Big K

The Major Indices Need a Makeover

I'm not in favor of frequent changes in index makeup. Every time a new flavor of the month stock pops up or one already in the index falls on hard times, there is an outcry for changing the index. Like in a third grade class, the annoying boy who thinks he knows all the answers, "oh oh oh, use my picks...". Willy nilly manipulation in and out stocks from the DOW would make the index meaningless, especially for comparison and trending purposes. Because the DOW is made up arbitrarily, based on popularity, most professionals use the S&P500 index. Here, replacement can be made based on objective principles, on a specified frequency. If you watch the DOW, all it needs to do is be representative of a good cross section, which is does. Yes, the banks and autos are down, but all of them are, and that is the correct measure of today's economy. Replacing BAC with the next popular stock like Google would be render the index useless.