Zeev's Turnips Patch-No Politics (ZEEV)

[conelda]

To:Chris who started this subject
From: mchjc Sunday, Jan 26, 2003 2:12 PM
Respond to of 42543

Some stray thoughts....... on another snowy Sunday afternoon ........before the SuperBowl:
Contortions of the DOW:..........The Dow Industrial Average is a strange concoction, and it promises to get even stranger after the MSFT 2/1 split.

Take a look, for example , at two DOW stocks, MMM and MSFT, and what would now happen to the Average if there were to be an identical 10% fall in MMM and in MSFT - say, from 125 to 112.5 and from 50 to 45, respectively........That would shave about $4.9 billion from the market cap of MMM, but more than 5 times as much - $26.7 billion - from the market cap of MSFT.......so you'd think that the fall in MSFT would have a much bigger impact on the DOW Average ??? .......Not so...... the Average would lose 34 points because of the MSFT fall, but would lose about 85 points -some 2.5 times as much - from the much, much smaller loss in the MMM market cap !!

And after the 2/1 MSFT split the foregoing relationships would be even more exaggerated.............a 10% loss in MSFT - from 25 to 22.5, say.......would have an impact on the DOW only about 1/5th as large as would a 10% fall in MMM and its much smaller market cap loss.......17 points loss on the DOW from MSFT and 85 points Dow loss from MMM....(.And these figures are based on the current DOW "divisor"..........the differences will be even further widened after the "divisor" is adjusted for the MSFT split).

This is so weird that I'm wondering whether I can possibly be right in the foregoing analysis.........Any and all comments/questions about it would be welcome...........Also wondering, if this is correct, how anybody can draw any valid conclusions at all about the general market from looking at movements of the DOW.......???????