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Apple & Dow 15000: Update

In February 2012, I wrote a blog post that indicted the Dow Jones Industrial Average for including Cisco in 2009 instead of Apple.  At the time, Apple had just crossed $500 per share, and that simple decision had cost the US the psychology of an index hitting new highs.

I was driving home on Sunday, listening to the radio, and it occurred to me how different the financial news would be if Apple ($AAPL) was in the Dow Jones Industrial Average (^DJI).

Of course, being who I am, I went home and built a spreadsheet to recalculate what would have happened if Dow Jones had decided to add Apple to the index instead of Cisco back in 2009.  Imagine my surprise to see that the Dow be over 2000 points higher.

Update: AAPL at $700

With the launch of the iPhone 5, we find ourselves roughly 7 months later.  For fun, I re-ran the spreadsheet that calculated what the DJIA would be at if they had added AAPL to the index in 2009 instead of CSCO. (To date, I’ve never seen an explanation on why Cisco was selected to represent computer hardware instead of Apple.)

Result: Dow 16,600

As of September 17, 2012, AAPL closed at 699.781/share.  As it turns out, if Dow Jones had added Apple instead of Cisco in 2009, the index would now be at 16,617.82.  Hard to think that hitting all new highs wouldn’t be material for market psychology and the election.

Anyone up for Dow 20,000?

3 Comments Post a comment
  1. Paul #

    I’m sure hedge fund managers are happy, being judged against an index that isn’t as high as it could have been. I’m sure they are laughing all the way to the bank on the 20 side of their 2 & 20 after watching their apple shares go through the roof.

    September 18, 2012
  2. The point of the DOW Industrial average is not to reach as high as it can, but to provide a meaningful representation of the state of American companies.

    Apple is a lone ranger breaking every possible revenue and profit record. CSCO is showing steady growth, while restructuring and improving operational efficiency. I would argue this is a much better stable representation of the situation of the American economy.

    Including AAPL instead of CSCO would distort positively the projected image of the economy, while reality would be much more moderate. It would be flashy, it would be news bait, but it would serve little purpose.

    September 18, 2012
    • Pablo, I cover that point adequately in my original post. I’m not advocating some sort of crazy “what if the Dow added Apple in 1999″ kind of thinking. It’s unclear what the real goal of the DJIA is at this point, since it’s truly a mathematically meaningless index. However, in 2009, they chose to change the index, and chose to add Cisco. At that time, it was already clear that the index was over-weighted in technology names that serve the enterprise, and under-weighted in names that serve the consumer.

      Apple is the largest technology company in the world by market capitalization, revenue and profit. By not including Apple, it’s highly unlikely that the Dow is accurately reflecting the state of American companies. Your comment reflects the typical comments of the Dow, but lacks any quantitative justification. Let me know if you actually have any data to support the idea that the Dow has better represented the “state of American companies” since 2009 than it would have with Apple.

      (BTW You might have wanted to disclose up front that you are an employee of Cisco.)

      September 18, 2012

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