JUN · ISSUE 26 · June 26, 2026
CONCEPTWhy the Dow Jones is a strange index
Almost every index weights by company size. The Dow weights by the price of a single share. And that changes everything.
THE DOW WEIGHTS BY
PRICE
of the share
THE S&P WEIGHTS BY
SIZE
of the company
DOW MEMBERS
30
just 30 companies
THE IDEA
PRICE
↑ in the Dow, the share price sets the weight
In a price-weighted index, the share with the highest number on screen carries the most weight, no matter how big or small the company behind it. That's been the Dow's logic since 1896.
CONCEPT
SIMPLE RULE10x
10x
a $500 share vs a $50 share
The number on screen decides the weight. Not the profits, not the size: the price per share.
In a price-weighted index, a $500 share counts ten times more than a $50 share. Even if the $50 company is far bigger.
- WEIGHT
- — How much a stock moves the index.
- SHARE PRICE
- — What it costs to buy a single share of the company.
THE IDEA
TO GET ITPrice isn't size
“A share price doesn't tell you the company is big. It only tells you what one slice of it costs.”
Confusing share price with company size is the mistake the Dow lays bare.
- MARKET CAP
- — The real size of a company: price times number of shares.
- SHARE
- — One unit of ownership, a slice of a company.
ILLUSTRATIVE
HOW IT SCALESMore price, more weight (a straight line)
Double the share price and you double its weight in the index. That mechanical, that strange.
A conceptual curve: in a price-weighted index, a stock's weight rises in line with its price, ignoring company size.
- WEIGHT
- — How much a stock moves the index.
- PROPORTIONAL
- — Growing at the same pace as something else, here the price.
IMPLICATIONS
WHAT IT MEANSThree things that change when an index weights by price
A PRICEY SHARE DOMINATES
High-priced shares move the index more than the rest, even if their company isn't the biggest in the group.
A SPLIT CHANGES THE WEIGHT
If a company splits its share into several cheaper ones, its weight in the index drops, while the business changes nothing.
THE S&P BEHAVES DIFFERENTLY
The S&P 500 weights by company size. That's why the Dow and the S&P can tell different stories on the same day.
Understanding price weighting explains Dow behaviors that otherwise look like quirks.
- SPLIT
- — Dividing one share into several cheaper ones without changing total value.
- CAP-WEIGHTED
- — An index that weights by company size, like the S&P 500.
EXAMPLE
THE SPLITA four-stock index, weighted by price
Four shares, $1,000 of price in total: each weighs its price over the total. Nothing to do with size.
A conceptual example with four hypothetical shares. Each one's weight comes only from its price.
- WEIGHT
- — How much each stock adds to the index's move.
- DIVISOR
- — A number that adjusts the index for splits so it doesn't jump.
TO SEE IT
BENCHMARK INDICESFour different ways to buy 'the market'
| DIA | - | → ref | Tracks the Dow Jones: weighted by share PRICE. Today's protagonist. |
| SPY | - | → ref | Tracks the S&P 500: weighted by company SIZE. The most-used benchmark. |
| RSP | - | → ref | S&P 500 with every company weighted EQUALLY. Same basket, different result. |
| QQQ | - | → ref | Tracks the Nasdaq 100: by size, heavily loaded with tech. |
Each of these products tracks an index with a different weighting logic. No prices: the method is the point.
- ETF
- — A listed basket that tracks an index.
- EQUAL-WEIGHT
- — An index where every company weighs the same, regardless of size or price.
WRAP
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- PRICE-WEIGHTED
- — An index driven by share price, like the Dow.
- CAP-WEIGHTED
- — An index driven by company size, like the S&P 500.