11 ms·

Apple to replace AT&T in Dow Jones on March 18

123 points by kudu 12y ago

s_q_b 12y ago
Given the relatively recent passing of its founder, a founder who remained so intensely and directly and involved with new product development up until the very end, Apple's stock is so bizarrely difficult to value right now that I can't fathom making it part of a bellwether indicator like the DJIA.
- PaulHoule 12y ago
  I used to be puzzled about Apple's stock price but then I notice that it really tracks revenue and the product cycle, that is, it really is earnings driven, and it is volatile because the earnings are volatile.
  - s_q_b 12y ago
    I realize this is unpleasant, but I firmly believe it needs to be said: there is an element of volatility inherent in the firm at least until it goes through a major product launch without Steve Jobs.
    - jsight 12y ago
      It was volatile before his passing as well. I think earnings volatility is an excellent explanation.
    - mikeash 12y ago
      Is the watch major enough? If so, we'll see pretty soon. Personally, I'm not optimistic, although I don't know that Steve would have made any difference.
      - loganu 12y ago
        Thinking about the watch recently: If it doesn't become the new iPhone or iPad, it's not the end of Apple. They'll still sell in the 7-8 digits, with a profit margin upwards of 25%. I don't know if it will be successful, but they've got a few things in their corner: Talent they've brought in to work on it from the fashion industry, Apple's brand name and marketing, economies of scale, their app ecosystem. I personally think that the current offering of smartwatches available is fairly underwhelming. Maybe Pebble and the rest have just been whetting everyone's appetite for watches that have better all-around execution? (Hardware, design, integration, etc.)
        mikeash 12y ago
        I agree that Apple could withstand the watch being a total flop (for Apple) without any real trouble, and they'll probably outsell other smartwatches by a comfortable margin. But I have a really hard time imagining it reaching anything like the same scale as, for example, the iPad, or staying sustainable over the long term. Apple is good at taking market segments where there's demand for a good product, and existing products are lacking, and finally getting it right. I just don't see that demand for a watch.
      - IBM 12y ago
        Were you optimistic about the iPad when it was announced?
        mikeash 12y ago
        I think so, but it's hard to accurately remember that sort of thing in hindsight. I definitely remember thinking tablets in general were cool, and hoping Apple would finally make one worth using. I find smartwatches profoundly uncool and can't see regular people buying them, although I certainly could be wrong.
        s_q_b 12y ago
        No, I wasn't. And I was wrong. I'll fully own up to that.
minikites 12y ago
The DJIA is so flawed I'm surprised this is news. A dollar change to an $800 stock affects the DJIA just as much as a dollar change tn a $30 stock so the DJIA is nearly meaningless.
- Alupis 12y ago
  > A dollar change to an $800 stock affects the DJIA just as much as a dollar change tn a $30 stock so the DJIA is nearly meaningless. You'd have to look at how many outstanding shares there are. A stock valued at $800 a share might appear stronger at first, but if the $30 per share stock has 30 times more outstanding shares... that's a stronger stock.
  - stygiansonic 12y ago
    I might be wrong, but I think the original commenter was more or less stating this, but just in a different manner. The fact that a $1 change in a $800 stock has the same effect as a $1 change in a $30 stock is because the index is price-weighted. This is arguably not a good measure of the overall behavior since it ignores the market cap. (Which I believe was your point) A market-cap weighted index (like the S&P 500) would overcome these issues.
  - Retric 12y ago
    Your wrong. The DJIA ignores market cap and just uses share price. So, # of outstanding shares has no effect. Stock splits do not count as changes in share price though. "To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor." The Dow Divisor was 0.15571590501117 on September 27, 2013. http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average#Calculation http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average#Ca... "Presently, every $1 change in price in a particular stock within the average, equates to a 6.42 (1/0.15571590501117) point movement."
    - Alupis 12y ago
      > Your wrong. The DJIA ignores market cap and just uses share price. I'm fairly certain I made no claims this was how the DJI currently behaved -- I was making the point that a better market valuation could be achieved by examining the market cap in addition to share price.
lode 12y ago
The Dow is a ridiculous stock index. It doesn't adjust for inflation, and - more importantly - just looks at the stock price, not the underlying market cap. So if Caterpillar (market cap 49.44B) rises 5$ from 80 to 85, the Dow rises 32 points. If Exxon Mobil (market cap 362 Billion) rises from 86 to 91, the Dow rises the same 32 points, even though the first rise means CAT grew only in 3,3 billion Market cap, while XOM grew 20,95 Billion. NPR's Planet Money has a great episode on the DJI: http://www.npr.org/blogs/money/2013/03/12/174139347/episode-443-dont-believe-the-hype http://www.npr.org/blogs/money/2013/03/12/174139347/episode-...
- stygiansonic 12y ago
  Agreed - a price-weighted index like the DJIA doesn't make much sense for describing the aggregate behaviour of the constituents, even if it does attempt to adjust for stock splits. A market-cap weighted index like the S&P 500 is probably a better measure.
  - aganders3 12y ago
    I don't know much about this, but I looked them up and it's interesting how well the two compare: https://www.google.com/finance?q=INDEXSP%3A.INX%2C+INDEXDJX%3A.DJI&ei=LuD5VIrBIauxigKsjIGIDg https://www.google.com/finance?q=INDEXSP%3A.INX%2C+INDEXDJX%...
    - parenthesis 12y ago
      Yes, the calculation of the Dow Jones is a complete joke, but, funnily enough, it has tracked the fairly sensibly calculated S&P 500 surprisingly closely over time.
      - maaku 12y ago
        No, it hasn't. The two diverge greatly over long windows.
    - stygiansonic 12y ago
mef 12y ago
Earlier this week Reuters took a look at the Dow's past performance had Apple replaced one of its components http://graphics.thomsonreuters.com/15/apple-djia/index.html http://graphics.thomsonreuters.com/15/apple-djia/index.html
- stygiansonic 12y ago
  Interesting chart! While this does show the potentially drastic impact that one company can have in a 30-constituent index, the S&P 500 (with its market-cap weighting) is not completely immune from one company potentially dominating as well. For example, IVV, an index ETF that tracks the S&P 500, currently has > 4% of its assets in AAPL[0], due to Apple's immense market cap. 0. http://www.ishares.com/us/products/239726/ishares-core-sp-500-etf http://www.ishares.com/us/products/239726/ishares-core-sp-50...
clacomdty 12y ago
Index portfolio manager here. The one thing the article fails to mention is that the addition of Apple will coincide with a 4:1 stock split in Visa[0]- the index's highest priced (and thus highest-weighted) holding. Although the addition of Apple had been anticipated, Visa's split was definitely a catalyst. Had they not added Apple, the technology sector within the index would have dropped significantly, in line with Visa's split. The addition of Apple will minimize the impact. 0.http://neworleanscitybusiness.com/blog/2015/03/06/visa-stock-split-to-put-apple-in-place-of-att-on-dow-jones-industrial-average/ http://neworleanscitybusiness.com/blog/2015/03/06/visa-stock...
- MichaelGG 12y ago
  ... That sounds utterly ridiculous. Why would they base anything off the price of the stocks? If they all issue a 2:1 split, then what, the index drops by half? Why would anyone use such a measurement? Why would anyone continue to cite such a measurement? It makes me wonder what other widely-used things are shams but I lack the knowledge to judge. Or am I getting this totally wrong?
  - clacomdty 12y ago
    It's not terribly rare that a stock splits in the Dow. The index value itself doesn't change on account of the split (that would be ridiculous). Visa's weight will drop, and every other stock in the index will increase accordingly. They use an index divisor to maintain the current level of the index when corporate actions like this occur: http://www.investopedia.com/terms/i/indexdivisor.asp http://www.investopedia.com/terms/i/indexdivisor.asp At this point, the Dow is only cited because "it's been around forever." That, and Dow Jones is owned by News Corp. So of course the media wants to keep promoting its own subsidiary.
    - tsuyoshi 12y ago
      Actually, both the DJIA and the S&P 500 (the index that's actually worth a damn) are produced by the same entity these days: http://en.wikipedia.org/wiki/S&P_Dow_Jones_Indices http://en.wikipedia.org/wiki/S&P_Dow_Jones_Indices I wonder who actually does care about the Dow? Are there actually a lot of investors that don't know any better? Or is it just people who think the stock market is important (itself questionable) but don't know anything about it?
tempestn 12y ago
This post[1] from back in 2012 looks at how different things would have been for all the DJIA-referencing articles if Apple had been included in the average all along, instead of Cisco. (It also points out ridiculousness of the index that makes this possible.) For a time before computers it made sense, but it's amazing that it's remained relevant this long. These days, there's no real reason to even use the S&P 500 as a market proxy given the existence of more comprehensive indexes, but at least it has a logical basis. [1] https://news.ycombinator.com/item?id=9161242 https://news.ycombinator.com/item?id=9161242

123 points by kudu 12y ago

s_q_b 12y ago

Given the relatively recent passing of its founder, a founder who remained so intensely and directly and involved with new product development up until the very end, Apple's stock is so bizarrely difficult to value right now that I can't fathom making it part of a bellwether indicator like the DJIA.

PaulHoule 12y ago
I used to be puzzled about Apple's stock price but then I notice that it really tracks revenue and the product cycle, that is, it really is earnings driven, and it is volatile because the earnings are volatile.
- s_q_b 12y ago
  I realize this is unpleasant, but I firmly believe it needs to be said: there is an element of volatility inherent in the firm at least until it goes through a major product launch without Steve Jobs.
  - jsight 12y ago
    It was volatile before his passing as well. I think earnings volatility is an excellent explanation.
  - mikeash 12y ago
    Is the watch major enough? If so, we'll see pretty soon. Personally, I'm not optimistic, although I don't know that Steve would have made any difference.
    - loganu 12y ago
      Thinking about the watch recently: If it doesn't become the new iPhone or iPad, it's not the end of Apple. They'll still sell in the 7-8 digits, with a profit margin upwards of 25%. I don't know if it will be successful, but they've got a few things in their corner: Talent they've brought in to work on it from the fashion industry, Apple's brand name and marketing, economies of scale, their app ecosystem. I personally think that the current offering of smartwatches available is fairly underwhelming. Maybe Pebble and the rest have just been whetting everyone's appetite for watches that have better all-around execution? (Hardware, design, integration, etc.)
      - mikeash 12y ago
        I agree that Apple could withstand the watch being a total flop (for Apple) without any real trouble, and they'll probably outsell other smartwatches by a comfortable margin. But I have a really hard time imagining it reaching anything like the same scale as, for example, the iPad, or staying sustainable over the long term. Apple is good at taking market segments where there's demand for a good product, and existing products are lacking, and finally getting it right. I just don't see that demand for a watch.
    - IBM 12y ago
      Were you optimistic about the iPad when it was announced?
      - mikeash 12y ago
        I think so, but it's hard to accurately remember that sort of thing in hindsight. I definitely remember thinking tablets in general were cool, and hoping Apple would finally make one worth using. I find smartwatches profoundly uncool and can't see regular people buying them, although I certainly could be wrong.
      - s_q_b 12y ago
        No, I wasn't. And I was wrong. I'll fully own up to that.

minikites 12y ago

The DJIA is so flawed I'm surprised this is news. A dollar change to an $800 stock affects the DJIA just as much as a dollar change tn a $30 stock so the DJIA is nearly meaningless.

Alupis 12y ago
> A dollar change to an $800 stock affects the DJIA just as much as a dollar change tn a $30 stock so the DJIA is nearly meaningless. You'd have to look at how many outstanding shares there are. A stock valued at $800 a share might appear stronger at first, but if the $30 per share stock has 30 times more outstanding shares... that's a stronger stock.
- stygiansonic 12y ago
  I might be wrong, but I think the original commenter was more or less stating this, but just in a different manner. The fact that a $1 change in a $800 stock has the same effect as a $1 change in a $30 stock is because the index is price-weighted. This is arguably not a good measure of the overall behavior since it ignores the market cap. (Which I believe was your point) A market-cap weighted index (like the S&P 500) would overcome these issues.
- Retric 12y ago
  Your wrong. The DJIA ignores market cap and just uses share price. So, # of outstanding shares has no effect. Stock splits do not count as changes in share price though. "To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor." The Dow Divisor was 0.15571590501117 on September 27, 2013. http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average#Calculation http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average#Ca... "Presently, every $1 change in price in a particular stock within the average, equates to a 6.42 (1/0.15571590501117) point movement."
  - Alupis 12y ago
    > Your wrong. The DJIA ignores market cap and just uses share price. I'm fairly certain I made no claims this was how the DJI currently behaved -- I was making the point that a better market valuation could be achieved by examining the market cap in addition to share price.

lode 12y ago

The Dow is a ridiculous stock index. It doesn't adjust for inflation, and - more importantly - just looks at the stock price, not the underlying market cap. So if Caterpillar (market cap 49.44B) rises 5$ from 80 to 85, the Dow rises 32 points. If Exxon Mobil (market cap 362 Billion) rises from 86 to 91, the Dow rises the same 32 points, even though the first rise means CAT grew only in 3,3 billion Market cap, while XOM grew 20,95 Billion. NPR's Planet Money has a great episode on the DJI: http://www.npr.org/blogs/money/2013/03/12/174139347/episode-443-dont-believe-the-hype http://www.npr.org/blogs/money/2013/03/12/174139347/episode-...

stygiansonic 12y ago
Agreed - a price-weighted index like the DJIA doesn't make much sense for describing the aggregate behaviour of the constituents, even if it does attempt to adjust for stock splits. A market-cap weighted index like the S&P 500 is probably a better measure.
- aganders3 12y ago
  I don't know much about this, but I looked them up and it's interesting how well the two compare: https://www.google.com/finance?q=INDEXSP%3A.INX%2C+INDEXDJX%3A.DJI&ei=LuD5VIrBIauxigKsjIGIDg https://www.google.com/finance?q=INDEXSP%3A.INX%2C+INDEXDJX%...
  - parenthesis 12y ago
    Yes, the calculation of the Dow Jones is a complete joke, but, funnily enough, it has tracked the fairly sensibly calculated S&P 500 surprisingly closely over time.
    - maaku 12y ago
      No, it hasn't. The two diverge greatly over long windows.
  - stygiansonic 12y ago

mef 12y ago

Earlier this week Reuters took a look at the Dow's past performance had Apple replaced one of its components http://graphics.thomsonreuters.com/15/apple-djia/index.html http://graphics.thomsonreuters.com/15/apple-djia/index.html

stygiansonic 12y ago
Interesting chart! While this does show the potentially drastic impact that one company can have in a 30-constituent index, the S&P 500 (with its market-cap weighting) is not completely immune from one company potentially dominating as well. For example, IVV, an index ETF that tracks the S&P 500, currently has > 4% of its assets in AAPL[0], due to Apple's immense market cap. 0. http://www.ishares.com/us/products/239726/ishares-core-sp-500-etf http://www.ishares.com/us/products/239726/ishares-core-sp-50...

clacomdty 12y ago

Index portfolio manager here. The one thing the article fails to mention is that the addition of Apple will coincide with a 4:1 stock split in Visa[0]- the index's highest priced (and thus highest-weighted) holding. Although the addition of Apple had been anticipated, Visa's split was definitely a catalyst. Had they not added Apple, the technology sector within the index would have dropped significantly, in line with Visa's split. The addition of Apple will minimize the impact. 0.http://neworleanscitybusiness.com/blog/2015/03/06/visa-stock-split-to-put-apple-in-place-of-att-on-dow-jones-industrial-average/ http://neworleanscitybusiness.com/blog/2015/03/06/visa-stock...

MichaelGG 12y ago
... That sounds utterly ridiculous. Why would they base anything off the price of the stocks? If they all issue a 2:1 split, then what, the index drops by half? Why would anyone use such a measurement? Why would anyone continue to cite such a measurement? It makes me wonder what other widely-used things are shams but I lack the knowledge to judge. Or am I getting this totally wrong?
- clacomdty 12y ago
  It's not terribly rare that a stock splits in the Dow. The index value itself doesn't change on account of the split (that would be ridiculous). Visa's weight will drop, and every other stock in the index will increase accordingly. They use an index divisor to maintain the current level of the index when corporate actions like this occur: http://www.investopedia.com/terms/i/indexdivisor.asp http://www.investopedia.com/terms/i/indexdivisor.asp At this point, the Dow is only cited because "it's been around forever." That, and Dow Jones is owned by News Corp. So of course the media wants to keep promoting its own subsidiary.
  - tsuyoshi 12y ago
    Actually, both the DJIA and the S&P 500 (the index that's actually worth a damn) are produced by the same entity these days: http://en.wikipedia.org/wiki/S&P_Dow_Jones_Indices http://en.wikipedia.org/wiki/S&P_Dow_Jones_Indices I wonder who actually does care about the Dow? Are there actually a lot of investors that don't know any better? Or is it just people who think the stock market is important (itself questionable) but don't know anything about it?

tempestn 12y ago

This post[1] from back in 2012 looks at how different things would have been for all the DJIA-referencing articles if Apple had been included in the average all along, instead of Cisco. (It also points out ridiculousness of the index that makes this possible.) For a time before computers it made sense, but it's amazing that it's remained relevant this long. These days, there's no real reason to even use the S&P 500 as a market proxy given the existence of more comprehensive indexes, but at least it has a logical basis. [1] https://news.ycombinator.com/item?id=9161242 https://news.ycombinator.com/item?id=9161242