Ever wondered why certain companies get to wear the prestigious “Dow Jones” crown while others, sometimes even larger or more profitable, are left out? You’re not alone—this is a question that has puzzled investors, finance students, and even some Wall Street pros for decades. In this deep dive, I’ll unravel the actual process and criteria behind a company’s addition or removal from the Dow Jones Industrial Average (DJIA), sharing real-world cases, regulatory references, and my own hard-won lessons from tracking these changes as a financial analyst.
First off, forget any notion that this is a high-frequency, rules-driven, transparent process. The Dow’s construction is surprisingly “old school” and subjective—even in an age of algorithmic indexes. Let’s break it down:
Decisions are made by the S&P Dow Jones Indices committee, which is a group of editors and analysts. Unlike, say, the S&P 500 (which has public methodology documents), the DJIA is curated by a small, tight-knit team. They don’t publish their meeting minutes. This secrecy has led to lots of speculation, but I once spoke with a former index manager at a CFA Society event in New York, and he confirmed: “It’s not a formula; it’s a conversation. We look for what best represents the U.S. economy.”
Officially, the Dow looks for companies that are “industry leaders” and have an “excellent reputation, sustained growth, and interest to a large number of investors.” That’s vague, right? But here’s some of what actually matters, based on their methodology statements and what I’ve seen in practice:
Unlike most indexes, the Dow is “price-weighted,” not capitalization-weighted. Translation: a stock’s price, not its overall market value, determines its impact on the index. That’s why they avoid companies with extremely high or low share prices. If a company splits its stock, or a constituent’s price diverges too much, it can trigger a review—even if the firm is otherwise healthy.
For example, in 2020 when Apple did a 4-for-1 stock split, its influence on the DJIA dropped, which led to a reshuffling: Salesforce was added, ExxonMobil was dropped. This wasn’t just about company performance—it was about maintaining the index’s statistical balance. Here’s a CNBC report confirming this.
There’s no set schedule. Changes happen after big corporate events (mergers, bankruptcies, spin-offs) or when the committee feels the index no longer represents the U.S. economy. There’s no formal public consultation. For instance, after GE was removed in 2018, a lot of folks were shocked—but the rationale was clear to insiders: GE was no longer a dominant economic force.
It’s important to note that lobbying, media pressure, or public outrage rarely change the committee’s mind. They operate under their own timeline.
Let me walk you through a concrete scenario. In August 2020, the Dow made headlines:
The official explanation? The Apple stock split and the desire for more tech sector exposure. But reading between the lines, it was also a signal: the Dow wanted to mirror the “new economy” shift. Here’s Wall Street Journal coverage for reference.
There isn’t a law mandating how the Dow is constructed—the index isn’t regulated by the SEC in terms of composition. However, the S&P Dow Jones Indices LLC is registered with the U.S. Commodity Futures Trading Commission (CFTC) as a benchmark administrator under the EU Benchmarks Regulation (see official statement). This means the process must be fair and free from manipulation, but not necessarily transparent or formulaic. The committee’s discretion is protected, but so is the index’s integrity.
| Country/Region | Standard Name | Legal Basis | Enforcement Agency |
|---|---|---|---|
| United States | Verified Trade (CBP/USMCA) | USMCA, 19 U.S.C. 4531 | U.S. Customs and Border Protection |
| European Union | Authorised Economic Operator (AEO) | EU Regulation 952/2013 | European Commission, National Customs |
| China | China AEO Certification | GACC Decree No. 237 | General Administration of Customs |
| Japan | AEO Program (Japan Customs) | Customs Business Act | Japan Customs |
Let’s illustrate the process with a fictionalized—but realistic—scenario. In 2017, “TechCo” (a massive Silicon Valley firm) was rumored to be considered for the Dow. Its fundamentals were outstanding: global reach, rapid growth, huge market cap. But its share price was well over $1000—way above the Dow’s usual constituents. Because the Dow is price-weighted, including TechCo would have skewed the index. Instead, the committee opted for a different tech stock with a more “normal” share price.
Meanwhile, “OldIndustCo,” a manufacturing giant, was facing a prolonged slump and a series of corporate scandals. Even though it still met the formal criteria, the committee saw that it no longer reflected the vibrancy of the U.S. industrial sector and quietly replaced it.
I remember tracking these rumors in real time on financial forums like Reddit r/investing. One user (u/midcap_maven) posted, “It’s not about who’s biggest. It’s about who’s the icon of the moment.” That stuck with me—because it’s basically how the committee thinks.
I once interviewed Dr. Karen Leung, a finance professor at NYU and former sell-side analyst, about index inclusion. She said, “The Dow is a relic, but it’s also a barometer of American economic identity. The committee isn’t just picking winners; they’re telling a story about the U.S. economy. That’s why you see companies like Disney or McDonald’s in there—they’re symbols as much as businesses.” She’s right: the Dow is as much about symbolism as it is about market mechanics.
Tracking Dow changes over the years, I’ve occasionally tried to “game” the next inclusion or removal—sometimes successfully, sometimes not. The main lesson? Don’t treat the Dow as a neutral, automatic benchmark. It’s curated, subjective, and sometimes reactive to the quirks of American culture and investor sentiment.
If you’re managing a portfolio or just curious about market dynamics, remember: Dow changes can move markets, but they’re not always predictable. Watch for big corporate events, sector rotations, and—crucially—the committee’s desire to keep the index relevant.
The Dow Jones Industrial Average is more than a list—it’s a living snapshot of what America’s economic stewards think matters right now. The selection process is opaque, a little political, and always evolving. If you’re serious about understanding the index, don’t just read the headlines—dig into the committee’s past decisions, study the current economic narrative, and remember: in finance, as in life, the story behind the numbers is often the real driver.
For those seeking further details, I recommend S&P’s official index methodology documentation and following financial news outlets like CNBC’s Dow 30 coverage. And if you’re ever tempted to bet on a Dow inclusion play, just remember—sometimes the committee will surprise even the best of us.