Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why the Dow Didn't Soar Today: Blame It on Big Blue

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Of the 30 stocks on the Dow Jones Industrial Index (INDEX: ^DJI  ) , 24 were trading in positive territory at midday. Yet the Dow itself traded down 0.1% anyway. What's going on here?

Elementary, my dear Watson. IBM (NYSE: IBM  ) plunged 5.5% as the computing giant's third-quarter report failed to set the Street on fire. Earnings met Street estimates, but revenue fell short, and management simply reiterated existing full-year earnings targets. And that's simply not good enough for a stock that had climbed 15% over the last three months, leaving the rest of the Dow eating its dust.

But how can one stock's misfortunes single-handedly erase 24 winners? Again, it's very simple: No other stock determines the Dow's total value the way IBM does.

Big Blue's roughly $200 share price gives it an 11.3% weight in the price-based Dow. Today's IBM plunge took 89 points away from the Dow, easily destroying the 13 points added by Caterpillar's (NYSE: CAT  ) 2% rise and the eight points gained from Walt Disney's (NYSE: DIS  ) 2.1% jump. You may want to point fingers at Intel (Nasdaq: INTC  ) , as well, since the chip maker lost 2.8% of its value on another disappointing earnings report -- but that's just a five-point hit to the Dow, given Intel's far lower share price.

This is one of the few situations where stock splits actually make a difference. If IBM decided to split its expensive shares 10 to one, its importance to the Dow would fall roughly in line with Intel's. A fourfold split would align it with Disney, and a simple doubling of IBM's share count would make it comparable to Caterpillar.

This oddity also explains why Apple (Nasdaq: AAPL  ) , Google (Nasdaq: GOOG  ) , and (heavens, no!) Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) don't have a place in the Dow. Adding the roughly $700 Google or Apple stocks to the mix would tip the scales very dramatically in their direction, and inviting Berkshire's $135,000 "Class A" shares would effectively turn the Dow into an ETF tracking Berkshire's returns. That's just not in the cards.

Watching the Dow each day may be exciting, but the daily gyrations of this index don't have to keep you up at night. If you're in the mood to pick up some solid buys for the long term, The Motley Fool has created a brand-new free report from our expert analysts called "2 Dirt Cheap Stocks With Huge Dividends." It won't be available forever, so click here -- it's free.

Fool contributor Anders Bylund owns shares of Google. The Motley Fool owns shares of Apple, Berkshire Hathaway, Walt Disney, Google, International Business Machines, and Intel. Motley Fool newsletter services recommend Apple, Berkshire Hathaway, Google, Intel, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2062093, ~/Articles/ArticleHandler.aspx, 10/24/2016 10:22:50 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,239.60 93.89 0.52%
S&P 500 2,151.67 10.51 0.49%
NASD 5,303.57 46.16 0.88%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 10:07 AM
^DJI $18239.60 Up +93.89 +0.52%
AAPL $117.20 Up +0.60 +0.51%
Apple CAPS Rating: ****
BRK-A $217100.00 Up +1500.00 +0.70%
Berkshire Hathaway… CAPS Rating: *****
CAT $86.79 Up +0.46 +0.53%
Caterpillar CAPS Rating: ***
IBM $150.91 Up +1.28 +0.86%
IBM CAPS Rating: ****