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It’s Time to Retire the Dow
Where is Amazon, Facebook, or Alphabet? The most overrated metric in all of moneydom finally proves its irrelevance.
The Dow Jones Industrial Average is getting its latest makeover, a process of adding and subtracting companies that happens every few years. One thing about this ritual stays constant: It can never quite disguise that the Dow is the most overrated metric in all of moneydom. This most recent spruce-up, taking effect today, is a stark example of why that is so — and why there has never been a better time to ignore the Dow.
The state of the Dow is routinely cited by evening news anchors and in digital and print headlines as some kind of gospel-level measure of the American financial markets and by implication the economy in general. But in reality, the Dow is an index tracking the performance of a mere 30 stocks that supposedly give us all an idea of the broader business picture.
Which 30 stocks? The answer changes over time; that’s what these regular makeovers are about. (The Dow dates back to 1896, when it consisted of a dozen industrial companies; it later expanded to 20 companies, then 30, including nonindustrial firms.) Most recently, three members are being given the boot: oil giant ExxonMobil, drug maker Pfizer, and aerospace and defense firm…
