ࡱ> 241!` bjbj\\ .>>^^^^^^^r  r  :X X X X X X X ] _ _ _ _ _ _ $h` ^E X X E E ^^X X  E ^X ^X ] E ] ^^ X  SO  ] 0 \e R\ \^ X "z   X X X RX X X E E E E rrrrrrrrr^^^^^^  HYPERLINK "javascript:void(0)"  INCLUDEPICTURE "http://proxy.library.upenn.edu:8190/FactivaLogos/jLogo.gif" \* MERGEFORMATINET  Industrials Revolution By Jeremy J. Siegel 5 October 2006  HYPERLINK "javascript:void(0)" The Wall Street Journal (Copyright (c) 2006, Dow Jones & Company, Inc.) On Tuesday, the Dow Jones Industrial Average finally closed above its all-time high on Jan. 14, 2000. Although this accomplishment gained significant media coverage, the milestone brought forth little applause from market analysts. They maintained that "virtually no one indexes to the Dow," and many called the Dow industrials an archaic price-weighted index of a bygone era. These cynics claimed that the capitalization-weighted S&P 500 or Russell 3000 indices were much better indicators of the market, and these yardsticks were still 10% below their record highs reached in March 2000. The naysayers should wise up. Not only has the "outdated" industrials given investors better returns than such widely watched benchmarks as the S&P 500 Index, but it better reflects what the market has done over the past decade than the more popular capitalization-weighted indices. The members of the DJIA are chosen by an index committee to be broadly representative of blue-chip companies that dominate American industry. Since 1980, the return on Dow industrials has averaged 13.89% per year, significantly above the 13.06% recorded for the S&P 500, a benchmark that many active money managers find difficult to beat. But more importantly, the stock market has already reached, by many other more representative measures of market return, an all-time high. The only reason why capitalization-weighted indices such as the S&P 500 are still lower is because of the insane valuations investors gave to the technology sector six years ago. Tech companies with little earnings, such as JDS Uniphase, Nortel, Sun Microsystems, EMC and others reached huge and unprecedented valuations that dominated capitalization-weighted indices. Despite widespread pressure, the Dow wisely excluded these and other tech stocks (particularly Cisco, which for a time was the world's largest company by stock market value) from the industrial average. (They added Microsoft and Intel, far more reasonably priced tech stocks, to their list in 1999.) The outsized influence of the tech sector in 2000 greatly distorted the capitalization-weighted indices. There are 10 sectors in the S&P 500 Index: technology, financials, health care, utilities, industrials, energy, consumer discretionary, consumer staples, and materials and telecom. If we exclude the tech sector, the S&P 500 would be 16% above its level reached in 2000. Seven of the 10 other sectors (excluding tech, telecom and consumer discretionary) are significantly higher than their 2000 levels. Even within the S&P 500, more than two-thirds of stocks are above the price they reached in 2000, but the big cap tech stocks had so much weight then that their collapse forced the whole index lower now. Even other capitalization-weighted stock market indices have long ago hit all-time highs. The Russell 2000 Index, a benchmark for the small cap sector, broke into new all-time high territory in 2004. And EAFE, the international benchmark stock index, representing Europe, Australia and the Far East, broke into new high ground in March of this year. The Dow industrials, while containing only 30 blue chip companies, is more representative of the performance of investors who shied away from the tech and Internet mania that gripped the markets in 2000. Let's not downplay the significance of this oldest but most venerable index of stock market values. --- Mr. Siegel is professor of finance at Wharton. !#  hJ hf5hJ hJ 0J5hJ hJ 5CJ$aJ$hJ hJ 5CJ$\aJ$hJ hJ 5jhJ hJ 5U  5 CtygdJ gdJ $a$gdJ ,1h/ =!"#$% -DdPV  c 2A jLogobvarVUǰu_DnWvarVUǰuPNG  IHDR4bKGD:2> cmPPJCmp0712`IDATXGWy8PpLf+[ TW`|s/;x4·6_$;,sCnLE$?wii:`;@)&``I&O92yu#3kibCA([R%CcA/A.D!L> gf=1IT\Rb۷27}^̞vo`_`hD" 샸E D\O8'Eͥ2"%:_V4 Q &=C=3xvy0 P/X-5k[nz"AȤ&!T Kmt%i `-?9'3qo Q+?Pc`7*~fՒH$mGha0wQsaUYYޘ4xTZ.*̺~-nQK0 uϡi 3a6 1Bɚ 6a0Hm+0cNdSEx[GѦJm@z~(]'zމ q g(04t}y77c߶&6abcӼ:fola>?}0 Uk}7Xcƈ>3r-:4mKl%O86'7MhA n bo7t [uiq:FbQi( s67>{ӈlVs&] aX["ơ/U=F5 *b˙-?t ȅVwL@H*fO# ?꒎9|E3J>&QdB06{~gs *LQ&)F4Qrb6%eP]B5Kyhǥ^F{4m |-?;X s7mIU@p ͂Գx1[2akT -\$O/zkbDτ WR.1dRoz_S;.bʚ8G$`&hr'HIn{^YTAM}EE38P1ѻϽ'p/)\ؙ^:SҘ_-\J{ 2\?Չׁ:n]EGww 3tfhmc1vd[Z fQpWu uTנYT3aIENDB`@@@ NormalCJ_HaJmH sH tH DA@D Default Paragraph FontRi@R  Table Normal4 l4a (k@(No List>@> s Footnote TextCJaJ4U`4 J Hyperlink >*phB^`B J Normal (Web)dd[$\$%5 C ty00000000000000000 00 00 0I005 C ty000000000000000000000000000000000000000000000 00  !"XCX?f?x    9*urn:schemas-microsoft-com:office:smarttagsplaceB*urn:schemas-microsoft-com:office:smarttagscountry-region P 3 C/**?{*?rN/*?9hH;l*?9hH;Z1E*?24(MVvN9hH;U^g*?l24(Mur*?s*?WY^u*?`_`sx  ] J eK .t n YB]hOX# I#%%Iu(_L.e/>89Q*;*{>& ?E@?SDUF>XFmGIjO%QxQ}Zi'Z 8]w_a#d]9elwBqss8Ms8 yIyzY=SF8TM}8+1VM.Bh|<vY Deuh VASa Gx{q[XYu)xf]sn_f@ 8 P@UnknownGz Times New Roman5Symbol3& z Arial"h220z 0z !242qKX ?J 2 Jeremy Siegel Jeremy SiegelOh+'0|  8 D P\dlt Jeremy Siegel Normal.dotJeremy Siegel1Microsoft Office Word@G@tER@S0z ՜.+,D՜.+,< hp  The Wharton Schoold  Title 8@ _PID_HLINKSA l`javascript:void(0)l`javascript:void(0)  "#$%&'(*+,-./03Root Entry F(S5Data 1Table\WordDocument.SummaryInformation(!DocumentSummaryInformation8)CompObjq  FMicrosoft Office Word Document MSWordDocWord.Document.89q