Ask the Fool

Doing the Dow Shuffle

Q. I saw that ExxonMobil was removed from the Dow Jones Industrial Average. What happened? — G.V., Tulsa, Oklahoma

A. Many don’t realize this, but the Dow Jones Industrial Average (“the Dow”) is an index of only 30 companies. Every few years, to better reflect our diversified economy, some components of the Dow are ejected to make room for new ones. The latest move replaces ExxonMobil, Pfizer and Raytheon Technologies with Amgen, Honeywell and Salesforce. These changes reduce the index’s exposure to energy and traditional pharmaceutical companies, while increasing representation of technology and biotechnology.

In 2018, General Electric was shown the door to make way for Walgreens Boots Alliance, while Apple replaced AT&T in the index in 2015. The last major shakeup occurred in 2013, when Alcoa, Bank of America and Hewlett-Packard departed, making room for Goldman Sachs, Nike and Visa.

Q. What’s deflation? — L.U., Federal Way, Washington

A. We all know about inflation, which is the steady rise of prices over time. As you might have suspected, deflation is when prices fall. That might seem like purely a good thing, because falling prices mean you can buy more with your income.

Deflation isn’t always good, though, as it often accompanies a recession and/or a struggling economy. It can be part of a cycle where many people are out of work: They postpone purchases because they’ve lost income, then companies lower production due to reduced demand, then even more people lose jobs. In a deflationary spiral, the economy contracts rather than grows. Meanwhile, businesses (and people) earning less money can have trouble paying down their debts.

Deflation can be countered by lowering interest rates, but rates can only fall so far.

My Dumbest Investment

Out of Stock

My dumbest investment was accidentally selling my shares of Shopify at $38, when I had intended to buy more. I didn’t buy them back to avoid paying an additional transaction fee. Lessons learned: Pay attention when submitting orders — and price is what you pay, value is what you get. — S., online

The Fool responds: Shopify, which offers a widely used e-commerce platform, has been on quite a tear in the past few years. It began 2016 at around $25 per share, and began the next four years at around $43, $102, $134 and $404, respectively. It has recently been trading around $900 per share. Clearly, in retrospect, it was a blunder not to buy (and hold) more shares at $38. But at the time, you didn’t know just how much it would soar. Then, as now, you could have asked yourself questions such as: Is this a high-quality, healthy company, with little debt and great growth prospects? Is it attractively priced, not overvalued?

Opinions are mixed on the stock’s value these days, as it has run up so much. Bulls expect it to keep growing and rising, but bears think it’s overvalued and might pull back. Note that many big brokerages now offer commission-free trading — which could keep you from making future investment decisions based on transaction fees. You can learn more about good brokerages at our sister site, TheAscent.com.