3
CHAPTER
STOCK INDEXES
Proxies for the Market
It has been said that figures rule the world.
JOHANNWOLFGANGGOETHE, 1830MARKET AVERAGES
“How’s the market doing?” one stock investor asks another.
“It’s having a good day—it’s up over 70 points.”
For most of the past century, no one would ask, “What’s up 70
points?” Everyone knew the answer: the Dow Jones Industrial Average,
the most quoted stock average in the world. This index, popularly called
the Dow, was so renowned that the news media often called the Dow
“the stock market.” No matter how imperfectly the index describes the
movement of share prices—and virtually no money manager pegs his or
her performance to it—the Dow was the way virtually all investors
thought of the stock market.
But today the Dow does not go unchallenged as an indicator of
market prices. The S&P 500, first published by Standard & Poor’s, now
a division of The McGraw-Hill Companies, in March 1957, has become
the uncontested benchmark index for large U.S. stocks. And the Nasdaq,37Copyright © 2008, 2002, 1998, 1994 by Jeremy J. Siegel. Click here for terms of use.