Analysis: The Dow - Old, yes, but hardly irrelevant in march to record

Tue Mar 5, 2013 1:42pm EST
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By Leah Schnurr

NEW YORK (Reuters) - Market professionals sometimes deride it as a relic, deeply flawed in its structure, useful mostly as the man-on-the-street's window on the stock market.

But the old man of Wall Street, the Dow Jones industrial average .DJI, has had enough kick left in its 117-year-old legs to vault to an all-time high before its major rivals. Not only that, but it has done it with arguably more tortoises than hares in its mix.

The index hit a high of 14,286.37 on Tuesday, surpassing the previous high set in 2007.

The Dow, created in 1896 with the shares of 12 companies, comprises 30 stocks. Most are household names: General Electric (GE.N: Quote), Coca-Cola (KO.N: Quote), Boeing (BA.N: Quote), Procter & Gamble (PG.N: Quote) and IBM (IBM.N: Quote).

When it was originally conceived, the index was made up of the more important companies of the time, mainly railroads and raw materials producers. As time passed, the average shifted to reflect the changing economic make-up and now includes only a handful of companies that would be considered "industrial."

Investment pros regard a clutch of rival market measures - the S&P 500 .INX, the Russell averages and the MSCI Indexes - as better barometers of the overall market because they represent a broader swath of companies. But the Dow remains the common man's index, its compact size and infrequent changes making it easy for the average investor to follow.

The fact that the Dow is so widely followed and recognized by Main Street is part of what makes the index important.

"For everyday investors, the Dow is probably more important than the S&P 500," said Michael Sheldon, chief market strategist at RDM Financial, Westport, Connecticut.   Continued...

The Dow Jones financial electronic ticker is seen at Times Square in New York July 17, 2012. REUTERS/Shannon Stapleton