The Dow Jones Industrial Average Is Considered A -Weighted Average. Dow Flirts With New High Six Years On

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Dow Flirts With New High Six Years On

As the Dow edges toward new highs (and the financial media is testing everyone’s resilience), it’s important to remember how far investors have fallen and why. In this article I will talk about the distance of the fall.

The reason: investing is about the price paid and the value received. If valuation seems like a dry topic in the abstract, it is necessary to remember the true cost of ignorance.

No wonder I’m quoting Graham:

“…The influence of the so-called analytical factor on the market price is both partial and indirect, because it often competes with the speculative factor that affects the price in ‘the opposite way; and indirectly, because it works through intermediaries. the emotions and decisions of people, in other words, the market is not a weighing machine, which is the value of each issue is recorded through a clear and impersonal system, according to the specific characteristics. voting machine, where countless people register choices that are the result of reasons and parts of feelings.”

The market view of the average investor cannot be compared to the market view of the average dollar. They are not equally distributed among the financial problems seen in the major public markets. A lot of people who held all the shares they owned six years ago are nowhere near where the Dow is today, because they have the wrong Dow stocks and they have very poor non-Dow stocks.

Here are two lists.

List A:

Eastman Kodak (EK)

General Motors (GM)

Intel (INTC)

Microsoft (MSFT)

Home Depot (HD)

List B:

Altria (MO)

Caterpillar (CAT)

United Technologies (UTX)

Boeing (BA)

Exxon Mobil (XOM)

Who had more people in 2000, the A List or the B List? Which one do many people have today? And, in 2000, which list did people think was better?

List A is the worst stock to the top end; List B is the best stock.

Other major concerns include Disney ( DIS ), McDonald’s ( MCD ), and Coca-Cola ( KO ). These are the types of stocks that people want to buy and hold forever. They are sentimental. They’re also below where they’ve been trading — even though they’re in the middle of the pack for Dow stocks.

Therefore, I must say that the Dow does not measure the performance of the individual investor’s account. There is a population selection bias that is not reflected in the DJIA. Of course, there are also popular stocks that are not part of the Dow.

Recently, Internet stocks are the best example. Basically they did something bad.

To make the point, let’s look at two indexes and two stocks.

The Indexes: Dow, NASDAQ

Stocks: Cisco (CSCO), Berkshire Hathaway (BRK.B)

I’m picking Cisco and Berkshire, because they’re the same market today and they’re really great companies that aren’t in the Dow.

My opinion: the market looks very different if you were to buy and hold Berkshire, Cisco, the NASDAQ, or the Dow at the last high for the Dow.

Unfortunately, when I think of the people I know who weren’t interested in the market before and started buying in 1998 and 1999, they weren’t talking about Berkshire. They talked about Cisco. They did not mention the Dow. They mentioned the NASDAQ.

Although this unscientific analysis of mine must be biased and retrospective, I should point out that the company did not mention the stocks that turned out to be complete failures. I picked a stock (Cisco) that if you had bought all your shares in January 1997 or January 1998, you would have been in the position you would have been if you had bought shares in Berkshire in January ’97 or ’98 – (in in both cases, you hit the indexes).

Copyright 2006 Geoff Gannon

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