Tahoe-Truckee Market Beat: Apple added to the Dow
March 24, 2015
The Dow Jones Industrial Average has been around since 1896. The Dow consists of just 30 stocks. When the Dow was first created, it only consisted of 12 stocks, and to obtain the average, you would add up the prices of the twelve stocks, and then divide them by 12 and the result was the value of the Dow Jones Industrial Average.
As a result of stock splits, the divisor has been getting lower over time. Today, instead of dividing by 12 to get the average, you have to divide the sum of the stock prices by 0.14985889030177. One reason the Dow is so high today is because the divisor has become very small.
The only stock in the Dow today that was in the original lineup in 1896 is General Electric. The Dow changes to reflect changes in our economy so it consists of leading companies. It's no longer truly an industrial average anymore, either.
The most recent change involved adding Apple and taking out AT&T. AT&T stands for American Telephone and Telegraph and it had been a Dow component since 1939. I guess the addition of Apple means that the iPhone is more popular than the telegraph these days.
By changing the Dow periodically, the Index really does try to keep pace with our evolving economy by adding dominant corporations.
Currently, the market cap of Apple is about $733 billion, and it could be poised to become the world's first trillion-dollar company.
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The market cap of AT&T by comparison is about $172 billion. Market cap is the price per share times the number of shares outstanding.
The second largest company in the Dow right now is Exxon Mobil, which has a market cap of $354 billion, slightly less than half the size of Apple.
Apple has had a series of successful products including the iPod, iPad and iPhone. The next thing to look for from them will be the iWatch.
It will be interesting to see if the iWatch catches on and how the wearables revolution plays out and devices like the iWatch catch on with the public.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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