Should The Dow Ditch General Motors?

GM's troubles are skewing the index and battering investors who bet on it.

When Charles H. Dow created the Dow Jones industrial average in 1896, he likened it to a stick jammed into the sand at the beach -- a steady reference point for observers to measure the ebb and flow of the U.S. stock market.

Judging from the index' recent performance, the wooden stick might need some repositioning. General Motors Corp. (GM ), one of only 30 "blue-chip" stocks that make up the Dow, plunged in 2005 to a 23-year low -- costing the index nearly 200 points. As a result, through Dec. 23, the Dow lagged behind the other widely followed market gauge, the broader Standard & Poor's 500-stock index, significantly: The S&P 500 was up 6.5%, while the Dow was up less than 1%. (Standard & Poor's, like BusinessWeek, is a unit of The McGraw-Hill Companies.)

The poor performance wouldn't matter if the Dow were merely a statistic cited in newspapers. But beginning in 1998, investors have been able to "buy" the index via the Diamonds Trust, an exchange-traded fund (ETF) that tracks it. Almost $7.5 billion sits in the Diamonds Trust. Since spring, when GM began to slump, investors who bought the ETF based on the S&P 500 have handily beaten those who bought the Dow.

My question is this: "Who would ever have thought GM would reach this point of demise?" I remember in 1976 when I entered the economic development. GM was king back then. Now, take a look.

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