Since the 2008 melt-down, everyone believes the market has had a spectacular recovery. To an extent it’s true, but the numbers you see in the DJIA index are shaded in lies.
Four stocks, Citigroup, Bank of America, AIG, and GM were kicked out of the Index. And the impact was huge. AIG and GM went bankrupt (eventually raised from the dead with taxpayer dollars) and Citi, and BofA are today selling at a fraction of their value in 2008. (Also, bailed out by taxpayers—but that’s another story for another time)
So, how’s this a lie? Okay, let’s do the math.
They were replaced with curly, Larry, Moe and shemp. These replacements contributed significantly to the rise of the index.
Have you ever stopped and thought about what the DJIA index would be if the original four were still in the index?
See my point?
I recently explained this to my son’s school teacher who brilliantly summed it up in simple terms. She said, “I see. If I have 30 students take a test and I throw out the four lowest scores and replace them with four smarter students then my class Grade Point Average goes up.”
That’s what I love about good teachers. They make things simple to understand.
Ironically, the four “rogue” stocks that were kicked out were all financial stocks (GM’s revenue was, and still is, totally dependent on their financial division.) This is another example of how fragile our banking system is. (And another reason to be leery of big bank stocks)
Wall Street is the best at covering their sins…but when you learn how to “connect the dots,” you won’t be fooled again.