A casino called Dow Jones

This announcement demonstrates why it is the height of stupidity to imagine that it is meaningful to compare the Dow Jones Industrial Average from one year to the next as anything but a measure of social mood:

The Dow Jones industrial average is getting a new look, with one of Wall Street’s oldest and modest venerable names getting added to the mix. While the Dow tinkers with its 30 components periodically, often with only modest fanfare, this one will be noticed.

Gone are Alcoa (AA), the company that traditionally kicks off earnings season, along with Bank of America (BAC), which is the second-largest financial institution in the U.S., and Hewlett-Packard (HPQ), which has been in the blue chip index for 16 years.

In their place will be Goldman Sachs (GS), Nike (NKE) and Visa (NYSE:V). The changes take effect after the close of trading Sept. 20. The changes will cause alterations to the why the index is weighted. Visa and Goldman Sachs will have the second- and third-highest respective weightings, according to Bespoke Investment Group.

In addition to not accounting for inflation, the DJIAA simply doesn’t always measure the same thing from one year to the next.  It is like claiming the New England Patriots beat the Bills 58-21 last week because the NFL tinkered with the Patriots roster and replaced Tom Brady with Peyton Manning.

Notice that the unhealthy and dying companies are being replaced with much healthier companies that are being given much higher weightings than their importance to the economy would appear to indicate.  Don’t be fooled. It’s all a giant casino designed specifically to separate most common investors from their savings.

Can you win from time to time? Sure. That’s an integral part of the draw. But as the rejiggering proves, the odds aren’t what you think they are and the house always wins in the end.