee can predict the direction of the stock market as a whole and figure out which 1 or 2 or 3 stocks they have to change to mimic the market? Seriously? that's crazy talk - obvi no one can do that.
why is anyone taking the effort to defend the DJIA? seriously. what is the point of defending it?
I sort of agree with you. The way the Dow is structured does not make sense. But I also note that over time it matches reasonably well with the the broader market indices for large stocks. Which says more about how pretty much any assortment of reasonably diversified large stocks will mirror the overall market than it does about the brilliance of the DOW itself.
And finally, I mostly agree with the sentiment, 'who gives a shit?'
Fool, one number can show equivalence, not correspondence.
I'm losing the bit of faith I had that you knew something.
Datalink wrote:
Fool, one number can show equivalence, not correspondence.
I'm losing the bit of faith I had that you knew something.
honest question - how should I know what you mean by 'correspondence' on an anonymous message board? I have no idea who you are - a 17 year old kid in his first econ class, or a 60 year old finance veteran speaking at a high level?
either you speak in whole, thought out sentences, with introductions and conclusions and statemetns of view, or I (probably) won't respond to you any more.
crypticism is not a great commo option on these boards.
I've been trying to get gente to use a topic sentence forever - I canna take any more unclear posts.
well I can, but I'd rather not.
agip what do you think the point is of an index?
to reflect accurately a given sector of the market, or the market as a whole
the Dow is meant to be a diversified, comprehensive index that tells what the US large cap stock market is doing. or has done.
get this: AIG's blowup cost the dow 3000 points. It's crazy - that was what - 25% of the entire DJIA at the time?
But if the stock had been priced at $11 instead of $22, the price fall would have been just 1,500 points. If the stock had been $5.50 the fall would have been 750 points. Why bother defending this dinosaur?
The Dow would see the negative effects of this price-weighted average during September–October 2008 with a former component AIG. Before its reverse-split adjusted stock price change, the stock collapsed from $22.76 on September 8 to $1.35 on October 27; contributing to a roughly 3,000-point drop in the index.[
http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average#Assessment
[quote]
The logic of price-weighting is self-evident. It is no more or less valuable to the point of an index than is any other form of weighting, it simply reflects a different measure.
Take your panties out of your butt.
http://www.advisorperspectives.com/dshort/commentaries/SPX-Dow-Nasdaq-Since-Their-2000-Highs.php
Hemmster wrote:
The logic of price-weighting is self-evident. It is no more or less valuable to the point of an index than is any other form of weighting, it simply reflects a different measure.
Take your panties out of your butt.
http://www.advisorperspectives.com/dshort/commentaries/SPX-Dow-Nasdaq-Since-Their-2000-Highs.php
right, because it matters a lot if Visa is a $260 stock or a $20 stock or a $130 stock. Yes, price weighting is a different measure that really ought to be incorporated in an index.
That was sarcastic.
I can't think of a single reason why a price weighted index has any value at all, let alone equal value to an equal weight or market cap weighted index.
They only did price weighting originally because it's easy to add up with a pencil.
maybe you can tell me about the utility of a price weighted index. Tell me why it is equally valuable to equal weighting or market cap weighting.
But I bet you can't.
It reflects the true performance of a total sum of money invested in a portfolio in which shares in the underlying stocks are held in equal proportion.
Which is just as valid a measure as any. There is no single portfolio, nor any single index, that makes any more sense in the abstract, than any other.
But you know this, of course. Am I right in saying that your argument is that nobody has a portfolio that looks like that? Where different equities are held in equal proportion to each other, irrespective of their individual price?
Hemmster wrote:
It reflects the true performance of a total sum of money invested in a portfolio in which shares in the underlying stocks are held in equal proportion.
Which is just as valid a measure as any. There is no single portfolio, nor any single index, that makes any more sense in the abstract, than any other.
But you know this, of course. Am I right in saying that your argument is that nobody has a portfolio that looks like that? Where different equities are held in equal proportion to each other, irrespective of their individual price?
well ok
1) I should have said "I can't think of a single reason why a price weighted index has any value at all AS A MEASURE OF THE US LARGE CAP STOCK MARKET, let alone equal value to an equal weight or market cap weighted index.
2) but really, I'm trying to figure out what you mean by 'equal proportion' and how that applies to a price weighted index.
or
3) the DJIA is used as a measuring stick of the US large cap stock market. Is the US stock market a "total sum of money invested in a portfolio in which shares in the underlying stocks are held in equal proportion"?
no
therefore a price weighted index should not be used to measure the US stock market.
I can't wait for hemmster's reply. Meantime i will say it again, maserati was a genius. up almost 300 today already, erasing all prior losses almost exactly.
Kinda easy to buy and sell when you know exactly the break points, eh? Go on, take the money and run... Ooo, Ooo, Oooooooo
" the DJIA is used as a measuring stick of the US large cap stock market."
Wrong. It is used as a measuring stick of a manner of investing. The remainder of your mistakes result from this basic error.
Hemmster wrote:
" the DJIA is used as a measuring stick of the US large cap stock market."
Wrong. It is used as a measuring stick of a manner of investing. The remainder of your mistakes result from this basic error.
then why does virtually every news outlet use it as as their description of how 'the stock market' did?
You can't mean that they think the most common method of investing is a price weighted strategy...so what do you mean?
it's like we're working on different levels here. We seem to be talking about different things, and you refuse to come out and say exactly what you mean.
Because crypticism is better? clarity stinks?
I dunno.