"Real" inflation adjusted DOW is far from "Real"

[BillMasi]

How can anyone take the DOW seriously, inflation adjusted or not, when there's no accounting for "survivorship bias'? Every time a stock is taken out of the DOW - or any other index - because it's "no longer representative", the index is propped up artificially. I wonder if any reader can point to an index that's been reverse-adjusted for subtractions over the years.

[Jim Nickerson]

How can anyone take the DOW seriously, inflation adjusted or not, when there's no accounting for survivorship bias'? Every time a stock is taken out of the DOW - or any other index - because it's no longer representative, the index is propped up artificially. I wonder if any reader can point to an index that's been reverse-adjusted for subtractions over the years.

Bill,

You observation to me is valid, and though I have never encountered an index as you questioned even exists. I expect were someone to do the calculations it would be zero or very near it and what would that tell you?

I presume Charles Dow in establishing the original indices only did so to try to understand where the markets were at a given point compared to where they had been. For a while after he began, I think his indices were completely accurate.

Because companies in indices are bought or fail (probably after they have been removed from indices) if one is to use the tenet of Dow to attempt to understand where one is compared to past times, I see no alternative to periodically rebalancing indices.

I think one must realize is that the anonymous author of the Real Dow http://homepage.mac.com/ttsmyf/ pointed out is one of the fallacies of looking at indices and not givng consideration to what inflation has done to the US dollar. The importance of that recognition may be largely to understand into what deep dung the US has gotten itself.

Looking at the Real Dow only makes me graphically appreciate something I did not appreciate before. However, there is nothing in that graph that tells me where the market is going tomorrow or next year, and those are the important considerations as I see them.

Jim