Andrew Allentuck

Saturday, March 8, 2003

Divorcing the Dow: Using Revolutionary Market Indicators to Profits from the Stealth Boom Ahead
by Jim Troup and Sharon Michalsky
262 pages
ISBN 0-471-26870-4

The Dow Jones Industrial Average is made up of 30 stocks that the editors of the Wall St. Journal think are representative of the strongest, biggest companies domiciled in the United States.

The Dow has been around for a century and has gone from being heavy with steel companies and sugar refiners to being somewhat techie. Authors Jim Troup and Sharon Michalsky, both of whom are Smith Barney vice presidents, criticize the shortcomings of the index by noting that it is out of favour with the young and the restless who will be the investors and the market in a few decades.

Their recommendation is to substitute for the industrial Dow a new index which they call the Digital Dow. The DD would be heavy on techs like Adobe Systems Inc., Siebel Systems Inc., Microsoft Corp., Intel, and E-Bay. There would be some biotechs but no drug majors, some broadcasting, Costco and Staples for retail and T. Rowe Price for financial management. Some of these companies pay no dividends, some have barely any earnings. Many will evaporate if capital spending on technology and communications drops any further. But, as the authors note, horseshoes and pig iron were big in 1900 and nothing much today. They are thinking ahead.

Perhaps too far ahead. They think Dean Kamen's much-publicized Segway motorized scooter will replace cars. They are ready to invest in nanotechnology - teensy machines that do what Raquel Welch did in her most forgettable movie Fantastic Voyage, in which she and a crew of scientists were shriveled to about the scale of blood cells and then went into a patient to operate. Let's be charitable and say that the authors are a little ahead of their time.

If you own Dow Diamonds or S&P Spyders, the baskets of shares that replicate those indices, do not despair. The market will come back - some day. Investing in scooters and nanomachine makers and other companies that the authors discover by a process they admit is more meditative than empirical is a bit fanciful.

Divorcing the Dow is a great read. Not because it is right, which I do not think it is, but because it is wonderfully well written, well-researched, comes with great footnotes, a fine reading list, and offers nuggets of information. Enjoy.