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Why Google and Berkshire Will Never Join the Dow

Anders Bylund (TMF Zahrim)
May 28, 2009

Did you ever wonder why Berkshire Hathaway (NYSE: BRK-B  ) isn't a part of the Dow Jones Industrials? I mean, how do you keep Warren Buffett's baby out of perhaps the most visible of all the market barometers?

I can hear some of you giggling out there, because you know the answer: the Dow is a deeply flawed index that could stand a major makeover.

OK, let me show you what I mean. Now that General Motors (NYSE: GM  ) is teetering on the edge of financial oblivion, it's easy to imagine that stock dropping off the Dow. Stick Berkshire's A shares in its place, and Buffett would stand for about 99% of the average's value. The Dow is a dollar-weighted average, so Berkshire's stock price of $91,300 per share would throw the whole calculation off kilter. The B shares would have a 74% weight under the same circumstances. Would you really want the Dow to become a simple proxy for Berkshire Hathaway?

That's also why Google (Nasdaq: GOOG  ) will never be one of the Magnificent 30. A stern refusal to split its shares in good times or bad leaves Google with 28% of the responsibility for an imagined Googly Dow index, dwarfing the six next most heavily weighted components combined. That includes the market's biggest caps: ExxonMobil