Does GM Belong in the Dow?

As you probably heard, Dow Jones was acquired by Rupert Murdoch's News Corp. Dow Jones owns the Wall St. Journal. The composition of the Dow Jones Industrial Average is selected by the editorial board of the Wall St. Journal, which is now controlled by Rupert Murdoch. With this change in ownership, is it time to reconsider which stocks are members of the Dow?

The Dow Jones Industrial Average is the most widely cited stock market index. Unlike the S&P 500, which is market capitalization-weighted (more technically, float-weighted), the Dow is price weighted. That is, you just add up the price of the 30 member stocks, divide by a suitable divisor, and that's the index price. I consider the S&P 500 to be a better measure of the overall market, but the Dow is more widely cited.

Does GM really belong in the Dow? If you rank S&P 500 corporations by market capitalization, GM is ranked worse than 300th. GM has a junk credit rating. Does GM still have relevance to the overall US economy?

What stock would replace GM? It should be a corporation with a large market capitalization and has relevance to the average American. I think that Apple, Cisco, and Google each have a stronger claim to being Dow members than GM. Apple's iPod product affects more Americans than GM's cars. The McIntosh has consistently had a market share of a few percent. If you're using the Internet, it's a practical certainty that your traffic is being handled by one or more Cisco products. Google directly affects more Americans than GM. The only argument against including Google in the Dow is that Google is a relatively new company; Dow companies should have withstood the test of time.

Remember that stock investments aren't going to be worth anything after the US government collapses. Until then, it pays to be knowledgeable about stock investments, because they're the best inflation hedge.