Adam Davidson in last Sunday’s New York Times Magazine, on the drawbacks of the Dow:
None of these criticisms will come as news to finance professionals, most of whom use far more precise measures — like the S&P 500 or the Wilshire 5000, which cover more companies more precisely — when making investment decisions.
The S&P 500 certainly covers a wider range of companies. But in a typical 5-day window its correlation with the Dow is more than 95%. How much more precise could it be?
It’s good to have fine-grained measures, but it’s also good to know at what point extra granularity stops addding new content.