Buffett's Baby: Too Big for the Dow (BusinessWeek)

[stock guru]

Buffett's Baby: Too Big for the Dow

Why there's no place for Berkshire Hathaway in the Dow Jones industrial average, and why Warren Buffett likes it that way

Warren Buffett's Berkshire Hathaway (BRK ) is a big, well-run, well-diversified company. Its stock price is up 90% since early 2000. Its shareholders love it. But for all Berkshire's merits, the company almost certainly will never rub shoulders with General Electric (GE ) and Exxon Mobil (XOM ) in the exclusive club known as the Dow Jones industrial average. Why not? Take a look at the chart below and you'll see.

The problem is that the Dow Jones industrial average is price-weighted, which means that its daily movements are influenced more by high-priced stocks, like IBM (IBM ), than by low-priced stocks, like Intel (INTC ). And Berkshire Hathaway is the undisputed world champion of high-priced stocks. While IBM looks pricey at around $84 a share, Berkshire goes for $99,310 a share—and recently hit an intraday high of over $100,000.

THE "BERKSHIRE DOW." The chart shows what would have happened to the Dow industrials if Berkshire had been added as the 31st member back on Jan. 14, 2000, when the Dow hit its previous peak of 11,722.98. (We changed the index's divisor so the "Berkshire Dow" started from the same point as the real Dow.) The addition of Berkshire, because of its heavy weighting in the Dow and its strong performance since then, would have lifted the Dow industrials to 21,919 through Oct. 11—more than 10,000 points higher than its actual level today.

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http://www.businessweek.com/print/investor/content/oct2006/pi20061012_987099.htm