There's little doubt that Apple (AAPL +2.65%) is one of the most recognized companies in the world. And why shouldn't it be? It's the largest publicly traded company in the U.S. measured by market capitalization, and it's responsible for some of the best-known consumer products ever invented -- click here to see the newest additions to the iPhone family.
But despite these accolades, it's not a member of the Dow Jones Industrial Average (^DJI +1.79%), the world's most recognized blue-chip stock index.
The reason, it turns out, has to do with Apple's stock price. "Every index needs to weight its components," my colleague Morgan Housel explained earlier this month. "Some weight them all equally. Others, like the S&P 500, weight by market cap. The Dow does it the most curious way possible: by share price, which has no relation to a company's size, value, or relevance."
The figure at the top of this article shows what would happen to the index if Apple were included. At present, IBM is the most heavily weighted component. Its $190.70-per-share price tag gives it a 9.6% weighting on the Dow. If Apple were to be added, however, its current share price would entitle it to a weight of 19%. It would, in other words, completely transform the Dow, making it even less of a reflection of the overall market than it already is.
