Changes to the Dow

The gatekeepers of the Dow Jones Industrial Average (^DJI) have decided to boot Altria (MO) and Honeywell (HON) from the index. The two new additions will be Bank of America (BAC) and Chevron (CHV).
Chevron was in the index from 1930 to 1999, though for much of the time it was known as Standard Oil of California. Honeywell was first included in the index in 1925. Altria was added in 1985. Personally, I would get rid of Alcoa (AA) and General Motors (GM).
Here’s a look at all the changes to the Dow going back to the original rail index.
The Dow is often criticized for being unrepresentative of the market. That’s true and I prefer to the use the S&P 500 (^GSPC) which is market-weighted. Still, the Dow isn’t that bad. The index that should be ignored is the Nasdaq (^IXIC). That index is dominated by a few big names that are highly correlated to each other and little else.
Being added to the Dow isn’t much of a buy signal. Here’s what happened since AIG (AIG), Pfizer (PFE) and Verizon (VZ) were added in 2004:

Here’s what happened when Microsoft (MSFT), Intel (INTC), SBC (SBC) and Home Depot (HD) were added in 1999:

The Dow is zero for the last seven.

Posted by Eddy Elfenbein on February 11th, 2008 at 9:09 am

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