How to Kill a Black Swan Remy Briand and David Owyong ...

Fly On The Wall
HUMOR
Inside The Dow Jones
Indexing Conclave
A glimpse into how
new Dow components
are really selected.
By Dave Nadig
It’s the dirty little secret of the index community—none
of us understands the Dow.
Sure, we can tell you what’s in it, but its allure
as a touchstone for the entire global stock
market seems inexplicable. We spend ages
running sophisticated quant models, and then
we turn to a price-weighted, overconcentrated
benchmark handpicked by a gaggle of journalists
when we refer to “the market.”
Enough is enough. The editors of the
Journal of Indexes decided to get to the bottom
of the Dow’s Svengali-like grasp of the
stock market world the only way we knew
how: subterfuge. Thus, we present this
transcript of a recent meeting of the Dow
Jones indexing cabal, obtained through
secret wiretaps in the DJIA Containment
Bunker. Unfortunately, the identities of this
“star chamber” remain unknown.
(Door opening)
Mr. Black: Mr. Pink, you’re late.
Mr. Pink: If you had to be Mr. Pink, you’d
be late too.
Black: You got Pink fair and square.
After all, you picked Bank of America to
enter the index in 2008.
We saw how that turned out.
Ms. White: Can we get on with things?
We’re all here now.
Black: I hereby call this meeting of the
Dow Jones Index Oversight Committee to
order. I remind my esteemed colleagues
that this meeting is to be held in strictest
confidence. We’ve maintained the illusion
that this is an “editorial” decision for far
too long to blow it now.
Ms. Brown: So GM’s out. Next?
Black: It’s not that simple and you know
it. General Motors has been part of our plan
for over 80 years. Should we not mourn its
passing with a moment of silence?
(Sighs, a brief pause.)
Brown: Right. Well then, all those in
favor of UPS?
White: You’re kidding, right? We’re
already under fire for being behind the
times. I’m thinking health care.
Brown: You aren’t talking Amgen again,
are you?
White: What’s wrong with Amgen? Are
we or are we not trying to represent the
real American economy?
Pink: Oh that’s a good one. The American
economy. Have you seen the American
economy lately? Personally, I think it’s time
we diversify. All these companies are international
anyway.
Black: Mr. Pink, we’ve been through this
before. You are NOT getting Toyota into
this index on my watch.
Pink: Come on, do we like cars or do we
not like cars? Who are you going to put in
then, Ford?
Black: Actually, I was going to suggest that.
Pink: Have you driven a Ford lately? I’m
guessing no, Mr. Lexus.
Brown: Well, OK, then how about Google?
I mean, Google’s just awesome. I never get
spam anymore since I switched to Gmail.
Pink: You should be off this committee.
How can you suggest Google after you convinced
us to boot Chevron for Intel in ’99?
White: He’s right, Brown. We’ll never
live down Chevron. Out in 1999, back in
2008, 140% higher. Nice work.
Black: Allow me to make a less controversial
suggestion. B of A for Wells Fargo.
Brown: Can I get a ride in the Stagecoach?
Black: Of course. So that’s done then.
Better than the last one we did.
Pink: Hey, Kraft was a good call.
Black: Oh right. I remember that argument
vividly: “Google’s fun to play around with,
but the country really runs on cheese.”
White: So then, for GM’s slot, we have
Amgen?
Black: Actually, I was thinking Goldman.
White: Are you serious? Goldman?
Half the country doesn’t even know what
Goldman does!
Black: That’s the beauty of it. Nobody
can argue effectively against what they
don’t understand.
(Mutterings. Silence.)
White: Can you promise me we’ll look at
Amgen next time?
Black: Let’s not be hasty. This whole
“biotech” thing might just be a fad.
Brown: Just like Gates said about the
Internet.
56
July/August 2009