Thanks PB - always a good read.Just a correction. Apple is no...

Thanks PB - always a good read.

Just a correction. Apple is no longer the largest company in the world by capitalisation. With Apple's share price dropping from 700 to 430, Exxon has regained that title. Apple was the largest company from January, 2012 to January, 2013. Exxon is a Dow 30 component. Apart from a few days in 2011, Exxon was the biggest company before January, 2012 as far back as 2006.

The next biggest companies as at the end of January, 2013 were, in order:

Google, Berkshire-Hathaway (read Buffett), Wal-Mart Stores, Microsoft, General Electric and IBM.

Google and B-H are not Dow 30 components the others are.

There is a beguiling argument that because the SP500 has more stocks in it (500 stocks) than the Dow 30 (30 stocks), the SP500 is a more reliable guide to "market" action than the Dow 30. However, because of the huge capitalisation of the Dow stocks, it can be argued that the big blue chips are the "market".

In a recent report on Dow Jones Indices, the Dow 30 and the SP500 were shown to have an almost perfect correlation based on a 36 month period of 0.981. That's about as close to perfect as you can get. (http://www.djindexes.com/DJIA115/docs/Dow_Jones_Industrial_Average_White_Paper.pdf). Over the past 50 years, the correlation has been 0.95. (http://articles.marketwatch.com/2011-01-21/investing/30761171_1_smallest-stocks-stock-market-and-s-p)

In this area, one can get into all sorts of esoteric arguments about risk/return, growth rates, multi-year returns, etc.

You might prefer to use one or the other. But as far as market action is concerned, assessment using one or the other is just a personal preference.

Redbacka