The Dow Jones index has just ejected one of its oldest members, General Electric (GE). The key takeaway for investors is clear says Tim Bennett.
Killik Explains: What General Electric's Dow Jones Demotion Tells Equity Investors
Welcome to this Killik explains finance video this week a very topical one what General Electric's or GE as it's known. Dow Jones demotion I'm quite recently Telles equity investors. OK so what's happened here Friday. Those people who missed it. General Electric is one of America's oldest and largest companies at certain times. It has been America's largest company by market capitalization. Not anymore. And it was move from the Dow Jones that index during the most recent review replaced by Wolverine boots. Now this matters because as see in a moment G.E. has been one of the most long established members of one of America's oldest indices. This is a big company and it's big news. All right. And the reason was its share price failed to keep in the club and that's something we'll come back to in a moment. The share price fell far enough that they thought we going a boost out on the basis of the top 30 companies now. Is one of the founding members the original Dow and the next 1896. This is quite big news. We've lost one of the industrial battles for one of the top indices like a member continuously since 1987. You see the facts facts that the share price when it was kicked out around 12 dollars 95 means on a share price basis. It didn't cut the mustard in terms of making the top 30. And yet you might be saying well I know you're not member of flop tough clubs have rules.
This one has roles you don't need them but actually on a market capitalization basis a Solly's base is under 13 billion and is still fairly pongy as we'll see at the moment. So maybe this is as much about the index that the company left as it does about the company. So why did this happen. I'm strictly speaking my app and so most indices such as the S&P 500 as the big American Index 500 top companies using market capitalization as the basis for inclusion or exclusion and all the 100 are based around value or size. That's the point. The list of qualifying firms is a function of their size. So the ranking is not share price a low share price. Times number Fouché is an issue to give an equity value if you like it on that basis g remains a pretty key player albeit a sort of full of ángela if you like. So Besim Bay at the time essay's being Xio June 2018 ranked around 40 fold. So still quite a big player but expulsion from the Dow Jones as he makes it sound like it's an Ozols the trouble come back to that point just a moment. Tom Jones on the other hand is a rare example. He's these quite difficult to find these days of an index based around share price alone. It's the ranking criteria where the cut off the top that if you like is just share price. And here's the thing. So yes although members of the remaining members of that group like Goldman Sachs like Apple have much higher share prices will not Laceys stay in the club. Gee doesn't it. Twelve dollars 95 US say.