A Measure of Men's Minds

Apple is up 67% over the past 12 months, the DJIA only 8.5%

The Dow Jones Industrial Average needed Apple more than Apple needed the Dow. Adding the most valuable company in the world to the DJIA was a long-overdue move [bold added]

The move, announced this morning, arguably should have occurred last June, when Apple (ticker: AAPL ) made a seven-for-one stock split and therefore paved its way for inclusion in the index.

The 119-year-old Dow industrials still use a simple price weighting in calculating the index’s value, meaning the highest-priced stocks carry the highest weighting, regardless of their market value. The S&P 500 and most other indexes are weighted by market value. Apple is far and away the largest U.S. company by market value, having passed the $700 billion mark (a record) last month.

The Dow ceased long ago to be an accurate indicator of the performance of the overall stock market. For instance,Visa (current price $269.34) will have more than twice the weighting of Apple (price $126.60) in the DJIA at 9.4% and 4.4%, respectively, though AAPL is 3.5 times more valuable than V.

When someone, even a finance professional, asks "How did the market do today?" she most likely is enquiring about the oldest market index, the original version of which was created in 1896. Relevance is not scientific, after all, but a measure of men's minds.