Author Topic: Dow Jones vs. S & P 500  (Read 1088 times)

clarkfan1979

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Dow Jones vs. S & P 500
« on: August 03, 2020, 07:56:18 AM »
Since Jan 1, 2020, Dow Jones is down 8% and S & P 500 is up 1%. I am not a Historian of the stock market, but this gap in performance seems kind of big to me. Is this gap normal?

My retirement account (target retirement date fund 2045) is up 11.87% since Jan 1, 2020. The normal allocation is 52% large cap, 38% international, 5% misc. and 5% bonds. It seems like the portion allocated to international is a little higher than normal.

In May 2020, I switched my allocation to 50% large cap, 25% small/mid cap and 25% international (no bonds or misc.). In the middle of July 2020, I switched back to the retirement date fund.

talltexan

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Re: Dow Jones vs. S & P 500
« Reply #1 on: August 03, 2020, 08:08:36 AM »
It sounds like you're still doing a lot of switching to try to find a strategy.

Including small cap, particularly if it's tilted toward value, can be very wise over the long term if you stick with the strategy. Are you familiar with Paul Merriman? He advocates a complex portfolio called "ultimate buy/hold" as well as a simplified "two fund" portfolio". If you're truly interested, you can check him out at his website.

As far as why the Dow has done so badly this year, it's because Boeing is heavily weighted by it. Also the Dow weights share prices rather than market capitalizations, so Apple's 4-1 split will change how the index accounts for Apple. If you want to get a good sense of the broad market, S&P is a far superior measure.

hodedofome

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Re: Dow Jones vs. S & P 500
« Reply #2 on: August 03, 2020, 10:21:34 AM »
The past few years has basically been the more tech heavy an index, the better it's performed. This may not change anytime soon.

MustacheAndaHalf

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Re: Dow Jones vs. S & P 500
« Reply #3 on: August 05, 2020, 02:46:10 AM »
I'd encourage you to pay more attention to the S&P 500, which tracks the value of the 500 largest publicly traded companies in the U.S.  The Dow Joes Industial Average (DJIA) is much more arbitrary, in two key ways.  The DJIA holds just 30 stocks, compared to the 500+ in the S&P 500.  And it tracks stock price, not overall value of a company.

Apple plans a stock split later this month.  The S&P 500 will do nothing - Apple has the same weight before and after the 4:1 stock split.  But in the DJIA, Apple's weight will drop by 4x, as it's stock price drops.

I actually wonder if certain companies are a bit too uncomfortable for DJIA to include... for example Berkshire Hathaway trades for about $300,000 per share.  By it's current approach, if the DJIA included BRK.A shares, it would simply imitate Berkshire Hathaway's performance.  And to a lesser degree, Amazon ($3183/sh) or Tesla ($1487/sh) might involve the same problem.  In my view, stock price shouldn't decide weight in an index.  And if you look at more modern indexes, they use a more stable value like market cap.

vand

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Re: Dow Jones vs. S & P 500
« Reply #4 on: August 06, 2020, 02:47:24 AM »
It does seem that there is one of those rare divergences currently occuring - most visible between Dow & Nasdaq - that usually signals the late stages of irrational exurberance.

I mean, it's bloody obvious there has been a lot of speculation in big tech stocks when you look the likes of TSLA

https://joehentges.net/extreme-divergence/

ender

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Re: Dow Jones vs. S & P 500
« Reply #5 on: August 06, 2020, 07:21:10 AM »
I really don't know why the dow matters anymore, honestly.

It feels like such an arbitrary grouping of funds arranged without any care for a meaningful index imo.

talltexan

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Re: Dow Jones vs. S & P 500
« Reply #6 on: August 06, 2020, 07:42:49 AM »
We have a 30-company measure that is still highly correlated with our broader 500-company measure. There are reasons to keep media attention on those companies.

vand

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Re: Dow Jones vs. S & P 500
« Reply #7 on: August 06, 2020, 10:46:41 AM »
I really don't know why the dow matters anymore, honestly.

It feels like such an arbitrary grouping of funds arranged without any care for a meaningful index imo.

You'd think that in this day and age we could compare apples to apples, but finance is not that straightforward.

For example, how difficult should it be to not only get the price of an index, but to see its total returns (inc dividends)? Yet that is beyond the capability of most financial platforms. Bond funds OTOH always show total returns.. so immediately a like for like long term comparison becomes so much more difficult that it should be.


I guess the relevance of the DJIA is simply to show how humans are not logical investors! It's such a widely tracked index but at the same time so flawed and unrepresentative.

Something more meaningful would be tracking the regular marketcap weighted S&P and an equal weighted S&P. That would clearly show the strength in breadth of the regular cap weighted index.

hodedofome

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Re: Dow Jones vs. S & P 500
« Reply #8 on: August 07, 2020, 06:40:44 PM »
When the Dow jones was created, Industrials and railroads were the ‘tech’ companies of the day. Those days are long gone and the Nasdaq is the tech index of today. That’s the only index I follow now, and the only one that matters to me. Give me the index of the companies that are growing, taking over the world and changing the world. Who cares about the companies who are commoditized and irrelevant.

clarkfan1979

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Re: Dow Jones vs. S & P 500
« Reply #9 on: August 13, 2020, 07:39:04 PM »
Now, I'm up 17.4% since January 1st. The S & P 500 is at 3.6% since January 1st.

I bought more at the bottom (April 7th) and I got rid of my 10% bonds during the recovery (May 28th).

I just recently went back to 10% bonds yesterday (August 11th)

I'm currently at 60% large cap, 20% international, 10% small-mid cap and 10% bonds.

LWYRUP

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Re: Dow Jones vs. S & P 500
« Reply #10 on: August 13, 2020, 07:59:02 PM »
When the Dow jones was created, Industrials and railroads were the ‘tech’ companies of the day. Those days are long gone and the Nasdaq is the tech index of today. That’s the only index I follow now, and the only one that matters to me. Give me the index of the companies that are growing, taking over the world and changing the world. Who cares about the companies who are commoditized and irrelevant.

I disagree.  If you are going to track equity performance,  Vanguard total world admiral fund is a far better benchmark than QQQQ.

Buffaloski Boris

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Re: Dow Jones vs. S & P 500
« Reply #11 on: August 14, 2020, 08:47:58 PM »
I dislike both measures. The DJIA only covers about 30 stocks and is price weighted. The SP 500 is cap weighted and covers the top 500 stocks more or less with notable exceptions like Tesla. I’m not a fan of cap weighting. I use the price of RSP (equal weighted SP 500 ETF) as a measure of what the large companies are doing.