Thursday, September 18, 2008 0 comments ++[ CLICK TO COMMENT ]++

AIG Kicked Out of DJIA Index; Replaced With Kraft

I always felt that GM would be the one that would get kicked out of the Dow Jones Industrial Average first but I was wrong. The Wall Street Journal is reporting that AIG is being replaced by Kraft. AIG somehow manages to collapse 90% within a few months while GM miraculously survives some tough conditions in the auto industry. It's truly amazing in my eyes. I would have thought that diversified insurers would be stronger than investment banks or monoline insurers, but guess not--at least in the case of AIG. I lay most of the blame of AIG in the hands of management. This is a classic case of a few executives running the company into the ground. AIG would have faced losses and performed poorly regardless but management pushed it over the edge and actually managed to almost bankrupt it.

The DJIA should be more stable with Kraft. I don't see great prospects for Kraft so the DJIA will probably lag in the future but it won't suffer losses or be as volatile. If I'm not mistaken, DJIA is a price-weighted index so Kraft with a price of around $33 will have greater impact on the index than Microsoft ($25ish.)

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