The Misweightings of the Dow

Below is a listing of the 30 stocks in the Dow Jones Industrial Average ($DJIA). The Dow is a price-weighted index which means that it’s calculated by adding up all the prices of the 30 stocks and dividing by an index divisor. The divisor is currently 0.132129493.

Price-weighting is a really bad idea and it’s a holdover from the days before computers. The S&P 500 is based on each stock’s market value which is a far more accurate measure.

Because of the Dow’s price-weighting, you get some screwy results, and that’s only gotten worse lately. For example, the entirety of Bank of America ($BAC) is now worth just 51 Dow points. The stock’s depressed share price means that it has the smallest weighting in the index. In fact, it’s twice as smallest as the second-smallest.

I’ve listed each stock in the index along with today’s closing price, the stock’s weighting in the Dow, the market cap, the weighting if the Dow were market cap-weighted and lastly, the discrepancy. In other words, Alcoa has 2.15 times the weighting in the Dow that it should have. We can see that Travelers ($TRV) has three times the weighting in the Dow as General Electric ($GE) even though GE’s market cap is more than seven times TRV’s.

Stock Price Weighting Mkt Cap Weighting Difference
Alcoa $11.60 0.82% $12.34 0.38% 2.15
American Express $42.80 3.02% $51.09 1.58% 1.92
Boeing $57.41 4.05% $42.55 1.31% 3.09
Bank Of America $6.77 0.48% $68.61 2.12% 0.23
Caterpillar $83.51 5.90% $53.95 1.67% 3.54
Cisco $13.73 0.97% $75.52 2.33% 0.42
Chevron $90.57 6.39% $181.41 5.60% 1.14
DuPont $44.83 3.17% $41.74 1.29% 2.46
Disney $31.54 2.23% $59.62 1.84% 1.21
General Electric $15.09 1.07% $159.96 4.94% 0.22
Home Depot $28.51 2.01% $45.39 1.40% 1.44
Hewlett-Packard $29.86 2.11% $61.93 1.91% 1.10
IBM $162.54 11.48% $194.12 5.99% 1.92
Intel $19.93 1.41% $105.51 3.26% 0.43
Johnson & Johnson $60.20 4.25% $165.02 5.09% 0.83
JPMorgan Chase $34.37 2.43% $136.05 4.20% 0.58
Kraft Foods $32.80 2.32% $57.93 1.79% 1.29
Coke $63.96 4.52% $146.86 4.53% 1.00
McDonald’s $84.08 5.94% $86.75 2.68% 2.22
3M $78.23 5.52% $55.51 1.71% 3.22
Merck $29.81 2.10% $92.01 2.84% 0.74
Microsoft $24.20 1.71% $202.75 6.26% 0.27
Pfizer $17.05 1.20% $134.71 4.16% 0.29
Procter & Gamble $58.51 4.13% $166.89 5.15% 0.80
AT&T $27.88 1.97% $165.22 5.10% 0.39
Travelers $49.04 3.46% $20.53 0.63% 5.46
United Technologies $67.44 4.76% $61.28 1.89% 2.52
Verizon $33.66 2.38% $95.28 2.94% 0.81
Walmart $48.41 3.42% $168.11 5.19% 0.66
Exxon Mobil $68.03 4.80% $330.77 10.21% 0.47

Posted by on August 10th, 2011 at 8:12 pm


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.