A reader left the following comment on my post yesterday about Dell. I replied on the post but it occurred to me that it might be worth giving the topic its own post.
And the DJI continues towards an all time high despite the performance of MSFT and INTC. Maybe large cap is making a comeback?
My reply was (note the numbers are as of yesterday);
YTD the DOW is up 8%-9% while IWM is up better than 15%.
For the last month the DOW is up a little over 4% and IWM is up a little less than 4%.
The DOW is not my favorite large cap proxy. In the last month UTX is up 13%, MMM and CAT are both up 8%. The performance of those three are probably the difference. And all three have market caps below $100 billion.
So maybe large cap-ish is turning but the threshold for mega cap is usually $100 billion and for now that segment still struggles.
I have probably touched on this before but I find no value in the DOW as a proxy for anything. It only has 30 names (obviously) and the methodology is to weight the components by price. Today, Minnie Mining is the most important stock in the DOW's universe because it has the highest price per share.
If MMM did a two for one split today it would no longer be the heavy weight it is today. That the DOW is near an all time high while the S&P 500 and the Nasdaq both have a long way to go should belie the fact that something is not right with the DOW.
Obviously I am very opinionated about this and I am sure some folks swear by the DOW. You should judge for yourself.
Proud Member Of
Random Roger
© 2009 | Gadget Theme Blogger Template
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
4 comments:
You do realise that the DJIA is adjusted for splits?
http://www.djindexes.com/mdsidx/index.cfm?event=showAvgMethod
Um, yes I do.
So that means that if MMM did a 2-1 split it would have exactly the same influence on the index as it did the day before the split.
I believe that Roger was not referring to the effect of the actual split on the weighted average but rather that a $1.00 move before the split would require a $0.50 move after the split in order to have the same impact. Due to the increase in volatility that usually occurs after a stock split the relative significance of the movement in 3M’s stock price would askew its signal relevancy.
In general weighted indexes have diminished analytical value since the early 80’s, for various reasons.
Disclosure:
This reply was written by a member of the CrossProfit analyst team. This is a personal view and may not reflect the views of CrossProfit.com.
http://www.crossprofit.com
Post a Comment