Looking at the Dow Jones Industrials

Eight years ago, Dow Jones decided to do a big shake up to the Dow Jones Industrial Average (^DJI). The gatekeepers of the index knocked out four stocks — Sears, Chevron, Goodyear and Union Carbide. The four new stocks they added were Microsoft, Intel, SBC and Home Depot. SBC is now AT&T.
The new additions made a lot of news at the time because it was the first time that the Dow included stocks from that new-fangled Nasdaq. Also, this was the first time the “industrial index” made such a big nod to the New Economy.
The new stocks started trading on November 1, 1999. The brave new world lasted exactly six days. On November 6, 1999, Microsoft was ruled a monopoly. Over time, Microsoft did better in court than in the trading pits.
Here’s a look at how Microsoft and Intel have done since they were added to the index:
image549.png
As you can see, both stocks have lagged the index as have Home Depot and AT&T.
As far as the old stocks go, Sears Roebuck is now Sears Holdings (SHLD). Union Carbide is no longer part of the Dow but it is part of Dow Chemical (DOW). Goodyear (GT) and Chevron (CVX) are still going strong but only Chevron has beaten the Dow over the past eight years.
Interestingly, IBM was tossed from the index in 1939 and put back in in 1979 and it’s still there today. During those 40 years, IBM went up 22,000%. If it had been there the whole time, the Dow would be far higher today (by my rough estimate, about 35%). The Dow would have cracked 1,000 in 1961 instead of twelve years later. Behold the power of one really good stock.
The other day, Barry Ritholtz said it’s time to purge GM from the Dow. I agree, and they can fire Alcoa too. He suggests Cisco as a replacement. That’s a good idea, but I’d lean more towards a stock like UPS.

Posted by on November 9th, 2007 at 8:10 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.