The 30 stocks in the Dow are selected by a committee comprised of the WSJ editor-in-chief, Gerard Baker; WSJ Money & Investing section editor, Francesco Guerrera; and S&P Dow Jones Indices managing director David Blitzer, director David Carlson and senior director Craig Braswell.
The DJIA is reviewed at least once annually. There are no quantitative rules for component selection, but Dow Jones states that "a stock typically is added only if it has an excellent reputation, demonstrates sustained growth, is of interest to a large number of investors and accurately represents the sector(s) covered by the average."
The Dow is not an index quick to change its 30 components. Most changes to the DJIA result from merger activity, though at times—as in the case of Apple's addition to the Dow planned for March 18, 2015—stocks are added and stock replaced to make sure the Dow is representative of the broad market. The Dow covers most major sectors of the market, with the exception of transportation and utilities, which have their own Dow averages.
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Charles Dow first began toying with a railroad index in 1884 because the sector represented the largest national companies of his day. Since then, the DJIA has seen one-time giants, including Bethlehem Steel, Westinghouse Electric and Woolworth, give way to Hewlett-Packard, Johnson & Johnson, Microsoft and Wal-Mart Stores—and Hewlett-Packard give way to other companies itself in 2013.
In announcing that Apple would be added to the index, David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, said, "The DJIA is price-weighted so extremely high, stock prices tend to distort the index while very low stock prices have little impact. Apple's split brought the stock price down closer to the median price in the DJIA." Apple most recently split its stock in June 2014.
AT&T, which Apple is replacing, had one of the lowest prices among Dow stocks.
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Other recent notable changes to the Dow include the replacement of Alcoa (which had been in the index since 1959) and Bank of America, and the addition of Visa and Nike, at the same time that HP was removed in 2013.
Visa, and the DJIA structure, also played a role in the Apple addition. Visa's 4:1 stock split scheduled for the same date as the Apple introduction to the index will result in a lower stock price for Visa, and that will reduce the weighting of the information technology sector in the index.
Unlike the S&P 500 index, which is market-cap weighted, the Dow is a price-weighted index; that is, the stocks with the highest share price have the greatest weight, and impact, and the Apple move is intended to minimize the impact of the Visa split while also keeping the weighting of information technology consistent.