Apple Too Big For the Dow Jones Industrial Average

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."

Comments

Who really looks at the DJIA?

[Anonymous Coward]

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?

So?

[Oxford_Comma_Lover]

*Shrugs*

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

DOJA != DJIA

[spazdor]

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.

The Stock Market is a Joke

[cosm]

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?

Re:The Stock Market is a Joke

[FooAtWFU]

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.

Re:The Stock Market is a Joke

[mattack2]

If you believe that, short it and make money.

Re:one other reason

[Oxford_Comma_Lover]

They have $69 Billion in equity, $23 billion in annual income (generously taking the four most recent quarters), and market cap of 382 Billion. That means it would take 13.6 years of income, at present rates (which are MUCH higher than historical rates) to break even. Around 207-230 Billion would be a fairly safe price, assuming they can keep up this level of income--and is a tad under 60% of their current market value.

They're not overvalued by 30x -- that would imply they were worth $12 billion, and their equity alone is better than five times that. But they are overvalued by at least 20-30% from the standpoint of a prudent investor.

Re:That seems dumb.

[TWX]

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.

Re:one other reason

[Oxford_Comma_Lover]

Although come to think of it, being overpriced has never bothered Apple in the past. :)

DJIA is

[Z8]

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:DJIA is

[Anonymous Coward]

Berkshire Hathaway ($101250!).

101250! = 6.7994476169830511727851464589251787226197877510690... × 10^462826

Re:Stupid algorithm

[FooAtWFU]

Congratulations. You've just discovered why there are dozens of S&P 500-based mutual funds, but there aren't really any DJIA mutual funds.

Re:one other reason

[Goaway]

Um, I've got some news for you...

Re:one other reason

[larry bagina]

Apple has a market cap of $382 billion and $70 billion in net asset value, so even if they appointed a no-talent ass clown like Michael Dell as CEO and he immediately liquidated everything, they're less than 6x overpriced.