3 ms·

So you can just replace underperforming/flailing companies and still call it an average?

kristopolous 2y ago
Yes that's how it's always worked https://en.m.wikipedia.org/wiki/Historical_components_of_the_Dow_Jones_Industrial_Average https://en.m.wikipedia.org/wiki/Historical_components_of_the...
- tedsanders 2y ago
  According to this, the original DJIA was 11 stocks, comprising 9 railroad companies, 1 steamship company, and 1 telegraph company. Capital was deployed very differently 140 years ago.
  - dredmorbius 2y ago
    It was and wasn't. Those were the telecoms, transport, and infrastructure companies of their day. They connected the industrial and agricultural output of the United States in much the way Apple, Amazon, Boeing, Verizon, and Walmart (all current components of the DJIA) do today. That said, yes, it's interesting to watch how the components and industrial sectors represented change over time. The first DJIA proper (26 May 1896) featured cotton oil, sugar, tobacco, gas & coke (coal), cattle feed, electrical utility, lead, railroads, leather, rubber, and a holding company (trust) largely engaged in utilities and transportation, and dropped later the same year, along with US Rubber. Changes to the average have been a consistent feature to its origins. Think of those which aren't directly comparable to modern concerns (e.g., oil & gas, electric utilities) as raw materials (mining and ag), transport and logistics, and food (or feed).
RobRivera 2y ago
Its not a market average, its an average of members curated by an arbitrary set of rules. Many exist. This is how it has always been.
xnx 2y ago
DJIA is kind of a joke index. SP500 is much better.
- millipede 2y ago
  The Dow Jones index serves a different purpose: it's meant to be easy to update without the use of a computer. It's easy to update and publish the index since the math is a lot easier, and doesn't involve pulling in hundreds of quotes and trying to tabulate a weighted average. It's not that useful now that we have computers, but in the early 1900s it was a reasonably good approximation of a market cap using fast math.
  - staticman2 2y ago
    Index funds didn't exist until 1975 while the Dow was formed in 1896. So I suppose it didn't really matter if the Dow was tracking things well, it wouldn't have impacted your investments.
    - dredmorbius 2y ago
      It was still useful to have a general idea of how stock markets were valued, particularly in light of the events on and about 29 October 1929, a/k/a Black Tuesday. Valuation of equities markets themselves has a profound impact on the monetary and financial systems as a whole. On which point, John K. Galbraith's The Great Crash: 1929 (1954) remains an excellent history of those events (and notes the DJIA's value frequently), as well as a general primer on equities and investments, and how they may go wrong.
- irjustin 2y ago
  Wonder how much DJIA had to give to get them to list.
- bityard 2y ago
  Yes, it is entirely symbolic and has been for decades. The only purpose it really serves is differentiating those who know a little bit about stock markets and those who don't. It's annoying that serious media outlets continue to publish it, alongside valid indexes, implying that it has anywhere near the same level of legitimacy. Also, I don't like it.

Yes that's how it's always worked https://en.m.wikipedia.org/wiki/Historical_components_of_the_Dow_Jones_Industrial_Average https://en.m.wikipedia.org/wiki/Historical_components_of_the...

tedsanders 2y ago
According to this, the original DJIA was 11 stocks, comprising 9 railroad companies, 1 steamship company, and 1 telegraph company. Capital was deployed very differently 140 years ago.
- dredmorbius 2y ago
  It was and wasn't. Those were the telecoms, transport, and infrastructure companies of their day. They connected the industrial and agricultural output of the United States in much the way Apple, Amazon, Boeing, Verizon, and Walmart (all current components of the DJIA) do today. That said, yes, it's interesting to watch how the components and industrial sectors represented change over time. The first DJIA proper (26 May 1896) featured cotton oil, sugar, tobacco, gas & coke (coal), cattle feed, electrical utility, lead, railroads, leather, rubber, and a holding company (trust) largely engaged in utilities and transportation, and dropped later the same year, along with US Rubber. Changes to the average have been a consistent feature to its origins. Think of those which aren't directly comparable to modern concerns (e.g., oil & gas, electric utilities) as raw materials (mining and ag), transport and logistics, and food (or feed).

RobRivera 2y ago

Its not a market average, its an average of members curated by an arbitrary set of rules. Many exist. This is how it has always been.

xnx 2y ago

DJIA is kind of a joke index. SP500 is much better.

millipede 2y ago
The Dow Jones index serves a different purpose: it's meant to be easy to update without the use of a computer. It's easy to update and publish the index since the math is a lot easier, and doesn't involve pulling in hundreds of quotes and trying to tabulate a weighted average. It's not that useful now that we have computers, but in the early 1900s it was a reasonably good approximation of a market cap using fast math.
- staticman2 2y ago
  Index funds didn't exist until 1975 while the Dow was formed in 1896. So I suppose it didn't really matter if the Dow was tracking things well, it wouldn't have impacted your investments.
  - dredmorbius 2y ago
    It was still useful to have a general idea of how stock markets were valued, particularly in light of the events on and about 29 October 1929, a/k/a Black Tuesday. Valuation of equities markets themselves has a profound impact on the monetary and financial systems as a whole. On which point, John K. Galbraith's The Great Crash: 1929 (1954) remains an excellent history of those events (and notes the DJIA's value frequently), as well as a general primer on equities and investments, and how they may go wrong.
irjustin 2y ago
Wonder how much DJIA had to give to get them to list.
bityard 2y ago
Yes, it is entirely symbolic and has been for decades. The only purpose it really serves is differentiating those who know a little bit about stock markets and those who don't. It's annoying that serious media outlets continue to publish it, alongside valid indexes, implying that it has anywhere near the same level of legitimacy. Also, I don't like it.