The Dow Jones Industrial Average has not undergone any significant structural change in how it is determined since it was originally designed by Charles Dow, founder of The Wall Street Journal in 1896. However, given the evolution in the makeup of the U.S. marketplace, a change may be in the works.
According to the Globe & Mail, Standard & Poor’s (NYSE:MHP), which took over the Dow index just over two months ago, is considering testing the waters on a structural change aimed primarily at finding a way to include Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and possibly Berkshire Hathaway (NYSE:BRK.A, BRK.B) in the average.
The 30-company Dow Industrials is a weighted-by-price average, and inclusion of these three stocks, which are all among the Top 10 companies in the U.S. by market capitalization, is difficult because any of the three’s current share prices would overwhelm the index.
For example, Apple shares, which traded above $700 per share last week, would have a 30% weighting in the index, while BRK.A shares, which trade at over $134,000 per share, would render the index virtually meaningless.
Any structural changes would require approval of the existing Dow index users, and there are only three rules for selecting members of the Dow: 1) no utility companies, 2) no transportation companies and 3) the Editor of the WSJ must sit on the Dow’s steering committee.
At present, there’s no timetable for making changes, and how they would be accomplished is still under discussion.
Written by Marc Bastow, Assistant Editor at InvestorPlace. As of this writing Mr. Bastow is long AAPL.