Dow Make-Over Hits a Chord With Readers
A week ago in this section, we suggested that the 30-stock Dow Jones industrial average is in need of a make-over before it falls hopelessly behind what’s happening in the “new economy.”
Last week, many of the “old economy” Dow stocks took yet another beating, led by consumer products giant Procter & Gamble after it forecast weaker earnings.
The score for the week: The Dow sank 438 points, or 4.2%, to 9,928.82 while the new-economy Nasdaq composite surged 2.7% to end Friday at a record 5,048.62.
Our suggestion a week ago was that Dow Jones & Co. kick five old-economy stocks out of the Dow in favor of five new-economy stocks. Our picks to kick: Eastman Kodak, Philip Morris, Alcoa, Caterpillar and International Paper.
Our picks to take their place: Cisco Systems, America Online, Yahoo, Oracle and Nokia.
We also asked readers for their thoughts and suggestions--and we got plenty via e-mail. Here’s a sampling of what people said:
* Many readers liked our substitution list, though some opted to tweak it a bit. Said reader Harut B.: “I fully agree with your arguments and suggestions to make [the Dow] reflective of the profile and the pace of current economic growth. The ‘old boys’ club’ attitude must change.”
He liked the choices of Cisco, AOL and Oracle, but wasn’t so sure about Yahoo. Instead, he suggested, in order, Lucent Technologies, Texas Instruments or Sun Microsystems. “In revenues, market capitalization and, more importantly, as leaders and ‘impact’ companies in their respective fields, they must be in the Dow,” he said.
* Quite a few readers, in fact, wanted telecom equipment giant Lucent in the Dow. Norm R. said: “I don’t know how you could have left Lucent out of your proposed additions. LU is now the most widely distributed stock of any on the market and is heavily involved not only with networking but with wireless, speeded-up cable access and other matters related to the Internet.”
He voted against AOL. “This company is heading for trouble. There are now a bunch of ISPs [Internet service providers] that offer free service, and they will attract users away from AOL.”
* JDS Uniphase, a maker of cutting-edge fiber-optic components for the telecom industry, also got some votes. “I would kick out one of the heavy industry laggards like Boeing, DuPont, Honeywell, 3M or United Technologies to include a ‘high-risk’ tech stock like JDSU, which appears to be on every money manager’s list of top stocks for growth over the next many years,” Tony R. wrote.
* Jack B. had another telecom idea, instead of wireless phone giant Nokia: “Nokia is a licensee of Qualcomm, [as are] Ericsson, Motorola and many others. In a couple years, the Internet will be more about data than voice and the majority of the mobile telephone operators in the world will be relying on [Qualcomm’s] CDMA as the superior air interface.”
* Some readers said the Dow isn’t even worth trying to fix.
“Your article makes an implicit assumption that I believe is wrong--namely, that there is enough merit in the Dow, even given the fixes you advocate, to justify its use today,” Ron G. wrote.
“Measuring a whole is inherently superior to measuring a sample of the whole when the purpose is to describe or represent the whole. Therefore, whatever the Dow is intended to represent today, there are probably already indexes (S&P; 500, Wilshire 5,000) that satisfy that purpose better because they measure the whole, or at least a huge sample of the whole, instead of just 30 stocks,” he said.
Similarly, Roger S. wrote: “It is ridiculous to have our most prominent stock index based on a share-price-weighted average of so few companies!”
Kevin K. said: “I haven’t taken the Dow seriously in years. It’s not representative of the economy, never has been. Personally, I invest in companies based on merit, not on journalistic selection. The top 100 companies on the Nasdaq are there because they deserve it (capitalization), not because they were selected. If they can’t cut the mustard, they are outta there.”
* But a few readers defended the Dow. “Why does the Dow have to be more representative of the ‘New Economy’? Don’t we need an index for the ‘Old Economy?’ ” asked Dick Y. “I would think that most of the other senior citizens like myself would appreciate an index that keeps us in touch with the ‘hard goods’ portion of our economy, as we learned to research it in the ‘good old days,’ while we keep track of the new Information Age through the Nasdaq.
“Isn’t it a good idea to have an index that represents both of them?”
