WHAT A BUNCH OF BULL

April 1, 2005

I can remember my senior year of college, living in a third floor apartment like most married college kids did. You had to climb those metal stairs up the outside of the 80 year old home. But, what’s a twenty-two year to complain about anyway?

It was an evening meeting with a financial consultant that brought my memory to this image. He was pitching a Dreyfus Fund and telling me that if I would put my money in the stock market, I could NOT LOSE! He had the records!

There was no Nasdaq so the DOW was- and still is, the big measuring rod of stock market success. There were only 30 stocks in the Dow, but it was the barometer of things golden. And the point is?

It was announced Thursday, that on April 8th, the Dow would trash three coporations (AT&T, Kodak, and IP) and take on three new ones: AIG, Verizon, and Pfizer.

Oh, so that’s how the Dow does so well. You take a corporation like AT&T that’s lost 65% of it’s value ($60 stock now selling for $21), and replace it with a stock that’s doing well. What a shell game! What a bunch of bull. The three going out were MANUFACTURING corporations. We no longer manufacture stuff- we just buy it- from China.

The Dow has done well ever since it’s inception (1896) and ever since it adopted the 30 stock scenario (1928). The last change was in 1999 when the Nasdaq hype was at it’s peak. Itel and Microsoft were added then (as well as Home Depot and SBC).

Things are not always as they seem and 38 years later, I understand that a little more.

Written by Ernie · Filed Under Daily Commentary