Divide & Conquer

Have you ever considered what is the ‘Dow Jones Industrial Average (The Dow)’?  Most investors blindly confuse and mistake ‘The Dow’ with the ‘New York Stock Exchange (NYSE)’. As of the closing of today’s trading date 14 December 2015 ‘The Dow’ closed at 17,368.50 {Points} and the ‘NYSE’ closed at 9,986.76 {Points} and  Gold is at $1062.60 {$}.  Notice and do place significant emphasis on the former closing in {Points} and the latter in {$}. Take a moment to truly ask: Why?

So exactly what is “The Dow’ and what are Points?  According to ‘Investopedia’: The Dow Jones Industrial Average (DJIA) is the oldest and best-known stock market index. It measures the daily price movements of 30 very large American companies, formerly 12 Companies (a.k.a. Dirty Dozen). It is widely viewed as a proxy for general market conditions.

http://www.investopedia.com/ask/answers/050115/what-does-dow-jones-industrial-average-measure.asp

14 December 2015

17,368.50

Delayed Data

As of 4:31pm ET
 +103.29 / +0.60%

Today’s Change
15,370
TODAY|||52-Week Range
18,351
-2.55%

Year-to-Date

Companies in the Dow Jones Industrial Average

Company Price Change % Change Volume YTD
change
MMM 3M $157.63 +2.80 +1.81% 3,461,796 -4.07%
AXP American Express $68.83 -0.03 -0.04% 6,392,535 -26.02%
AAPL Apple $112.48 -0.70 -0.62% 64,985,168 +1.90%
BA Boeing $143.00 -1.62 -1.12% 4,844,050 +10.02%
CAT Caterpillar $66.12 +0.69 +1.05% 7,370,202 -27.76%
CVX Chevron $89.33 +2.89 +3.34% 12,428,568 -20.37%
CSCO Cisco $26.49 +0.33 +1.26% 32,743,708 -4.76%
KO Coca-Cola $42.45 +0.18 +0.43% 20,090,892 +0.54%
DIS Disney $109.35 +1.31 +1.21% 9,698,917 +16.10%
DD E I du Pont de Nemours and Co $67.92 -2.52 -3.58% 11,733,706 -3.30%
XOM Exxon Mobil $76.03 +1.69 +2.27% 21,973,260 -17.76%
GE General Electric $30.26 0.00 0.00% 65,051,193 +19.75%
GS Goldman Sachs $176.40 -0.16 -0.09% 5,100,994 -8.99%
HD Home Depot $132.01 +1.57 +1.20% 5,959,371 +25.76%
IBM IBM $135.93 +1.36 +1.01% 5,141,549 -15.28%
INTC Intel $34.47 +0.20 +0.58% 19,526,529 -5.02%
JNJ Johnson & Johnson $102.15 +0.47 +0.46% 10,640,583 -2.31%
JPM JPMorgan Chase $64.27 +0.20 +0.31% 17,634,009 +2.70%
MCD McDonald’s $116.26 +0.18 +0.16% 7,659,077 +24.08%
MRK Merck $52.20 +0.05 +0.10% 11,998,481 -8.08%
MSFT Microsoft $55.14 +1.08 +2.00% 47,002,773 +18.71%
NKE Nike $127.86 +1.57 +1.24% 3,994,464 +32.98%
PFE Pfizer $32.18 +0.12 +0.37% 38,285,684 +3.31%
PG Procter & Gamble $78.29 +0.51 +0.66% 12,178,054 -14.05%
TRV Travelers Companies Inc $111.03 +1.27 +1.16% 2,284,466 +4.89%
UTX United Technologies $93.03 -0.27 -0.29% 6,748,213 -19.10%
UNH UnitedHealth $115.85 -0.13 -0.11% 3,867,188 +14.60%
VZ Verizon $45.45 +0.63 +1.41% 16,721,009 -2.84%
V Visa $76.87 +0.76 +1.00% 10,359,878 +17.27%
WMT Wal-Mart $60.39 +1.03 +1.74% 14,523,232 -29.68%

Total: $2,599.67

{The author added ‘$ symbol’  in the price column into the matrix above}

Read more: What does the Dow Jones Industrial Average measure?

Do take note and notice it is not ‘The NYSE’, furthermore, note the value represented  $2,599.67 is not in {Points}, but rather {$}. So if’ the sum of the share price of the companies that comprised ‘The Dow’ equate to $2,599.67, where do we derive 17,368.50 {Points}?

Let’s delve a litter further into the algorithm that is used to compute ‘The Dow’.  The Dow is the valuation of 30 Companies over a given number of  industries. In the chart below I placed (divisor: 0.14967727343149) in bold. Why? Because employing the aforementioned figure of $2,599.67/.1496772343149 you arrive at 17,368.50 (look familiar)? Please view the first paragraph and note the 17,368.50 has a nomenclature change from currency units [$] to [Points].

http://www.wsj.com/mdc/public/page/2_3022-djiahourly.html

Dow Averages Hour by Hour Performance & Volume
INDUSTRIALS

Monday, December 14, 2015
NOTICE TO READERS: Volume data represents composite volume unless otherwise noted.
30 INDUSTRIALS: (divisor: 0.14967727343149)
Date Open 10 a.m Volume 11 a.m Volume 12 Noon Volume
12/14/2015 17277.11 17229.00 35,485,967 17234.08 125,322,790 17227.73 190,552,812
12/11/2015 17574.75 17313.95 40,794,044 17335.73 126,018,835 17320.30 180,450,333
12/10/2015 17493.17 17507.83 29,164,920 17614.87 91,390,062 17578.35 134,036,021
12/9/2015 17558.18 17639.12 30,152,201 17727.44 98,235,301 17576.28 146,746,412
12/8/2015 17703.99 17527.31 31,966,209 17616.13 90,243,177 17596.63 135,419,152
Date 1 p.m Volume 2 p.m. Volume 3 p.m. Volume
12/14/2015 17328.28 249,406,518 17270.02 294,809,233 17298.89 337,786,582
12/11/2015 17302.43 232,170,469 17304.23 273,210,046 17304.50 315,118,211
12/10/2015 17607.35 172,348,856 17615.43 211,278,562 17661.65 254,071,961
12/9/2015 17432.57 203,259,681 17471.82 253,179,382 17440.69 297,119,674
12/8/2015 17582.93 164,939,466 17581.96 196,185,676 17594.18 232,025,195
Sources: S&P Dow Jones Indices; WSJ Market Data Group.

http://money.cnn.com/data/dow30/

As an investor, I urge you to use critical analysis and ask why is the Dow Divisor employed? Why is ‘The Dow’ not reflected in currency units {$}? Why is Gold reflective of the spot price determined by ambiguous transactions unrelated to physical stewardship, but rather  paper transactions that do not facilitate physical delivery? Why is Gold not in {Points}?

Although I have no definitive proof, and I am not a conspiracy theorist, I can make the following assessments with some confidence. Mass psychology tends to favor that we as a group, in this example investors, like to see and belong to a group of symbols that stroke our ego, reinforcing that our investment thesis is correct. We tend to like high numbers and see every stock symbol green in our portfolio. Yet, investing in such manner overlooks (1) valuation and (2) entry and (3) exit strategery (George W. Bush). Most investors invest without being able to discern valuation, meaning what is on sale. In general, we love a great sale on consumer goods, but lack the wisdom to identify the sale on capital goods.

So let’s revisit our numbers for ‘The Dow’ 17,368.50 {Points} and or $2,599.67 versus Gold $1,062.60. Now without going into historical numbers and comparisons. We can discern that most investors will prefer to be part of ‘The Dow’ at 17,36850 {Points}, sure sounds like the place to be!  But imagine if you woke up and found that dow opened the next trading day 15 December 2015 at $2,599.67! Although you are now one of the astute investors that realize the numbers are one in the same, can you imagine the panic? Yes, $2,599.67 is still more than double than $1,062.50 so mass psychology would still favor ‘the Dow’ based on my thesis of mass psychology.

But wait. . .  there’s more ! ! !

‘The Dow’ is a metric that changes, meaning companies are interchangeable and are replaced.  That means that the valuation assessed to ‘The Dow’ is a moving target. So why do investors focus on ‘The Dow’ so much? Do recall, that the only industry protected by the Constitution is the Press. The Press/Media has a remarkeable ability to influence the populace and will spread a Sophism, which is a lie that is told over and over until you hear it so often that you believe that it is true. In addition, the Press/Media will produce thought-provoking panels discussions around a Sophism that truly don’t merit their existence, and, more importantly, your time.

1971 Gold was $35: Today $1,062.50 {30 Fold Increase or 3,000% Gain}

1971 Dow was 900 Points: Today 17,368.50 Points {19 Fold Increase or 1,900% Gain}

Oops ! ! !  I remembered Verizon, Microsoft, and Home Depot to name a few weren’t alive in 1971. But don’t take my word for it. See if you are able to determine how many companies have been added and removed since 1971. When you do the research, you will notice the points for the companies that comprised ‘The Dow’ on 15 Aug 1971, and if revised to 14 Dec 2015 investors will notice ‘The Dow’ will be significantly lower and will not reflect 17,368.50 Points.

In conclusion, my intent is not to provide the answer for the actual returns sustained by ‘The Dow’ from 1971 to 14 Dec. 2015 because I don’t want you to blindly trust me, but to validate the empirical evidence for yourself. Decide for yourself if Gold is worthy of being a vital, prudent part of your portfolio. My sincerest wish is that you can Divide ‘The Dow’ and Conquer the Sophism.

Proven & Probable

Maurice Jackson 

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