Friday, February 20, 2009

Dow's Lineup of Companies Changing

Associated Press - NEW YORK -- Some dogs of the Dow have lost their bite.

If the prices of the three cheapest stocks in the Dow Jones industrial average -- General Motors Corp., Citigroup Inc. and Bank of America Corp. -- fell to zero, the index would shed fewer than 70 points. That's only about 0.9 percent.

With the three companies valued at less than $5 a share apiece, some investors think the Dow should replace them among its 30 stocks. A $1 move in a Dow stock corresponds to about an 8-point move in the index, according to Dow Jones Indexes.

"I'm certainly surprised they haven't done it," said Jack Ablin, chief investment officer at Harris Private Bank. Ablin said he already considers stocks such as GM and Citigroup "ex-officio" members of the Dow.

Dow Jones said it has no plan to shuffle out components, and it has no official threshold to determine whether a company should be included or excluded. But it has a history of replacing weak companies with stronger ones and isn't ruling out future changes.

The Dow Jones industrial average is far from the be-all, end-all measure of the U.S. stock market. Market participants tend to use broader indexes such as the Standard & Poor's 500 index for statistical analysis. Even Prestbo said the Dow is "very subjectively run."

But the Dow is the most-watched stock index in the world, and it is historically useful because it is so old. It was created in 1896 by Wall Street Journal editor and Dow Jones & Co. co-founder Charles Dow. General Electric Co., which sank yesterday to a 13-year low of $9.95 before closing at $10.06, is the only original component left.

No comments:


Watch videos at Vodpod and more of my videos

Search This Blog

Blog Archive Video What's News US

NYT > Business

CNBC Top News and Analysis