Dowversifying

IBM and Merck join the club

To most investors the stock market is the Dow Jones industrial average, that index of 30 stocks whose price fluctuations are a barometer of good and bad times. But complaints are common that the Dow is not really a representative market measure. In hopes of improving it, the Wall Street Journal, which selects the stocks that make up the average, has revised it for the first time in 20 years. Result: the Dow now reflects almost 25% of the market value of all 1,566 New York Stock Exchange listings, vs. 19.3% before.

This was accomplished by replacing two of the stodgier performers, Chrysler and Esmark (formerly Swift & Co., the meat packer), with glamorous Merck & Co. and IBM, which is the market's most popular growth stock. Their inclusion reflects the rising importance of technology and drug companies in the economy and stands to make the Dow somewhat more volatile. Both companies' shares have risen substantially in value over the past two decades (Merck has more than tripled, IBM has quintupled), and relatively high-priced stocks usually have sharper swing than do lower-priced ones. Had IBM and Merck replaced Chrysler and Esmark in the Dow at this time last year, the average would have been more than 14 points higher than its 843 close on the last day of the "old" Dow. qed

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