A Better Index: The Diversified Dow 18

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The Dow Jones Industrial Average has been around a very long time, but it still can't get any respect.

Criticized for being too small to represent the stock market with just 30 names, or too old-fashioned with a lot of rusty manufacturers and cranky banks, it has been marginalized in recent years by snobs who prefer the broader S&P 500 as a market benchmark.

And so it is fairly amusing that, despite its many woes, the Dow has beaten the pants off the S&P 500 -- and every other market proxy -- since 2000. If we look back to, say, 1985, the Dow is still the champ.

To be specific, with dividends reinvested, the Dow is up 733% since 1985 and down 7% since 2000. The S&P 500 is up 570% and down 18% in those two spans, while the Nasdaq Composite is up 649% and down an even 50%.

Ignoring the Fads

One of the beauties of the Dow is that its creators are loath to change it much to suit the whims of the day. Unlike the S&P 500, which has regularly booted its members to make way for flavors of the month with little ceremony or rationale, the Dow rarely shakes up its party. And if you look back a few years, you can understand why.

On Nov. 1, 1999, Dow Jones editors thought they were being very clever when they added Microsoft(MSFT), SBC Communications(SBC), Intel(INTC) and Home Depot(HD) to the Dow. Since then, the four have sunk 36%, 42%, 43% and 20%, respectively.