Mutual fund marketing material often makes the spurious claim: “You cannot invest directly in an index.” We disagree. You can, in fact, invest directly in an index-based stock portfolio. No mutual fund or ETF needed. This paper begins with a brief history of the Dow Jones Index and its methodology. We review historical index returns. You will learn how to create your own portfolio that precisely replicates the Dow Jones Composite Average™ . We then provide seven clear and concise tips on how you might customize a index-based portfolio to seek superior investment returns.

In his influential book, A Random Walk Down Wall Street, Burton Malkiel makes his case for efficient market theory and passive investing all while excoriating technical analysis through straw man argument. About Beta he writes, “Beta really looks suspiciously like a tool of technical analysis in academic drag – a bastard cousin of the technician’s charts”. We believe beta looks like technical analysis because it is technical analysis as is, by extension, alpha. To whit, alpha and beta estimates can be derived solely from historical price action of securities and indices. Moreover, alpha and beta are indicators that can be effectively analyzed by charts. Most important, it is apparent to us that alpha in particular has useful predictive properties for securities selection and portfolio construction.

Academic finance is replete with studies supporting or denying the existence of serial correlation in securities prices1. In effect, such studies test the weak form efficient market hypothesis (EMH). Simply put, can investors use technical analysis to beat the market?

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