Those Misleading Averages

Securities men have grumbled for years about the commonly used yardsticks of the stock market's behavior, claiming that they often so exaggerate the ups and downs of prices as to mislead the investing public. Last week the New York Stock Exchange itself joined in the catcalls. In an article in The Ex change, its monthly magazine, it blamed the most famous index of them all, the Dow-Jones industrial average, for much of the "pure nonsense" that is written about market trends. The heart of the problem, said the magazine, is the "tremendous disparity" between point changes in the Dow-Jones average and the dollars-and-cents meaning of those changes. The Dow-Jones index is calculated by totaling the per-share value of 30 blue-chip industrial stocks (among them: A.T. &T., Du Pont, General Motors, General Electric, U.S. Steel), then dividing the sum by a frequently changed divisor--now 2.278--to erase the effect of stock splits and dividends. Thus figured, the Dow-Jones average of those 30 stocks stood at 888.82 at week's end, but their average market price was $67.50. Complained The Exchange: "A one-point change in the D-J equals about 80 in the arithmetical average of the stocks. If the D-J advances ten points, immediately there are reports that the market is soaring; the fact is that the stocks have moved up an average of 760 a share. If the D-J declines 15 points, we learn that the market is plunging; the fact is that the stocks have lost an average $1.14 a share." Despite such faults, admitted the Big Board's publication, the Dow-Jones industrial average remains "preeminent due to long usage, historical continuity and the theories built around it." The D-J began in 1897 as an average of the price of twelve stocks, was expanded to 30 stocks in 1928 and has remained at that level since (though some stocks have been added and others dropped, most recently in 1959). Like other respected averages, D-J industrials reflect long-term trends in the market, but, advised the magazine, "on a day-to-day basis, be wary." Despite all the clamor for better figures, however, the New York Stock Exchange has so far been cool to suggestions that it do the obvious: issue its own index.

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