Microsoft Leads the Dow In This Important Metric
Microsoft is not the largest company on the Dow Jones Industrial Average ExxonMobil holds that crown with a $402 billion market cap, relegating Microsoft's $287 billion cap to second place. Eleven Dow components sport higher annual revenues than Microsoft's $80.4 billion, led by Exxon at $398 billion and Wal-Mart at $475 billion. The software giant is not the Dow's most profitable company, either, or its fastest-growing member.
But there's one place where neither Wal-Mart nor Exxon, or any other Dow member for that matter, can touch Microsoft. It's the Dow's most popular stock, judging by the average daily dollar volumes traded.
A total of $1.8 billion of Microsoft stock changes hands every day, leaving Exxon far behind in second place with a $1.2 billion daily dollar volume. Wal-Mart is nowhere near the top, sitting in the middle of the 30 Dow components with just $614 million of daily trading action to its name.
In fact, Microsoft shifts more dollar volume every day than nearly any other stock on the market. Apple rules the roost with a totally unchallenged $6.7 billion daily action. Google also runs in front at $1.8 billion -- a rounding error ahead of Microsoft.
So what makes Microsoft so special? Why should investors care about daily trading volumes? I can think of at least two important reasons:
With billion-dollar daily trading volumes, Microsoft is one of the market's most liquid stocks. Fools should still prefer setting their price for every trade with limit orders rather than blindly accepting whatever your broker sees as the current market price, but if you're ever going to use a market order, Microsoft and Apple would be fairly safe bets.
In the world of open-source software development, you'll find Linus' Law: "Given enough eyeballs, all bugs are shallow." In other words, let a ton of smart people examine your code, and every problem will soon be apparent -- and fixed. The same idea applies to the stock market; investors just know the idea as the "efficient markets" hypothesis or "the wisdom of crowds." You're more likely to get a fair price on stocks that are evaluated by thousands of investors every day. Ergo, Microsoft and Google are probably closer to fair value than most stocks at any given moment.
I'm not saying that Wal-Mart or Exxon are speculative, or that the high volumes of Apple, Google, and Microsoft somehow makes them safer investments. Even the least popular Dow stocks see nearly $200 million in daily trading, after all. We're hardly talking about microvolume penny stocks here. But the safety in numbers around Wal-Mart's shares applies more strongly to the higher-volume tickers -- and the popularity title is a rare feather in Microsoft's hat.
Nobody ever complained about being No. 1, right?
Let's get back to the basics
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.
The article Microsoft Leads the Dow In This Important Metric originally appeared on Fool.com.Fool contributor Anders Bylund owns shares of Google. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.