Because Apple shareholders will receive 3 shares for every one that they own, the Dow Jones Industrial Average will change on August 31, 2020.
First, we’ll do some history, and then we’ll take a look.
The Dow Jones Industrial Average
Charlie Dow and Eddie Jones
In 1882, three friends started Dow Jones & Company. During every business day, six or seven 14 to 16 year-olds continuously delivered Dow Jones news bulletins created by Charlie Dow, Eddie Jones, and Charlie Bergstresser. They had the facts and the gossip.
A typical Dow Jones letter might say:
The First Dow Averages
In 1884, they began to publish average closing prices for a group of representative stocks. Reflecting market trends, the first Dow average was dominated by railroads:
In 1896, the Dow Industrial Average was created:
The 1916 average reflected the role played by a young auto industry. You can see that it expanded to 20 companies:
Finally, during the 1920s, the consumer and the Dow 30 arrived with Sears , Woolworth (a 5 & 10 cent store) and more car companies:
Our Bottom Line: The Newest Dow
Amgen, Honeywell, and Salesforce will replace Exxon Mobil, Pfizer, and Raytheon (United Technologies). Apple’s four-to-one stock split was one reason for the change. Its lower price would have meant less technology influence over the Dow’s totals.
CNN clearly described the split: “Assuming share prices don’t move dramatically during the several-day split process, if an investor owns two Apple shares at $500 each before the split (a $1,000 total holding), after the split they will own eight Apple shares at $125 each (still a $1,000 total holding).” Based on the math of computing the Dow, at $125 (or so), Apple would contribute less to the Dow’s daily changes than at $500.
To remedy an outcome that would have misrepresented the direction of the U.S. economy, the Dow, as always, made the changes to more tech.
Our featured image is from Pixabay.