The Dow Jones Industrial Average

I have a couple of problems with the Dow Jones Industrial Average. The first is that it is not really passive index. It is run more like a fund managed by a lazy Portfolio manager. Component stocks are added and deleted from time to time so that the basket is more "representative" of what is going on in the economy. Deletions are usually based on low share price, for whatever reason, or a merger or acquisition.

My other issue is that it is price weighted. This is wacky and has produced as pointed out by John Maudlin, some peculiar truths at the current moment:

• If all four (Citi, GM, Alcoa, BofA) of these stocks went to zero on today's open, the DJIA would lose only 157.3 points.
• If Microsoft with a market cap of $153 billion went to a price of zero, all the Dow would lose would be 136 points, or less than 2%
• IBM has more influence on the index than all the financials, autos, GE, and Alcoa combined

It should go without saying that stocks with higher share prices are just that.