How The DJIA Can Be “Managed” For A Wide Range Of Values

Is the Dow Jones Industrial Average (DJIA) really pushing its 2019 year end close during a period of a global coronavirus epidemic? Strangely enough, the answer is dependent on the answer to another question, “what do you mean by the Dow?” That question is particularly germane this year, when the 30 stocks of the Dow have experienced an unusually high turnover of three positions (10%). So the index is not “apples to apples” between even one end and the other of 2020.

The Implications Of Apple’s Stock Split For The Dow

The catalyst for the change was that Apple stock was split 4 for 1 after surpassing $500 a share. That, by itself, had implications for the Dow. That’s because the index is weighted by the prices of the individual stocks. With its high pre-split price, Apple Inc (NASDAQ:AAPL) formerly had the highest weight of any stock in the index, until its weight was reduced three quarters by the split. (The weights of the other 29 stocks were increased pro rata to make up for the effects of the split.)

Q2 2020 hedge fund letters, conferences and more

In an accompanying move, the Dow’s oldest member, Exxon Mobil (XOM), was kicked out, and replaced with Salesforce (CRM), a very different company. Two other changes were closer to “like for like” swaps. With Pfizer (PFE) gone, Amgen (AMGN) is the new pharmaceutical company, and Honeywell (HON) is a stand in for Raytheon (RTX) as a defense contractor. There is a pattern here. Slow-growing blue chips are being replaced by faster-growing, less mature concerns. That tends to boost the value of the Dow beyond what it would have been, had its composition remained constant.

The test of this is that by at least one measure, the Dow is closer to 20,000 than 30,000. And what

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