The most asked question of the day was probably “why not Google?” The answer is price weighting – Had we added Google and dropped some high priced stock; Google would have dominated the index with a weight of 25%-30%. Google may be important, but we shouldn’t pretend it is a quarter to a third of the whole market. [Why Apple and Google Didn’t Join the Dow]
Close behind Google is whether we thought about changing to a different weighting method. We think about, and discuss, a lot of things with indices. The Averages Committee, which is responsible for the Dow, the Dow Transports and Dow Utilities, will review some recent work on how indices are weighted. Whether any changes will be made is a question for the future – wait and see.
Do additions or deletions say anything about the companies? First, additions or deletions to the Dow or other indices are NOT investment recommendations. Second, the goals in these changes to the Dow were to improve the sector balance and improve the weighting, not to pick stocks.
David M. Blitzer is managing director and chairman of the Index Committee. This post was republished with permission from Indexology, a blog published by S&P Dow Jones Indices. The posts on the Indexology blog are opinions, not advice. Please read its disclaimers.