Journalists, talking-heads, and even economists and
financial planners pay close attention to the daily
changes and long-term trends of the Dow Jones
Industrial Average, also known as the Dow or DJIA.
But given that the Dow is over 120 years old, is it still
relevant? And are some really large – and arguably
more reflective of today’s markets – companies
The DJIA is a stock market index created in 1896 by
Wall Street Journal editor and co-founder of Dow
Jones & Company, Charles Dow.
The DJIA tracks the market performance of the same
30 American companies and initially, had only 12
stocks. These included such golden oldies as
American Cotton Oil Company, U.S. Leather
Company, and Distilling & Cattle Feeding Company.
In 1920, the Dow expanded to 20 stocks and then to
30 stocks in 1929.
Due to its age, proponents of the DJIA suggest that it
represents a continuous chart of our nation’s
economic growth, as it is a blue-chip index, meaning
that it is composed only of very-large, publicly traded
Other market observers argue that broader indexes
like the S&P 500 or the Wilshire 5000 are a better
way to measure the status of the stock market.
Because the Dow has only 30 stocks, they argue, it
does poorly in showing the total scope of the market.
Members of the Dow
The Dow contains only the giant companies – the
heavyweights of the stock market – stocks that are
bought and sold every day, all day long. However, the
exact composition of the Dow has changed at various
times over the last 120+ years, even though most
individual stocks stay in the Dow for years. The
biggest companies are periodically replaced by even
General Electric was the last of the 12 original
companies remaining in the DJIA, but it was removed
in the summer of 2018 (it was also removed for 6
months in the 1890s and from 1901-1907, so maybe it
can make a comeback?).
Here is the current list of 30 companies in the DJIA:
Johnson & Johnson
Procter & Gamble
Walgreens Boots Alliance
Are some companies missing?
So, who decides which companies are allowed into
the club of 30 companies used for the Dow Jones
Industrial Index? Surprisingly, newspaper editors!
Dow Jones owns the Wall Street Journal, where
Charles Dow was once the editor.
As a result, the editorial board of the Wall Street
Journal decides who gets into the Dow 30 and who
leaves. These changes do not happen very often,
however. And yearly company success in the market
is hardly the only factor. Plus, when one company
enters the Dow, another has to leave.
But ask yourself this, do you think that some of the
companies in the DJIA are reflective of the 21st
Heck, if we simply go by market cap, the following
companies all have market caps significantly bigger
than every single DJIA company except for Microsoft
and Apple and might warrant inclusion:
Amazon (market cap of $875b)
Alphabet (Google’s parent has a market cap
Berkshire Hathaway (market cap of $493b)
Facebook (market cap of $475b)
Other companies that can enter this conversation
Maybe Bank of America vs. Goldman Sachs?
Maybe Oracle vs. Merck?
Maybe Pepsi vs. Coca-Cola?
Maybe Netflix vs. IBM?
Should the Dow become extinct?
As the economy moved from heavy industry to
consumer goods to technology, the Dow’s
membership did change to somewhat reflect the
market. But the reality is that the Dow should not be
the only index used to measure the ups and downs of
the U.S. stock markets.
There are a lot of other indices are useful in different
ways. And most financial planners follow several
different indexes on a daily basis. You should too.
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