Can we improve the Dow?


There has long been criticism about how the Dow is calculated. While most indices are weighted by market capitalization, the Dow is weighted by price. This can skew things significantly (you can read more about that in Zac Bissonnette's post on the subject).

There has also been much criticism of late that the Dow Jones Industrial Average index no longer provides an accurate snapshot of the overall U.S. economy.

But if not the Dow, then what? What would be a better approximator? Well, many would be content to look at the broader index, the S&P 500, but if we just wanted to keep it to 30 companies, the number of components currently in the Dow, one could use the top 30 companies in the S&P 500. Better yet, one can use the 30 companies with the highest market capitalization. Surely, there's a reason their market cap is high.