For most investors, the stock market, as they know it, is the Dow Jones (INDEX: ^DJI ) and the S&P 500 (INDEX: ^GSPC ) . For the media, the two represent everything. How's the market doing? Better cite the Dow or the S&P.
It's unfortunate, really. Both indexes that we've come to obsess over have flaws. The Dow weights its components by share price, giving IBM (NYSE: IBM ) 22 times the weight of Bank of America (NYSE: BAC ) . No one I know has ever rationalized this practice. The S&P is weighted by market cap, which makes more sense, but often skews it toward the market's most overvalued companies.
Yet, both share a more glaring defect.
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