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Businesses The Almighty Buck Apple

Apple Too Big For the Dow Jones Industrial Average 218

Posted by samzenpus
from the we're-gonna-need-a-bigger-stock-ticker dept.
An anonymous reader writes "Apple is clearly the hottest tech stock on the market right now and the company is clearly at the vanguard of technological innovation. Consequently, many have wondered why Apple isn't part of the Dow Jones Industrial Average (DJIA). As it turns out, Apple's astronomical share price effectively prohibits the company from joining the DJIA as it would disproportionately influence the index."
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Apple Too Big For the Dow Jones Industrial Average

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  • by Anonymous Coward on Wednesday September 21, 2011 @05:53PM (#37473900)

    The only people who really pay attention to the Dow are the talking heads. The money runners look at the S&P 500 when benchmarking market returns.

    The Dow is an archaic measure that for some reason sticks around.... tradition?

    • Drama.

      The media loves the Dow because it can always be trusted to make dramatic moves. The S&P just isn't as exciting.

      I keep expecting Apple to come crashing back to earth, but it keeps right on defying gravity.

    • The headline is misleading: its "high share price", not "too big". Its perfectly possible for a small company to have a high share price.

      Share prices can be much higher, Berkshire Hathaway has a price of 103,000

      The main reason the Dow is used by the media, is because ignorant financial journalists think its the best measure - it is in their terms, where "best" means most brand recognition.

      The only legitimate reason for using it is for long term comparisons: it has existed a lot longer than the S & P 500

    • Go look at a long term trend of all. They respond identically, it's basically irrelevant which you use.

      And I'll just add for the Apple sycophants. Apple is are in a huge bubble. Almost as big as the Treasuries bubble.

  • So? (Score:4, Informative)

    by Oxford_Comma_Lover (1679530) on Wednesday September 21, 2011 @05:54PM (#37473918)

    *Shrugs*

    So? If they want to be in the Dow they can run a few stock splits.

    • by siddesu (698447)
      Perhaps you mean a few company splits.
      • DJIA ranks by share price, not market value, which is why there's a problem. If they split the stock a few times, the nominal stock price would drop, meaning that it wouldn't be a too-large component of the DJIA. (Not weighting it more than by share price is silly, but here we are.)

        • The Dow Jones is not exactly a price weighted average.

          When it first started it was. They averaged 12 stocks and there you go. No fancy market cap calculations. (Or course, back then it was hard to figure out a companies market cap, but that is something else.)

          Then, as stocks issued dividends, spit, and companies were replaced, Dow switched over to weighing each stock price with a factor. So, it does not matter how high Apple's price is when it introduced into the Dow, it's stock will be given a factor that

          • by timster (32400)

            That's not true; the Dow is even simpler than you are implying. There is no weighting at all applied to the individual stocks in the index, so it's incorrect to say that they weigh "each stock price with a factor". Instead, there is only one factor (the Dow divisor) for the entire index. All the share prices are simply added up and then divided by the divisor.

            When AAPL was added to the Dow, the Dow divisor would be adjusted to account for the difference in price between AAPL and whatever it replaced, but th

    • I don't understand why that should be necessary. The DJIA is a weighted system, if they think AAPL's price is too heavy, give it a weight that's less than one. They alter a company's weighing to follow when an indexed stock splits (or reverses a split), so it doesn't change the DJIA figure.

    • An index is not exactly doing a good job of selection if whether a company wants to be in can influence whether it is in.

  • by RyanFenton (230700) on Wednesday September 21, 2011 @05:54PM (#37473922)

    So they don't want to split their stock - that's a horrible thing now? The trades are too granular now?

    If it's really a problem, get enough of your fellow traders together, make a giant offer to buy Apple, then set the prices what you want them to be. Business decisions are made for worse reasons, I guess.

    Why is this a story?

    Ryan Fenton

    • Re:That seems dumb. (Score:4, Interesting)

      by TWX (665546) on Wednesday September 21, 2011 @06:01PM (#37474000)

      There's something to be said for having a high share price if the company is big and successful- those who tend to buy tend to hold on to it for a long period of time, and the day to day operations of the company are directed toward a long-term profit mindset. When a company is traded constantly and when shareholders are only buying it to look for a short to medium term profit (like a year or two) then they don't are how the company performs down the road, and the board will reflect that, making decisions that make money now but could cost the company everything long term as they didn't invest in the long term.

      As much as I dislike Apple sometimes, they do seem to have the development cycle down and they don't rest on their laurels as far as trying to make each product line last as long as possible before being forced to replace it. Many companies won't change unless they're forced to by consumer-driven market choices. Apple changes faster than just about everyone else, and enough people buy into the hype with it that they keep selling products for the long term.

      It'll be interesting to see how this plays out in the next decade or so, as Jobs becomes less and less relevant.

      • There's something to be said for having a high share price if the company is big and successful- those who tend to buy tend to hold on to it for a long period of time ...

        I don't buy that. People tend to think in terms of a dollar amount. If a stock is $40 rather than $400 they just buy ten times as many shares. Letting your stock go up into the hundreds without splitting is just a vanity thing, a PR thing. The behavior you allude to may have some validity with a Berkshire Hathaway share at $100,000 but not something with a share price of $400. The little guy can still buy a single share at $400, unlike $100,000.

        ... and the day to day operations of the company are directed toward a long-term profit mindset.

        This has nothing to do with Apple's share price. It has everyt

    • There used to be downside to having a high stock price because of odd lots. Nobody cares about that anymore. Here is a quick history lesson.

      Jargon - a odd lot is any sale where the number of shares bought / sold is not divisible by 100.

      Prior to the 70's when you traded stocks you traded stocks. When you sold stock you would take you stock certificate down to your broker, they would send it to the main office, they would send it to the company to be registered, the company would send it to the new broker, wh

  • DOJA != DJIA (Score:5, Informative)

    by spazdor (902907) on Wednesday September 21, 2011 @05:57PM (#37473958)

    Dow Jones Industrial Average (DOJA)

    Reasonably sure that no one in the world abbreviates it like that. In fact, Googling "dow jones" and "doja" together, brings up... This exact news story. And no others.

  • by cosm (1072588) <thecosm3 AT gmail DOT com> on Wednesday September 21, 2011 @05:59PM (#37473978)
    It is white collar gambling and no more about company valuations than Full Tilt was about legit poker playing. Sure you can make money if you're smart/lucky/know the right people/have the right fiber connection/have the best and brightest market manipulation master from the major STEM universities, but other than that the house is stacked against you. The distribution of wealth in the country (and world for that matter) among individuals is reflective of those at the top of the game rigging it to their advantage, politically, technologically, and otherwise.

    Or am I just another FUD spewing pinko-commie?
    • by geekoid (135745)

      You are spewing FUD.

      Yes, there are things you can do better if you have money, but that doesn't mean the 'house' is stacked against you..also, there isn't a house in the casino sense.
      If you had invested in the DOW in Apr 2009, you would have made money.
      Something the GOP doesn't point out...the DOW has gotten a lot better, in fact it's at 2006 levels, and still climbing.*

      *AS a trend, some days it's lower then others.. but it's trending upward. Even with Obamas economic plan being castrated by the GOP, it's s

      • by dave562 (969951)

        Come back in three months and let me know how the market is doing compared to 2006. There is a HUGE correction on the way.

        • by mattack2 (1165421) on Wednesday September 21, 2011 @07:50PM (#37474904)

          If you believe that, short it and make money.

      • If you had invested in the DOW in Apr 2009, you would have made money

        Everybody can make money in hindsight.

        • by neurovish (315867)

          Invest in the dow now, and you will make money in 20 years.

          Well, maybe 30.

          • Maybe. Another school of thought says we've just passed the peak of the age of abundance. Place your money and take your chances.

      • Something the GOP doesn't point out...the DOW has gotten a lot better, in fact it's at 2006 levels

        That it was at these levels in 2006 isn't really what most people go by. It first reached these levels in 1999. Of course, that's just nominally.

        If you figure in inflation, by current government CPI metrics, it would need to be at $15,100 to be at the same 1999 levels. If you use the 1950-1990's government inflation calculations, it would need to be nearer to $20,000 to be equivalent. That doubling would li

    • According to Chris Hellman, the defense budget is more like $1.2 trillion. Link: http://www.tomdispatch.com/blog/175361/ [tomdispatch.com]

      "To get closer to a real figure, it’s necessary to start peeking at other parts of the federal budget where so many other pots of security spending are squirreled away."

    • by FooAtWFU (699187) on Wednesday September 21, 2011 @06:58PM (#37474512) Homepage

      You're a FUD-spewing pinko-commie - which is not to say you're completely wrong, but you're missing the point.

      It's true that to day-trade, it's all about the high-frequency crazy-fiber stuff. But you know what? You don't need a fiber link to go out and buy a share of McDonald's (today's prices: $87.48-$89.72) and pick up their ~61-cent quarterly dividend. You don't need a billion-dollar real-time system to pick up a piece of Apple ($412.00 - $421.59) and own a fraction of their still-growing revenue stream and cash hoard. You can go out there and place your order for just about as many shares as you care for, for any stock (or your selection of exchange-traded funds which hold hundreds of stocks for a minimal expense ratio), pay about $10, then come back three to thirty years and ask yourself "who fucking cares how fast the HFT traders were trading on 21 June 2011?"

      HFT is all about things like spotting a tiny market inefficiency of a fraction of a cent across a half-billion shares on two different exchanges and exploiting it for whatever it's worth. You were never going to play that game; don't kid yourself.

      Which is not to say that there aren't people rigging the game to their advantage all over the economy - but "high-frequency trading" isn't really the tool they're using. When you're in the really big leagues, your most powerful tool is The Government. (Bailouts, subsidies, implicit government guarantees, sketchy Solyndra loans, what have you.) Then, the next few rungs down on the latter are all about exploiting the shareholders of your publicly-traded company. That's the sort of thing we should worry about, not the HFT crap.

    • by anarkhos (209172)

      Most people aren't in it to make money so much as to try avoid losing it from inflation.

      But if we had sound money...

      • by trout007 (975317)

        Interesting how that works.

        Governments inflate to buy votes. The banks are the first that get to use that money so they get very rich producing nothing. Meanwhile the people are forced to invest with those same banks to attempt to keep pace with inflation plus they have to work much more than they used to even though there has been a big increase in productivity.

    • by Eil (82413)

      The distribution of wealth in the country (and world for that matter) among individuals is reflective of those at the top of the game rigging it to their advantage, politically, technologically, and otherwise.

      I used to look at the stock market (and investing in general) the same as you. To me, the financial world was just a big game that only fat cats could play, let alone win. The rest of us were doomed to stashing whatever we could scrape together from our minimum wage paychecks into micro-interest savin

    • by Gordo_1 (256312)

      Have you ever heard of indexing? The market's not tilted against you unless you're like most people and try to actively beat it. Read "A Random Walk Down Wall Street", then invest passively, long-term with appropriate diversification across world economies and an appropriate allocation of fixed income and equities to meet your investing goals and time horizon. You'll be humming along well above the fray of day-traders, stock pickers, hedge funds and other gamblers that wipe themselves out with management fe

    • by evilviper (135110)

      . Sure you can make money if you're smart/lucky/know the right people/have the right fiber connection/have the best and brightest market manipulation master

      The stock market is only gambling if you play it that way... trying to guess which stocks are going to go up, which will go down, and when. Just about all the amatures play it this way, and then they lose 75% of their retirement savings...

      In fact the statistics are that 80% of mutual funds (the huge companies with multimillion dollar hotshot traders) p

    • by bug1 (96678)

      The stock market is white collar gambling that doesnt reflect the true value of the underlying investment.

      What is the property market ?

  • Do they know what an "average' is? That's the problem with averages, one outlying value can skew the result. Maybe they should stop using something as dumb and simplistic as an average to indicate the collective state of stock prices?
    • Do they know what an "average' is?

      Do you?

      The (arithmetic) mean, which is probably what you're thinking of, is only one type of average: mean, median, harmonic mean, etc. The Dow Jones is a weighted mean; weights can be calculated in such a way as to minimize the effects of outliers. If there's a problem, it's with the way they calculate the weights, not with the concept of an "average" in general.

      • In that case, DJIA has a weight problem. DJIA assumes the same weight for each stock, as if someone were to buy 7.57 shares of each. S&P 500, on the other hand, weighs by the number of shares outstanding, such that each stock's influence is proportional to its float, or the publicly traded portion of its market capitalization.
      • by timster (32400)

        DJIA isn't weighted. Where are you all getting the idea that DJIA is weighted?

  • DJIA is (Score:5, Informative)

    by Z8 (1602647) on Wednesday September 21, 2011 @06:08PM (#37474054)

    The Dow Jones is an older index in which each company's weight in the index is determined by its stock price. In more recent indicies like the S&P500, stocks are weighted by market capitalization. Assigning weights by stock price is silly because it makes no intuitive sense and means extra work is needed to prevent events like stock splits from moving the index around.

    So anyway, this isn't really about Apple, it's just a technical detail about a legacy index. Apple's share price is high ($412 as I type this), but so are plenty of other companies like Google ($539) and Berkshire Hathaway ($101250!).

    • Re: (Score:3, Funny)

      by Anonymous Coward

      Berkshire Hathaway ($101250!).

      101250! = 6.7994476169830511727851464589251787226197877510690... × 10^462826

      • by Z8 (1602647)

        Berkshire Hathaway ($101250!).

        101250! = 6.7994476169830511727851464589251787226197877510690... Ã-- 10^462826

        Wow no wonder Warren Buffett is so rich

    • by istartedi (132515)

      Empirically though, the difference isn't that bad [yahoo.com]. OK, it's bad if you look at the 10% difference at the end of the chart; but it's good when you look at correlation over time. Do the Dow stocks always do better because a small index has a more obvious "must buy because it's in the index" effect, or is this just true over the timeframe in the chart? Left as an exercise for the reader.

      FWIW, the Dow concept of "the biggest 30 are really all that matter" is interesting; but yes, market cap weighting would c

  • As in Dow Jones Indus--oh never mind.

    The writer and the reasons for Apple now being in the Dow 30 are both high.

    • As in Dow Jones Indus--oh never mind.

      The writer and the reasons for Apple now being in the Dow 30 are both high.

      Just... wow. Hate Apple, don't hate Apple, whatever. But to hate them so much to deny that they successfully move product and make lots of money... its self-deluding. You know, it really can't be luck, you know that, right? Its just not possible for Apple to have "lucked" their way into financial global boondoggle, you get that right? Either you realize this, or you are quite stoned my hippie friend.

      • by mattack2 (1165421)

        I don't see why you think that statement was anti-Apple. He complained about the "reasons for Apple now being in the Dow 30", not about the company.

        • by syntap (242090)

          Actually I typo'd now, meant to type not. Slashdot is my doja, I guess I get a high from being here and it messes with the typing.

          Apple has been trading below-value for a long time now. People see the high per-share price and aren't sophisticated enough to know that the share price is simply the result of a division problem involving market cap and shares outstanding, and thus believe stocks that have a high share price are automatically "expensive" stocks when they may be cheap (as with Apple based on ea

          • by mattack2 (1165421)

            Which is why stock splits are good -- take advantage of the math-challenged, and buy before the split goes into effect. It makes you *look* to an outside observer like one of the math-challenged, but if you sell right after the usual post-split bump.. you aren't one of them.

  • by alexmin (938677) on Wednesday September 21, 2011 @06:17PM (#37474140)

    The index is too narrow. S&P 500 and Russel 2000 have much better coverage of broad economy. Not coincidentally S&P500 and Russel2K ETFs, futures, and options are among most traded on capital markets.
    The publisher of the index, Dow Jones agency also owns Wall Street Journal and that maybe why DJIA is not forgotten just yet.

    • by multimed (189254)
      But it's so much more pervasive than that. The fact is all over the place from national to the most yokel local reports on it, and all over including common conversation even among people who should know better, "How'd the market do today" almost universally refers to how the Dow did. Maybe it's just laziness, I don't know but I try to point it out to people I run into whenever it comes up.
  • Wait, wait, wait, wait, wait. The media has been using the DJIA practically religiously to tell us whether or not our country has an economy. But if they can selectively ban companies that do well, are we really in a state of near financial emergency?

    Are we only in a recession because companies who are going to say we're in a recession are allowed to be counted in the DJIA?

    • by brusk (135896)

      Are we only in a recession because companies who are going to say we're in a recession are allowed to be counted in the DJIA?

      No. The DJIA and S&P 500 track each other pretty well over the long term. Look [yahoo.com].

  • total BS (Score:2, Flamebait)

    by Charliemopps (1157495)
    Walmarts listed on the Dow... and they are WAY bigger than apple. There are a lot of other companies on the DOJA that are as big, if not larger than apple. Apple keeps their stock price high for PR reasons.
    • by Wovel (964431)

      There are no publicly trade companies bigger than Apple by market capitalization (Apple is worth more than 2x Walmart's ~$175b). Having said that, the headline is still wrong. It should have said stock price.

  • Title:

    Apple Too Big For the Dow Jones Industrial Average

    TFA:

    Apple, trading at about $420, would have the largest weighting in the 30-company measure because Dow companies are ranked by stock price, not market value.

    Apple is not too big for the DJIA, it just has a ridiculously high stock price. On its own this is meaningless. The basic formula for stock price is market capitalisation (company size in dollars) divided by number of shares in circulation, which means that a company can increase their stock price without increasing company size simply by reducing the number of shares in circulation. Don't you love financial illiteracy?

    • AAPL is currently selling at 16.3 PE ratio. Compare with Google 19.4

      This is not the Ridiculousness that you think it is. Not terribly out of whack. Most stocks trade in the 10-20 PE ratio. Ratios above 20 tend to be hype (IPOs) or based on huge growth industries in their infancy. Stocks under 10 tend to be stable industries or declining ones (Exxon, Microsoft).

      I say that a PE ratio of 16 is in the fair (not good, not bad) range for AAPL.

      • P/E ratio is orthogonal to price per share.

        Yes, I know you can calculate P/E by taking the price per share and dividing by the earnings per share, but that's because performing that operation causes the "per share" parts to cancel and it's just the entire price divided by the entire earnings.

        AAPL shares can sell at virtually any price and have a 16.3 PE ratio.

        • by Wovel (964431)

          That is simply not the case. At least not as simply as you stated it. No matter how you calculate it, if share price goes up and earnings go down, the ratio will go up. In the case of Apple, I suppose your statement is true (but not precisely so) because their earnings growth will keep their ratio near or below that figure, regardless of realistic increases in share price.

  • Stock Split
  • ... why people continue to buy the stock when Apple pays no dividend. Apple's stock price *has* to rise indefinitely at a rate that produces a useful return as a consequence. That's not sustainable for ever and arguably Apple's stock is significantly overvalued because the only way to make money from it is to turn a blind eye to that sustainability. Apple, I imagine, will eventually pay a dividend and its stock price will adjust as a consequence without significantly altering the return to its stockholders.

    • by Wovel (964431)

      Why can't the growth be sustained? Even if it can't dividends would not help investors in th extremely Lon term (like you are discussing). If growth becomes less spectacular, they can pay a dividend. There is no need to now. It would reduce the stock price and give investor a taxable event. Who wants that?

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