Over the last several days there have been multiple observations about how the smaller components of the Dow Jones Industrial Average (DJIA) are becoming increasingly irrelevant in regards to their impact on the overall index. For those unfamiliar with the story or the way the index is computed, unlike most indices which are market cap weighted, the DJIA is a price weighted index. Therefore, higher priced stocks have a higher overall weight in the index, while lower priced stocks have smaller weights.
Below we show the individual weightings of each index member in terms of Dow index points. As shown, IBM has the largest weighting at 741 points, which equates to roughly 9.3% of the index. On the other side of the spectrum, there are currently five stocks (GE, AA, BAC, C, and GM) that account for less than 100 Dow points each. In other words, if any of these stocks ceased to exist, their demise would cause a decline of less than 100 points.
To better illustrate the wide disparity between the individual weightings of the 30 Dow members, if we combined the weighting of the nine smallest stocks in the index, they (748 Dow points) would just barely exceed the individual weighting of IBM (741 points).
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