For those of you who missed the news for the past week, Intel and Microsoft are among the four new additions to the Dow Jones Industrial Average. Our long-standing Cash-King picks join Merchant King Home Depot (another of my personal holdings, along with Intel) and innocent bystander SBC Communications in the venerable index as part of an attempt to make the thing more accurately reflect the U.S. economy. They replace Sears, Goodyear, Chevron, and Union Carbide in what Bill Milton, computer analyst for Brown Brothers Harriman, described as, "Kind of a reflection of the obvious." Well said.
The Dow Jones Industrial Average is a list of 30 companies defined by the editors of The Wall Street Journal that have long been used as a quick and dirty way of gauging the market's performance. Before the widespread use of computers, it was a lot easier to calculate an index based on 30 companies than to crunch the 500 daily closing stock prices required to use the more accurate S&P 500 index. These days, the S&P is just as easy to use and is a more accurate gauge of how the market actually did. Nevertheless, the Dow remains a familiar traditional yardstick. Every few years they give the thing a tune-up to keep it running.
That said, the only way I could care any less than I do now about how accurately the Dow reflects actual market performance would involve falling into a coma. What this change REALLY means is that the various Dow index mutual funds will gradually sell their shares of the four dropped companies and buy positions in the four new companies, to reflect the new index. From an investing standpoint this has no impact on the long-term performance of the companies involved, but from a market standpoint it means a whole lot of shares of INTC, MSFT, HD, and SBC are about to get bought and held by even more large institutional investors.
Hopefully, this will help reduce volatility a touch and provide a little more support for the high valuations of these stocks. It won't put any money in any of our pockets over the next ten years (unless of course we're investing in a Dow index fund), but it's one more reason for Rule Maker investors to sleep soundly at night and ignore market fluctuations. If the Dogs of the Dow strategy is based on the historical resilience of Dow stocks during hard times, our Rule Makers have one more vote of confidence behind them.
Intel has a webcast conference call this afternoon, and Matt's likely to write tomorrow's article about that. In the meantime, here are a few other recent Intel news items that caught my attention:
So, back to this matter of the November $500 addition to our own portfolio. I'm once again giving the nod to Intel. In the midst of all the discussion about Pfizer these past few days, Phil never had a chance to voice his opinion on this month's investment, but his vote also goes for Intel. Let me hand it over to Phil right now, so he can offer his two cents on the matter:
"In my eyes, right now Intel is one of the most interesting members of our portfolio. By all indications, Intel has reached an inflection point in its business. In the company's transition beyond microprocessors, Intel has been able to horizontally leverage its existing knowledge by looking at ways to expand its chipmaking prowess into networking and communications. Historically, horizontal technology businesses have fared better than vertical ones. The biggest advantage that Intel has over its competition during this time of change is its strong financial position, including $12 billion in liquid cash. In fact, Intel's performance under the Rule Maker criteria is currently at an all-time high."
Amazingly enough, the port managers may even be unanimous on this month's decision. Rumor has it that Matt is also feeling the love for Intel this month. He'll listen to tonight's webcast and report back tomorrow.
What do you think?
Come post your thoughts about tonight's report on our Rule Maker Strategy board. Alternatively, if you have ideas, analysis, or questions about a particular Rule Maker company, take a seat at the roundtable discussion on our Rule Maker Companies board. Finally, if you're new to all this stuff, the Rule Maker Beginners board is the place to get your questions answered.