Dropping GM From The Dow 30?

Posted by: David Kiley on March 10, 2009

GM%20Logo.jpg

There is buzz on Wall Street that General Motors may soon be dropped from the Dow Jones Industrial Average, made up of 30 bellwether companies. Citi is also rumored to be on the Dow block.

I get why Dow Jones would be considering it. Should the extreme woes of two companies, with problems that are out of proportion to the other listed companies, drag down the whole stock market index?

Are their problems so horrific that they distort the usefulness of the index to track the broader market?

On the other hand, if both these companies are both so intertwined throught the U.S. and gloal economy, and are too big to fail, shouldn’t they be part of a true market index even if they are trading at near a buck a share?

Reader Comments

Bob

March 10, 2009 3:36 PM

So then how does that affect a historical comparison?

From Kiley: I believe the Dow has swapped out companies before, so it does not impact historical comparisons. Of course, there are many who believe the Dow 30 is a terrible tracking index anyway, and that the S&P 500 is the preferred index.

Eugene M. Ogozalek

March 10, 2009 3:37 PM

I believe that it is good practice to have other companies replace those that have performed poorly in management and labor issues. GM's woes started years ago as they essentially buried their heads in the sand regarding competition forces.

Chris

March 10, 2009 4:02 PM

It hasn't really seemed to matter much and such companies DO indicate the overall picture of the economy. The Dow is down 53% and the S&P has dropped 48% from Oct 07 peaks - the small difference is surprising considering how many companies are represented.

Nate

March 10, 2009 4:11 PM

Would dropping those companies from the index trigger a further devaluation as index funds that try to reflect the DJIA divest of the companies' stocks? I don't know what kind of volume those funds carry...

jim durning

March 10, 2009 4:14 PM

Since the top 8 DOW Co's make up nearly 50% of the index while the bottom 20 DOW Co's account for less than 40% it's redicullous that it is used as a general market indicator at all.

LES BROWN

March 10, 2009 4:40 PM

IF THE DOW IS TO CONTINUE AS A BAROMETER FOR THE NYSE, MORE COMPANIES WOULD HAVE TO BE ADDED. ADDIONALLY THEY WOULD HAVE TO ADHERE TO MORE STRINGENT GUIDE LINES OR WOULD NOT QUALIFY TO BE PART OF THE DOW. ALSO THEY SHOULD BE MONITERED AS TO THEIR VIABILITY. SOMETHING HAS TO BE DONE.

vs

March 10, 2009 5:02 PM

saw this comment in another "rag" ..."Citigroup and Bank of America, large bank stocks that are components of the blue chip Dow,"... what blue chips? blue as in depressed, down? blue as in gambling chips? probably ... analysts are much to blame for the BS being vomited out of Wall Street. Let the bank bastar_s loose their cherished institution and replace their stays in another institution ... PRISON. Liars for hire = analysts ... the root of the word = anal! LOL

Jimmi

March 10, 2009 7:11 PM

"other companies replace those that have performed poorly in management and labor issues.... "

I totally agree with this. I mean we should not be afraid to take risks with replacing such companies.

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jackson

March 11, 2009 2:27 AM

GM is a memory, a cultural relic. Its stock peaked above 90, and is now $1.90. It's gone; the sooner we realize this, and GM employees move to jobs where they push America to compete rather than work for a company that is a drag on America, the sooner we will recover. See http://moneyveil.com/?p=144 for my thoughts.

Kelly

March 12, 2009 6:02 PM

I feel very bad for the employees of GM, however, believing that the company can survive against carmakers Honda, Toyota ect, when paying their labor far above market value is unrealistic.

The unions have tanked GM, and it's not fair to use tax payer money to keep them running.

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GM Daughter

March 16, 2009 2:22 PM

I think GM should do a 50-1 reverse split. They'll probably have to borrow even more money to pull it off, but fractional shareholders should be put out of their misery.

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