Big Winstar bucks

Way back in the day I invested in Winstar Communications, Inc., a telecomm that got busted in the big telecomm bubble.  I didn't invest too much, luckily.  Years later, circa 2006 or so, I got a letter in the mail from a law firm saying that I had been defrauded and maimed and pillaged and raped of my precious money by the Winstar management and that, if I wanted to, I could join the class-action lawsuit by filling in the included form, mailing it in, waiting for a few years (three or so if I recall correctly), and then possibly receiving a bonus bonanza check in the mail for my pain and suffering.  So I did it.

My check arrived a few days ago.  I unfortunately immediately threw out the accompanying letter, but it stated that investors had lost somewhere in the neighborhood of $2.4B (another "B" for billion).  The total settlement for all defrauded and maimed and raped (and pillaged) former shareholders came to somewhere around $12M (that one is an "M" for million).  So far we're down by a factor of 200 or so.

My check?  I am staring at it right now, salivating more than I do when I am staring down a 1 1/2 pound prime rib dinner (just ask my wife).  I am about to deposit it.  But I don't think that $8.55 will go very far toward my kids' college educations, unfortunately.  Maybe a McD's lunch sometime ...

A few years ago I got another settlement check from another bum telecomm-related burst-bubble class-action lawsuit.  I sent that form in too.  The check I got for that one?  $.02.  That may actually be worth the "... but that's just my 2 cents" jokes that come to mind, but it wasn't worth any more than that.  And, yes, I deposited that one too, salivating all the way to the bank.

Why the Dow 30?

I have been asking this ever since I really started learning about investing a decade and a half or so ago.  Everyone, everyday, talks about the Dow 30 as being the be-all-end-all index by which to measure the market.  To which I say (big decision here ... do I keep this G-rated, or go for an R rating?? ... aah, let's go for PG ...) "BULL!!!".

The following, amazingly enough, I am writing almost completely by memory.  I will admit to just one or two Wikipedia checks as I go along though.

The Dow 30 is really the Dow Jones Industrial Average (or DJIA).  This was invented several centuries  ago (OK, but it was back in the late 1800s) by Charles Dow.  Mr. Dow was simply trying to figure out a way to measure how the market was doing day in and day out.  At the time, with only a few hundred publicly-traded companies of which to keep track, he figured he'd "set up" several indices, each representing a particular chunk of the market, and track them.  The Dow Jones Industrial Average was so called because:

1. It contained 30 companies,
2. Those 30 companies represented, at the time, a very good snapshot of how our very industrial-based economy was doing, and
3. It simply averaged the stock prices of those 30 companies (i.e. it added the 30 stock prices together and then divided by 30)

Note that this average, or index, is NOT market-cap driven; it takes into account only the actual stock prices, rather than the total market worth of the companies.

Mr. Dow also had two other averages about which I am aware, but which are seldom mentioned in the main press:

• The Dow Jones Transportation Average, consisting mostly at the time of railroad companies (think how important the railroads are in the game Monopoly)
• The Dow Jones Utilities Average, consisting of ... uh, utility companies.

OK, enough quick history.  This is MY investing blog, so here is MY problem with the Dow 30:

The Dow 30, these days, is a ridiculous measure because it contains only 30 companies out of ... tens of thousands of publicly-traded companies.

How dumb.  Just plain dumb.  There are sooooo many other indices (the true plural of the word index, by the way) that make so much more sense than this to track the overall market simply because they contain so many more companies.  Of note:

• The S&P 500, which contains Standard & Poor's list of what THEY think the 500 most influential companies are (all strictly U.S. companies).  These 500 companies are not, by the way, the 500 largest U.S. companies.  They are mostly the largest 500 U.S. companies, but some, such as Warren Buffett's Berkshire Hathaway, Inc., (of which I own one single B share --- WOOHOO!!) is one of the largest 5 or so U.S. companies by market cap and yet is NOT an S&P 500 member,
• Various Russell indices, containing various numbers of companies of various sizes,
• Some Wilshire indices, like the Wilshire 5000 which contains 7000 companies (don't ask ...), or
• The Wilshire Total Market Index which includes, to my knowledge, all public companies, although it really doesn't (again, don't ask).

Technically I guess I prefer the Total Market indices.  So why does the "Dow 30" persist?  My thoughts:

1. It is old.  It is the oldest index.  It has history, much more so than any other investing index.  It has a mystique about it.  People are just used to it.
2. It is simple to understand.  Though the math has gotten just slightly more complicated over the years, as companies have been added to or deleted from the index and the very simple divisor "30" is now some very strange number (0.132319125 today - OK, this one I did look up), it is still just easy to understand, and it only contains 30 companies vice the hundreds or thousands in other indices.
3. It is owned by Dow, Jones and Co.  And what else does Dow, Jones and Co. own?  Why, the Wall Street Journal of course, the most widely-read investing newspaper (hey, I get it), and one of the most widely-read newspapers in general, in the world.  Hmmm ... Dow, Jones and Co. owns both the DJIA and the WSJ.  Think they are going to give up any of the Dow indices?

I think not ...