As with every Dow milestone, detractors were quick to dismiss the news, claiming that round numbers aren’t significant and that the Dow is somehow inferior to market-cap-weighted indexes like the S&P 500 (GSPC) since it is a price-weighted index.
However, the Dow and its landmarks have a tonne of value and importance, and investors may learn a thing or two from them about investing.
The Dow has the same high turnover rate as the S&P 500, which is one distinguishing feature. In actuality, there are no longer any of the original 12-component Dow from 1896. The final founding member, General Electric (GE), was replaced in 2018. When it was ultimately replaced in August, ExxonMobil (XOM), which was a member of the Dow when it became a 30-component index in 1928, was the oldest Dow component.
These market indexes’ upward trend can be attributed to this turnover. The committees in charge of these indexes frequently swap out names for new ones that are more relevant to the current state of the economy, along with old business models.
A stock is normally included only if the firm has a great reputation, exhibits consistent development, and is of interest to a sizable number of investors, according to S&P Dow Jones, even if stock selection is not controlled by quantitative principles.
Although the Dow’s quality personal touch might be disturbing at times, the Dow’s track record is nonetheless excellent. The company that it replaced, AT&T (T), is down 21% since they put Apple (AAPL) to the index in 2015. Since then, the stock has increased by a staggering 61 percent year to date.
