Here’s an interesting note on the Dow Jones Industrial Average (^DJI). Periodically, the gate keepers of the index add or delete stocks to keep things fresh. But if they had simply left the index alone, it would have done far better.
Since 1930, nine of the 30 stocks are still left. Twenty have been bought out or merged and only Bethlehem Steel has gone bust. The index would have finished 2008 at 14,600 instead of 8776. On top of that, the Dow’s weird weighting by price instead of market value also would have hurt you.
I don’t have the numbers on this but my guess is that a lot of the untouched Dow’s gain is due to one stock, IBM (IBM). The company was removed from the index in 1939 and put back in 1979. In those 40 years, IBM gained an astounding 22,000%.
Warren Buffett once said, “Lethargy bordering on sloth remains the cornerstone of our investment style.” Now you can see why.
