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now pull up a chart of the Russell 2000 from 2/23/2009 till 2/23/2013. compare the results to S&P 500 and the Dow.....which index would you have wanted to be in? which the least? You made some very important points in your reasonings btw.....especially in #1!

Now I am going to say a bunch of stuff and it might seem all over the place a bit but I just like blurting out thoughts.

I told you to look at time frames I knew it looked like DOW outperforms over a longer period but really it doesn't. My reasoning behind telling you this was to realize when the market is going up the S&P will outperform and when the market goes down the DOW will usually outperform this shows more when you look at the Russell 2000. This is because small caps stocks take more of a roll in making up the average. What do you always look at 1st when buying a company? EARNINGS! Have you ever heard me preach about earnings and earnings consistancy in my pitchs or commments? :) earnings ALWAYS drive price or it should if you are buying the company outright. S&P average DOES do a better job of mirroring the overall market. It should be your benchmark. But it is more effected than the DOW's average because smaller cap equities tend to vary by a greater margin when the economy is picking up or slowing down. Why because of earnings. Think about your comment #1 and the companies you listed. Did JNJ's or KO's earnings tank in 2008 or 2009? Nope. Did they go down less than the market? Yup. Now think of some smaller cap companies. When their is a financial crisis or the economy is suffering who's earnings get effected the most. Thus their price gets affected more. These two indexs end up being about the same because the way they are constructed. The people and the way the DOW was constructed wasn't made up by dumbies...and I know you were not implying that but there are reasons why. It is pretty neat on how it works out. Dow is made up on companies that have fundimentals and or large in size in their field pull they are passive.

Now if the economy keeps going up or starts ripping for some reason for a long amount of time with no corrections the S&P will keep outperforming. But this doesn't happen. We have recessions or the market gets scared. The DOW will outperform because of your #1 and #2 comments. And what I am saying about market cap and how it make up the averages.

Now why the DOW is a pretty GOOD indicator!

1. The Dow is a better index because it contains a higher ratio of “market leaders.” The Dow is chuck full of companies that are pretty much undisputed leaders of their respective industries. (MCD, DIS, WMT, JNJ, IBM, INTC, and KO just to name a few) I’d say at least half of the Dow companies are “household names” that have built epic brands over many generations, and thus tend to wield some pretty significant pricing power, and scale advantages.....

I stole that from you...hehe

I will steal this from you too

Therefore, these 8 companies will have a disproportionate impact on the Dow going forward. As you can see, they seem fairly cheap as a group. It’s plausible that the Dow could rocket 15k or 17k, if these 8 companies to well over the next couple of months/years, while at the same time, the S&P/overall market could be stagnant or even decrease during the same timeframe.

Now how to profit from it. I would say from what is stated above I think it is reasonable that the market is not overvalued at current levels. AS INDICATED BY THE DOW INDEX! BECAUSE IT IS A PRETTY GOOD INDICATOR. We are in the 5th year of a bull market. Bull markets tend to last on average 7 years. In the later stages of a bull market large and MEGA cap stocks usually outperform the market. In the 1st 3 or 4 years in a bull run you would be better off to just buy the RUSSELL 2000 or look for steals. The market is now getting more fairly valued as shown by the S&P index. If I had a index to pick right now I would go with the DOW to outperform until the next big pullback. Of course this isnt really what we do. we r just looking for companies with consistant earnings power that we think will be worth a lot more in the future. I just thought it would be good to show you how the markets work from my perspective. And how I look at the averages and what they mean and indicate to mean. 

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