With Google and Amazon at $1,000, a market fixture goes hungry

What’s more important, being in the Dow Jones Industrial Average, or showing the world you’re too cool for conventions like splitting your shares?

It’s a question that many are asking as the century-old benchmark tries to stay relevant in today’s tech-driven economy.

At the centre of the debate are Google and Amazon, which just soared past $1,000 a share after strong earnings. Although no one doubts the internet giants would be near the top of any list of blue-chip companies, the sky-high shares would break the Dow, which weighs companies by price rather than market value. If they went in now and replaced the smallest members, the two stocks would account for 40 percent of the index.

Part of the Dow’s problem, at least among Silicon Valley acolytes, is that splitting stock is seen as downright old-fashioned, a fuddy-duddy relic of the 20th century. Driven by everything from index funds to peer pressure, only about 10 companies in the S&P 500 have split their stock annually since 2009, down from around 70 in the 1990s.

“They want to portray themselves as cutting edge, and the Dow industrial just is not that,” said Jerry Braakman, chief investment officer of First American Trust in Santa Ana, California, where the firm oversees about $1.3 billion. 

“They’d rather have the cachet of high stock prices being indicative of high-flying tech stocks.” It’s a divergence of old and new in equities, pitting one ancient emblem of market status, Dow membership, against a contemporary one, a four-digit share price. Three years ago, the Dow’s overseers won a major battle when Apple carried out a 7-to-1 stock split and brought its shares in line with other members. Since then, the prejudice against splits has grown. There’s only been five in the S&P 500 since January, the fewest in 25 years. The lack of splits is usually chalked up to the expanding role of professional investors: if index funds don’t care what a share costs, why should a company?