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Wednesday, September 11, 2013

The Wonder of Dow Paradox

Its a well publicized and known fact that Dow Jones Industrial Average changes  composition of its 30 stocks every so often. These changes are made by commission of editors of Wall Street Journal. Yes. Journalists - not economists, writers - not businessmen, 'opinion heads' - not 'movers and shakers'. The 30 components of Industrial index suppose to represent some kind of slice of economy, but its a muddy picture at best - most of stocks are not 'industrial' at all.

Yesterday the news came out about upcoming changes. This is not a common event,  Index goes without any changes for years and years, and then one of companies merges or sold, or dropped. Now they are changing three! Goldman Sachs, Visa and Nike will be added to the Dow Jones Industrial Average. Out: Hewlett-Packard, Bank of America and Alcoa.

I wrote here: http://evilspeculator.com/?p=38292#comment-1037098392 :            
              When shoe maker and payment processor replaces aluminum and computers in INDUSTRIAL average - makes me wonder about state of american industries. Lest not forget about replacing a branch bank with gambling casino.
             Thou methinks it will be good for index, as new addition are active issues, so kudos to Wall Street Journal editors for running DJIA like a top-notch ponzi scheme

 This is an essence of Dow Paradox.
What is a point of doing long term technical analysis on a price chart of $INDU or DIA, or SPX, or many other so called 'indexes' ,when composition changes so much - its not the same index, not even close. Companies dropped from major index suffer massive outflows, sometimes for years, and often even go bankrupt (remember Kodak). The purposeful manipulation of index components is designed to produce positive outcome, thus creating an upward equity slope - an illusion of increasing wealth and prosperity - The Dow Paradox!

This Ponzi Scheme is meant to be gamed by buy-and-hold approach, especially so by buying the dip. The bigger the dip, the more you buy, and then hold. Selling is really not necessary if time horizon is 10 years or more - your favorite index will be rebalanced by then, and off we go. Its been working just like this for over 100 years, and may work for a 100 more, or may break down tomorrow. There is no way to know for the outsider, besides very few people are asking any questions. Such is the nature of Dow Paradox.

Dow Paradox is thoroughly exploited by Scammers - Wall Street'ers, money managers, brokers, pension funds, insurance companies etc. For as long as Ponzi Scheme is running, there are fees to be collected, salaries and bonuses to be made - good life - money for nothing. Its beautiful! All paid for by willing Victims - sheep led to slaughter. There are millions of them, all unaware of Dow Paradox, ignorant to mathematical impossibility of pyramid scheme. Don't be sad. Its meant to be this way. Reality

The Wonder of Dow Paradox is ME! There are not alot of people like me, may be few thousand in the whole round blue World. I know about Dow Paradox, I use it fully realizing pitfalls and challenges, trying to fleece the Victims and rip-off the Scammers. Using money to make money on a money. Moving and shaking. The ultimate cog in a machine - The SUCKER !!!

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