Apple Inc: Just way too expensive for the Dow

“Now that it’s the biggest company in America, you might think it would make sense for Apple to be added to the Dow Jones Industrial Average,” Mark Gongloff blogs for The Wall Street Journal. “But it may have to stand alone.”

“The stated purpose of the DJIA — a joint venture of CME Group and Dow Jones, which employs this blogger — is ‘to provide a clear, straightforward view of the stock market and, by extension, the U.S. economy,'” Gongloff reports.

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Gongloff reports, “It sure seems like the biggest public company in the US, pumping products into the hands of consumers across America, would be a key part of such an index, but there’s a major problem with adding Apple: Its stock price is just way too high.”

Read more in the full article here.

[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]

14 Comments

  1. I don’t think adding AAPL to the Dow Jones Industrial Average would make for a good indicator of the state of the U.S. economy.

    Read the Dow stated purpose again….

    “to provide a clear, straightforward view of the stock market and, by extension, the U.S. economy”.

    It’s not about size.

  2. The biggest problem?

    Apple operates so differently, and Apple’s consumers behave so differently, from anyone else.

    Apple’s performance in no way indicates the performance of the American economy, and can’t help the market understand anything relative to other American companies.

  3. the issue with the DJIA is how it’s calculated. It takes a small sample size, uses an outdated metric and provides no real value except as sort of point of reference to yesteryear when statistics and economic indicators were harder to come by. People that still put prestige in being associated with the DJIA are both clueless and out of touch with reality.

    1. Agreed. Everyone should read the article and understand why the Dow is near-worthless and should be ignored. Why that number is front-and-center on all business news reporting, I’ll never understand.

      ——RM

      1. The DJIA is widely followed because the Dow Jones company also published the Wall Street Journal, which is the most widely-read publication in the world for stock market news.

  4. Aparently almost nobody here read the article.

    AAPL cannot be added to the DOW because its price is way too high, because of the way DOW is composed. DJIA is made up of 30 stocks. They are represented in the index NOT based on their actual market valuation, but based on the price of each individual stock. Companies such as General Electric, Alcoa, Bank of America have shares whose price is in their teens. Meanwhile, their market valuation is much greater than IBM’s (share price over $170). Imagine if AAPL were to be added to the DOW; every time AAPL moves by $5 (a daily occurrence), it would pull DOW by a pretty significant percentage, even though it is only one of 30 companies.

    The only way to remedy this would be to split AAPL stock. Apple has absolutely no reason to do this, and the possibility of getting included in the DOW is not nearly enough of a reason to do the split.

    As long as Apple’s stock price is in the hundreds, it will never be included in the DOW. About the only benefit of being included there would be a momentary bump, when investment funds that track DOW go and buy AAPL to adjust their portfolios. There are very, very few fund managers who don’t already have AAPL in their portfolios (those would probably be the dumbest ones).

    1. Though the blog cited in the article contains an element of truth, it’s not clearly explained AND the blog also contains some inaccuracies. All of these problems are repeated in the post by Predrag.

      Though it’s been (slightly) improved, the DJIA was originally computed by simply adding together the prices of 10 big companies and dividing by 10 (the divisor). The last letter in DJIA represents ‘average,’ and that’s what you get by adding together 10 numbers, then dividing by 10. Today, there are 30 stocks in the DJIA.

      As some companies are substituted for others in the DJIA, the formula calls for a change in the ‘divisor’ which removes the impact of the new company’s share price being higher or lower than the old one that’s being removed from the 30-stock average.

      Thus, I don’t agree that the DJIA would be distorted if AAPL were included in the DJIA. It would make no difference whatever in the DJIA on the day AAPL was included.

      Other companies have large or small weights in the DJIA not because of distortions created when their stocks were added to the DJIA, but because of *subsequent* changes in their share prices. Contrary to Predrag’s claim, $5 increase in AAPL would NOT change the DJIA any more than a $5 increase in AA or BAC. However, a 1% increase in AAPL would affect the DJIA more than a 1% increase in the share prices of AA and BAC.

      By the way, the blogger (and Predrag) says that GE, AA and BAC all trade “in the teens.” That’s clearly inaccurate; of the three, only GE trades in the teens.

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