Of the orginal dow 30 stocks only GE was part of the original 30 included in the index. So what happened to the other 29? And how bout the S&P? How many of the original 500 are still included. Watch GM and F get removed very soon so that a high flying surviver like AAPL and GOOG can be included. What do they call this, survivership bias? Gummint does this too with economic #s, big time manipulation everywhere.
Are we suggesting that buggy whip manufacturers should be represented in the DOW? Should we not replace Dow companies that have been liquidated or acquired?
"You know, at one time, there must've been dozens of companies making buggy whips. And I'll bet the last company around was the one that made the best damn buggy whip you ever saw. Now how would you have liked to have been a stockholder in that company?" great-great movie "Other people's Money"
The Dow is supposed to represent the economy of the US so if the biggest companies in 10 years end up being daytrading prop firms, then you bet ur a$$ that a few of them will be part of the Dow. The computer age eliminated older industries and the companies that used to be the leaders. Hence IBM, INTC & MSFT were added.
In the long run as economies expand and civilization develops, markets rise to reflect it. In other words, for the long run, "don't worry, be happy."
That's just how index's work. Surviorship bias is the right term but I guess but maybe not the right context if that makes any sense because the index isn't made to look better because certain stocks have been left out. I mean yes the index's kick out the poor peformers but if you buy SPY or could have bought DIA or the index way back then.....that chart looks would represent your equity curve. The index's goals are to represent "something" and that something changes as the time's change, companies merge, technology marches forward, etc, etc. Where Survivorship bias is a problem is in the Mutal Fund Industry (or the Hedge Fund industry Index's) where a Family of Funds can say they avg 11% only they don't tell you that fund xyz was killed off or turned into the abc fund so its left out and the avg gets inflated. But yes.....index's change significantly (they aren't as "passive" as the avg person might imagine), most of the time for the better, kicking out underperformers and adding outperformers but tell that to the guys that shoved all the dotcoms into the naz 100 before it imploded. The reason hardly any Funds/Mangers can't beat um over long periods of time though isn't that S&P or whoever does such a great job of picking the components, but rather the fact that management fees and transaction costs are a much much higher hurdle than the avg investor realizes.