OT: Citigroup exit from Dow

Just shows what nonsense stock indexes are, picking winners after the fact and extinguishing losers. The whole (purported) point of an index is to compare one moment to another. Yet the definition keeps changing.

Wither Studebaker? Amalgamated Copper? Western Union? They were all titans in their day. Now Citigroup.

The rising Dow will be asserted to be proof of a recovery, while zombies still prowl the streets.

Reply to
Richard J Kinch
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Richard, is that really after the fact? They are replacing Citigroup at a low valuation. Dow will not magically rise to 15,500 tomorrow because they replaced C with something else. When they replace one stock with another, they adjust the divisor so that Dow stays the same. You could replicate the same change if you kept your own Dow portfolio, more or less (though it could incur some transaction costs as you would need to adjust quantity of every component, due to the divisor change)

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Reply to
Ignoramus17163

======= Yes, but......

This is a misunderstanding of the Dow Theory, which is why there are two groups of stocks called the Dow Industrials and Dow Rail (Transportation) stocks.

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The idea was that to identify an actual trend, both groups of stocks would move in the same direction. If manufacturing "boomed" but rail did not, this was speculation, because if manufacturing was actually producing anything, it had to be shipped, which would increase the "rails" dividend and the stock values

The Dow stock theory dates from the early part of the 20th century and was more fully developed in the 1920s/30s. Even if the theory was correct at that time, and little objective testing appears to have been done, the basic structure/makeup of the American economy has changed so radically that it may no longer apply. For example, the "industrials" now include many bank [Travelers replacing Citigroup] and tech [e.g. Cisco replacing GM] stocks, and only remotely or indirectly connected to "manufacturing," indeed, there may not be enough actual major American manufacturing companies to make an "index."

see

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^DJI
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Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

Reply to
F. George McDuffee

I understand they maintain the continuity of the index with the ratios and all. The point is that the components change to pick winners and dump losers after the fact. So the index cannot reflect any long-term potential returns. The bragging about the Dow having a long-term appreciation of X percent is just baloney, because "the Dow" is not a fixed basket. You cannot invest in the Dow index.

Bragging about Dow appreciation is like saying, "of the stocks we picked to do well that did well in hindsight, this is how well they did". Boob bait for suckers.

Reply to
Richard J Kinch

Richard, you left me confused here.

Citigroup stock is in the dumps, and Dow removes it from the index at its current price. They are also adding Cisco and Travelers at their current prices, and adjust the divisor, with the index being fully continuous.

You could replicate the same change in your portfolio, except, of course, you will deal with transaction costs and taxes, which the Dow index does not reflect.

The Dow is not a fixed basket, and S&P 500 is not a fixed basket either. No index is a fixed basket, because companies go bankrupt, spin off entities, and get bought.

By the way, in the last 6 years, I outperformed S&P 500 (with dividends included) by 4% annually in my brokerage account, and by 6% annually in my Ameritrade IRA.

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Reply to
Ignoramus28528
[...]
[...]

Actually, you can. Amex: DIA

Reply to
rangerssuck

No. Just because they call it that doesn't make it so. Investing in a mutual fund is not investing in the index, even less than personally trading the stocks in and out to mirror the index, which would not be either.

The gullibility of people for this nonsense is astonishing. Statements like "the stock market has a historical return of XX percent annually" are always based on this kind of doubletalk and winner-picking, unburdened by agency risk or overhead.

Extinction is forever. You can't win a relay race when runners drop dead in the middle of their run.

Reply to
Richard J Kinch

No, that's a mutual fund with compounded burdens and risks. Not the index.

Reply to
Richard J Kinch

Reply to
cavelamb

And the price follows the index so closely as to be virtually indistinguishable.

Reply to
rangerssuck

Here's a chart with ^DJI and DIA superimposed.

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^DJI#chart3:symbol=3D^dji;range=3D5y;c=ompare=3Ddia;indicator=3Dvolume;charttype=3Dline;crosshair=3Don;ohlcvalues==3D0;logscale=3Don;source=3Dundefined

Reply to
rangerssuck

Exactly. You can follow an index like Dow very closely, but you would necessarily pay fees and bid/ask spreads and be slightly behind.

And if you do not want to be behind the Dow, you should not follow the Dow.

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Reply to
Ignoramus10776

I'm not sure why you're saying that there aren't funds that are based on indices. Is that what you're saying? There are lots of index funds, such as the Vanguard Group, which track various indices. Vanguard, for example, tracks the S&P 500.

The only difference, aside from fees (much lower for index funds than for regular mutual funds) is that the index funds generally are weighted according to market capitalization. So stocks that are more highly capitalized are represented by a higher value of stock in the portfolio held by the index fund.

But the end result is that such funds track the indices very closely.

Or are you saying something else?

-- Ed Huntress

Reply to
Ed Huntress

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^GSPC The above chart compares VFINX (Vanguard S&P 500 index fund) and S&P

500 index performance. You can see them track very well. i
Reply to
Ignoramus10776

Do you think mutual funds don't scrape off a significant and compounded percentage in fees? Think about where that comes from, and how they keep the fund share price convergent to the index. They don't "track" anything, for any honest definition of "track". Boob bait.

There's a reason index funds only appeared recently, like collateralized debt obligations and other such wizardry. People didn't used to be so gullible.

Reply to
Richard J Kinch

Index funds are typically no-load; total fees are a fraction of typical mutual fund fees. You shouldn't pay more than 0.25% on a passive (index) fund.

Rather than just think about it, why don't you spend that brain power finding out about what you're talking about, instead?

Index funds appeared in 1973 - 1975. They're the product of the "Efficient Market Hypothesis" that gained currency at the time.

Sure they were. They've always been gullible.

Index funds are one of the few things that are pretty straightforward and easy to understand. I've never heard of anyone make the claims you're making. Usually, index funds are described as dull and pedestrian, but cheap in terms of fees.

Iggy has shown you some charts that show how effectively these funds track the indices. Where do you get the idea that they *don't* track the indices? And how do you think they could hide "significant" fees?

-- Ed Huntress

Reply to
Ed Huntress

Vanguard index fund charges 0.15%, which is an insignificant percentage, compared to any cost that a small or even large investor could encounter. Spiders charge only 0.1%. Considering that they make a bit of extra money on securities lending, their results are very close to those of S&P 500.

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Reply to
Ignoramus14389

So you believe that is their expense? Nothing for creation/redemption? What about the money not invested in actual shares? How much of there is that, and what do they do with it?

Reply to
Richard J Kinch

That doesn't matter. The load is what it is.

JC

Reply to
John R. Carroll

Do you also believe scottrade.com makes $7/trade?

My understanding, flawed and incomplete as it may be, was that the

0.09 percent sort of expense figures did not include true expenses like creation/redemption fees or the income from the 10 percent of the fund that wasn't actually invested.

What is needed is to calculate the dividends on the index basket and compare that to the dividends the fund pays. For some reason that information is not published that I've seen. As long as the fund price is tied to the index, the fund price contains zero information about the true expenses. The load comes out of other things.

It just defies my estimate of anybody on Wall Street that they would manage $100K for a fee of less than $10/month.

Reply to
Richard J Kinch

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