What's the justification for the DJIA being share-price weighted?
The share-price weighting of the DJIA is a historical artifact.  The DJIA remains share-price weighted today because that's the way it has always been done, and we're talking about an index with more than a hundred years' history.  The DJIA was first calculated on May 26, 1896. Perhaps, back then, price-weighting was the most straight-forward & feasible way to calculate it each day.  You're right that it doesn't make a lot of sense, and that's why the S&P500 and other indexes are better barometers.
That is a pretty exclusive club and for the most part they are not interested in highly volatile companies like Apple and Google. Sure, IBM is part of the DJIA, but that is about as stalwart as you can get these days. The typical profile for a DJIA stock would be one that pays fairly predictable dividends, has been around since money was invented, and are not going anywhere unless the apocalypse really happens this year. In summary, DJIA is the boring reliable company index. "Without any highly credible anticipation of a company being a target of a pending takeover, its common stock will normally trade at what can be considered non-control or ""passive market"" prices, i.e. prices that passive securities investors pay or receive for each share of stock. When there is talk or suggestion of a publicly traded company's being an acquisition target, it begins to trade at ""control market"" prices, i.e. prices that an investor or group of them is expected to pay in order to control the company.  In most cases control requires a would-be control shareholder to own half a company's total votes (not necessarily stock) plus one additional vote and to pay a greater price than passive market prices to non-control investors (and sometimes to other control investors). The difference between these two market prices is termed a ""control premium.""  The appropriateness and value of this premium has been upheld in case law, with some conflicting opinions, in Delaware Chancery Court (see the reference below; LinkedIn Corp. is incorporated in the state), most other US states' courts and those of many countries with active stock markets. The amount of premium is largely determined by investment bankers who, in addition to applying other valuation approaches, review most recently available similar transactions for premiums paid and advise (formally in an ""opinion letter"") their clients what range of prices to pay or accept. In addition to increasing the likelihood of being outbid by a third-party, failure to pay an adequate premium is often grounds for class action lawsuits that may take years to resolve with great uncertainty for most parties involved. For a recent example and more details see this media opinion and overview about Dell Inc. being taken private in 2013, the lawsuits that transaction prompted and the court's ruling in 2016 in favor of passive shareholder plaintiffs.  Though it has more to do with determining fair valuation than specifically premiums, the case illustrates instruments and means used by some courts to protect non-control, passive shareholders. ========== REFERENCE As a reference, in a 2005 note written by a major US-based international corporate law firm, it noted with respect to Delaware courts, which adjudicate most major shareholder conflicts as the state has a disproportionate share of large companies in its domicile, that control premiums may not necessarily be paid to minority shareholders if the acquirer gains control of a company that continues to have minority shareholders, i.e. not a full acquisition: Delaware case law is clear that the value of a dissenting [target company's]   stockholder’s shares is not to be reduced to impose a minority   discount reflecting the lack of the stockholders’ control over the   corporation. Indeed, this appears to be the rationale for valuing the   target corporation as a whole and allocating a proportionate share of   that value to the shares of [a] dissenting stockholder [exercising his appraisal rights in seeking to challenge the value the target company's board of directors placed on his shares]. At the same   time, Delaware courts have suggested, without explanation, that the   value of the corporation as a whole, and as a going concern, should   not include a control premium of the type that might be realized in a   sale of the corporation." all other things being equal if you have two stocks, both with a P/E   of 2, and one has an EPS of 5 whereas the other has an EPS of 10 is   the latter a better purchase? What this really boils down to is the number of shares a company has outstanding.  Given the same earnings & P/E, a company with fewer shares will have a higher EPS than a company with more shares.  Knowing that, I don't think the number of shares has much if anything to do with the quality of a company.   It's similar to the arguments I hear often from people new to investing where they think that a company with a share price of $100/share must be better than a company with a share price of $30/share simply because the share price is higher. "Most of the investors who have large holdings in a particular stock have pretty good exit strategies for those positions to ensure they are getting the best price they can by selling gradually into the volume over time. Putting a single large block of stock up for sale is problematic for one simple reason: Let's say you have 100,000 shares of a stock, and for some reason you decide today is the day to sell them, take your profits, and ride off into the sunset.  So you call your broker (or log into your brokerage account) and put them up for sale.  He puts in an order somewhere, the stock is sold, and your account is credited. Seems simple, right?  Well...not so fast. Professionals - I'm keeping this simple, so please don't beat me up for it! The way stocks are bought and sold is through companies known as ""market makers"".  These are entities which sit between the markets and you (and your broker), and when you want to buy or sell a stock, most of the time the order is ultimately handled somewhere along the line by a market maker.  If you work with a large brokerage firm, sometimes they'll buy or sell your shares out of their own accounts, but that's another story. It is normal for there to be many, sometimes hundreds, of market makers who are all trading in the same equity.  The bigger the stock, the more market makers it attracts.  They all compete with each other for business, and they make their money on the spread between what they buy stock from people selling for and what they can get for it selling it to people who want it. Given that there could be hundreds of market makers on a particular stock (Google, Apple, and Microsoft are good examples of having hundreds of market makers trading in their stocks), it is very competitive.  The way the makers compete is on price.  It might surprise you to know that it is the market makers, not the markets, that decide what a stock will buy or sell for. Each market maker sets their own prices for what they'll pay to buy from sellers for, and what they'll sell it to buyers for.  This is called, respectively, the ""bid"" and the ""ask"" prices.  So, if there are hundreds of market makers then there could be hundreds of different bid and ask prices on the same stock.  The prices you see for stocks are what are called the ""best bid and best ask"" prices.  What that means is, you are being shown the highest ""bid"" price (what you can sell your shares for) and the best ""ask"" price (what you can buy those shares for) because that's what is required.  That being said, there are many other market makers on the same stock whose bid prices are lower and ask prices are higher.  Many times there will be a big clump of market makers all at the same bid/ask, or within fractions of a cent of each other, all competing for business.  Trading computers are taught to seek out the best prices and the fastest trade fills they can. The point to this very simplistic lesson is that the market makers set the prices that shares trade at.  They adjust those prices based (among other factors) on how much buying and selling volume they're seeing.  If they see a wave of sell orders coming into the system then they'll start marking down their bid prices.  This keeps them from paying too much for shares they're going to have to find a buyer for eventually, and it can sometimes slow down the pace of selling as investors and automated systems notice the price decline and decide to wait to sell.  Conversely, if market makers see a wave of buy orders coming into the system, they'll start marking their ask prices up to maximize their gains, since they're selling you shares they bought from someone else, presumably at a lower price.  But they typically adjust their prices up or down before they actually fill trades.  (sneaky, eh?) Depending on how much volume there is on the shares of the company you're selling, and depending on whether there are more buyers than sellers at the moment, your share sell order may be filled at market by a market maker with no real consequence to the share's price. If the block is large enough then it's possible it will not all sell to one market maker, or it might not all happen in one transaction or even all at the same price. This is a pretty complex subject, as you can see, and I've cut a LOT of corners and oversimplified much to keep it comprehensible.  But the short answer to your question is -- it depends. Hope this helps. Good luck!" The paragraph before on page 115 states: Scaling corresponds to having a weight in the long and   short legs that is different from one and varies over time,   but the strategy is still self-financing. Meaning that the long and short positions are no longer equal due to weighting one side more highly than the other. The weighting of one side (either long or short) is the number between 0.2 and 2 that you mention. "MD-Tech's answer is correct. Let me only point out that there are easier ways to invest in the DJIA index without having to buy individual stocks. You can buy a mutual fund or ETF that will track the index and your return will be almost identical to the performance of the underlying index. It's ""almost"" identical because the fund will take a small management fee, you will have to pay annual taxes on capital gains (if you hold the investment in a taxable account), and because the fund has to actually invest in the underlying stocks, there will be small differences due to rounding and timing of the fund's trades. You also ask: Assuming that I calculated those numbers correctly, is this gain   approximately better, equal to, or worse than an average investment   for that timespan? While people argue about the numbers, index funds tend to do better than average (depends on what you call ""average"", of course). They do better than most actively managed funds, too. And since they have low management fees, index funds are often considered to be an important part of a long-term investment portfolio because they require very little activity on your part other than buying and holding." "First it is worth noting the two sided nature of the contracts (long one currency/short a second) make leverage in currencies over a diverse set of clients generally less of a problem.  In equities, since most margin investors are long ""equities"" making it more likely that large margin calls will all be made at the same time. Also, it's worth noting that high-frequency traders often highly levered make up a large portion of all volume in all liquid markets ~70% in equity markets for instance.  Would you call that grossly artificial?  What is that volume number really telling us anyway in that case? The major players holding long-term positions in the FX markets are large banks (non-investment arm), central banks and corporations and unlike equity markets which can nearly slow to a trickle currency markets need to keep trading just for many of those corporations/banks to do business.  This kind of depth allows these brokers to even consider offering 400-to-1 leverage.  I'm not suggesting that it is a good idea for these brokers, but the liquidity in currency markets is much deeper than their costumers." Fund rebalancing typically refers to changing the investment mix to stay within the guidelines of the mutual fund objective.  For example, lets say a fund is supposed to have at least 20% in bonds.  Because of a dramatic increase in stock price and decrease in bond values it finds itself with only 19.9% in bonds at the end of the trading day.  The fund manager would sell sufficient equities to reduce its equity holdings and buy more bonds.   Rebalancing is not always preferential because it could cause capital gain distribution, typically once per year, without selling the fund.  And really any trading within the fun could do the same. In the case you cite the verbiage is confusing.  Often times I wonder if the author knows less then the reader.  It might also be a bit of a rush to get the article out, and the author did not write correctly. I agree that the ETFs cited are suitable for short term traders.  However, that is because, traditionaly, the market has increased in value over the long term.  If you bet it will go down over the long term, you are almost certain to lose money. Like you, I cannot figure out how rebalancing makes this suitable only for short term traders.  If the ETFs distribute capital gains events much more frequently then once per year, that is worth mentioning, but does not provide a case for short versus long term traders.   Secondly, I don't think these funds are doing true rebalancing.  They might change investments daily for the most likely profitable outcome, but that really isn't rebalancing.   It seems the author is confused.