I'M WRITING THIS

on Thursday night, Sept. 28, with the Dow Jones Industrial Average poised just a handful of points below its all-time high of 11,722.98. By the time you read these words, the Dow may be trading for its highest price in history.

I have just two words to say about this: Who cares?

Actually, I have a few more words than that. Read on.

For all the publicity around this event, you'd think it was something of transcendental import like the first moon landing. But if you ask me, this one ranks in importance right up there with tabloid headlines claiming Angelina Jolie is pregnant with an alien's baby.

How can I begin to tell you how utterly irrelevant this is for investors? There are so many ways, and so little time.

For one thing, 11,722.98 doesn't really mark the all-time high. That's just the all-time closing price, achieved on Jan. 14, 2000. The actual all-time high was 11,750.28, achieved somewhere in the middle of the trading day on the same date.

Hey if you're going to obsess about the all-time highs, at least get the darn number right.

And even using the correct number of 11,750.28, the Dow actually surpassed that level over a year ago. And as far as I know, nobody even noticed.

That's right. If you'd bought the Dow at 11,750.28 right at the tippy-top on Jan. 14, 2000, you'd have been earning dividends all along. Your account, including the value of those dividends, would have broken even and moved on to new all-time highs on May 2005.

You don't think those dividends should be counted? Fine. You'll find my email address at the bottom of this column. Since you don't care about dividends, email me and I'll give you the address where you can send me a check.

And who cares about the Dow Jones Industrial Average anyway? I hate to break it to Dow Jones, one of the parent organizations of this web site. But if it weren't for the fact that the 30 Dow stocks happen to be in a famous index, would anyone ever consider actually owning them as a portfolio? Not a chance.

The Dow is really nothing more than a random collection of arbitrarily selected stocks and just 30 of them. It hardly represents the overall equity market. The much broader S&P 500 is far more representative, and it behaves quite differently as a result. The proof? Easy: The S&P 500 is nowhere near all-time highs, while by sheer luck the Dow just happens to be.

The stocks in the Dow are all tried and true and tired blue chips. They don't come close to representing the real growth potential of the American economy. The Russell 2000 Index, which covers smaller companies exclusively, does a much better job of capturing the spirit of risk-taking that is the heart of investing. And it's been making all-time highs for most of the last two years.

Whatever kind of stocks are in the Dow, it's a problem that there are 30 of them. For individual investors, that's more stocks than you probably want to own. Who can keep track of them all? And for institutional investors, it's too few stocks. If you're running a zillion-dollar mutual fund, 30 is way under-diversified.

And have you ever wondered how the Dow is calculated? The movements of the index each day are calculated based on the assumption that you own an equal number of shares of each of the 30 companies. Is there anyone in the world who actually invests that way? I hope not.

Equal share numbers mean you haven't thought about how many dollars you want to put at stake in each stock. A hundred shares of Microsoft are worth $2,740. 3M is a higher-priced stock, so 100 shares is worth $7,460 Do you really want to own about three times as much 3M as you do Microsoft? Maybe but if so, you should have a better reason that just because the number of shares is supposed to be the same.

Since the dollar exposure to stocks in the Dow is a function of their price, the movements in high-priced stocks like 3M influence movements in the index more than the same percentage movement in low-priced stocks like Microsoft. Is there any rational reason why 3M should move the average more than Microsoft?

And suppose that one day 3M does a big stock split, so that its stock price falls from being three times that of Microsoft to only one-third that of Microsoft. Now, for no better reason than the stock split an economically meaningless event suddenly Microsoft becomes the one with three times the influence on the movement of the Dow.

Almost all other major indexes are capitalization-weighted. That means any stock's influence on the movement of the index is in proportion to its market value. That's as it should be, because it mirrors the aggregate experience of all the investors in the marketplace.

Take my advice on this. Just forget about all this bogus hoopla about the Dow. Instead, think about something important about investing. Think about which stocks you want to own. Think about how you should allocate your market exposure between stocks and bonds, or between domestic and international securities. Think about which way the economy is going.

And if some stock-market pundit tries to snow you into thinking that a new all-time high for the Dow is supposed to be a big deal, or even something that remotely matters to your investment decision process, think about finding another pundit.

Donald Luskin is chief investment officer of Trend Macrolytics, an economics consulting firm serving institutional investors. You may contact him at

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