In 2023, faced with mounting frustration over the structural limitations and lackluster performance of the Dow Jones Industrial Average (DJIA), I embarked on an ambitious financial experiment: the creation of a "Top 30" index. Designed to better capture the dynamic, technology-driven, and diversified reality of the modern U.S. economy, this curated portfolio sought to move beyond the legacy constraints of the Dow.
Two years later, the results are in, and they are compelling. The Top 30 index has consistently outpaced its traditional counterpart. Over the past 12 months, the Top 30 delivered a return of 27%, comfortably ahead of the Dow’s 24%. When looking at a three-year cumulative window, the gap widens further: the Top 30 returned 69%, while the Dow managed 54%.
The Genesis of the Top 30: A Structural Critique
The Dow Jones Industrial Average has long been a fixture of American finance, yet its methodology is increasingly viewed by analysts as anachronistic. The Dow is a price-weighted index, meaning companies with higher share prices exert disproportionate influence on the index’s daily movements, regardless of their actual market capitalization or economic importance.
In constructing the Top 30, I retained only 11 of the original Dow components. The remaining 19 slots were filled by a mix of personal conviction, historical top-tier performers, and selections inspired by the legendary "Wired Index," originally conceptualized in 1998 to capture the burgeoning digital revolution. By utilizing an equal-weighting methodology—where each stock holds a 3.33% stake—the Top 30 removes the distorting influence of high share prices, ensuring that a 1% move in a smaller, agile firm carries the same weight as a 1% move in a corporate titan.
Investing Lessons from the Front Lines
Beyond the raw performance numbers, the Top 30 portfolio has served as a masterclass in market behavior. The past year has reaffirmed several fundamental tenets of long-term wealth creation.
1. The Necessity of Embracing Volatility
A profitable portfolio is not synonymous with a portfolio free of "losers." In the past 12 months, 10 stocks in the Top 30 declined, with four suffering drops of more than 20%. This serves as a vital reminder that even in a bull market, losing is an inherent part of the game. History shows that the S&P 500 has declined in 13 of the last 60 calendar years; enduring the "churning stomach" of periodic drawdowns is the unavoidable entry fee for long-term equity premiums.
2. The Power of Diversification
The Dow’s lack of exposure to key sectors—such as real estate, specialized transportation, and a broader array of technology—often leaves it vulnerable to sector-specific shocks. By contrast, the Top 30’s diversified architecture allows it to absorb shocks. When retail or packaged goods faltered over the last year, gains in energy infrastructure and internet-based platforms provided a necessary hedge, keeping the overall portfolio trajectory upward.
3. Reversion to the Mean
The early, dramatic outperformance of the Top 30 (which led the Dow by 13 percentage points in its inaugural year) has naturally compressed. This is the "reversion to the mean" in action. While I maintain a lead, I expect the margin of victory to tighten over time as market efficiencies catch up to the themes captured by my selection.
4. The Cost of Hesitation
Trusting one’s instincts is paramount, but executing on them is the real challenge. Last year, I identified potential weaknesses in UnitedHealth Group, Nike, and Lululemon Athletica, citing management concerns and brand fatigue. I ultimately chose to "stay the course" rather than divest—a decision that proved to be a costly error as all three stocks underperformed, with Lululemon becoming the portfolio’s single biggest detractor.
Strategic Realignment: The 2025 Portfolio Refresh
In light of the past year’s performance, I have implemented four strategic trades to ensure the Top 30 remains aligned with shifting economic winds.
- Deere for Caterpillar: Caterpillar was my top performer, tripling in value due to a post-pandemic infrastructure and data-center construction boom. However, with its P/E ratio elevated and revenue growth projected to decelerate from 8.5% to 6% over the next five years, I am pivoting to Deere. As a smaller, more attractively priced manufacturer currently suffering from a cyclical agricultural downturn, Deere offers a compelling "mean reversion" opportunity.
- Costco for Lululemon: Lululemon’s dominance in the yoga-wear market has eroded under the weight of intense competition. To maintain retail exposure, I am shifting to Costco Wholesale. With $275 billion in revenue and a fanatical customer base, Costco represents a "fortress" stock—not a vehicle for explosive growth, but a reliable stabilizer capable of weathering any economic storm.
- NextEra Energy for Nike: While I remain a fan of Nike, the portfolio lacked exposure to the massive, insatiable demand for electricity. NextEra Energy, with its aggressive "all-of-the-above" strategy including renewables, offers a high-growth utility play. CEO John Ketchum’s projection of 8%+ annual earnings growth reflects the reality that in an AI-driven, electrified future, power generation is a strategic asset.
- McKesson for UnitedHealth: To maintain healthcare exposure while avoiding the political volatility inherent in insurance providers, I am moving into the supply chain. McKesson controls a significant portion of the pharmaceutical and surgical distribution market. It is a high-margin, low-capital-requirement business that has seen its earnings grow at a steady 12% clip, making its current valuation quite reasonable.
The "Keepers": Foundations for the Future
Despite these changes, several core holdings remain, representing the engine of the Top 30.
Microsoft remains the most timely holding in the portfolio. Despite being a tech giant, its price has remained relatively flat over the last two years while revenues climbed 17%. Investors have been spooked by its heavy AI spending and recent workforce reductions, but I view this as a classic case of an underpriced leader "getting its house in order" for the next cycle.
Amphenol, a critical components manufacturer for the telecom sector, has been a quiet juggernaut, doubling in price over the last year. It remains a core holding, as do Alphabet—my preferred tech platform due to its successful pivot to AI and the dominance of YouTube—and Netflix, which remains a long-term "never-sell" despite recent fluctuations. Finally, concerns regarding Salesforce and ADP—specifically that AI might render them obsolete—appear overblown. These companies are not being replaced by AI; they are being augmented by it.
Final Implications for the Investor
The Top 30 experiment is not intended to be a blind recommendation to replicate the entire list. Rather, it is a framework for how an individual investor can think about index construction. The Dow’s quirk of price-weighting is a relic of the past; the modern economy requires a broader, more balanced view of value.
Readers often ask why I don’t own these stocks personally, suspecting a lack of conviction. The reality is quite the opposite. To maintain journalistic integrity and avoid the potential for conflicts of interest, I limit my personal holdings to broad index funds. This is a personal choice based on my professional role, not a reflection of my confidence in these individual companies.
Whether you choose to follow the Top 30, the Dow, or a custom index of your own making, the lesson remains the same: the market rewards those who look past the headlines, embrace the inevitability of the occasional "loser," and remain diversified enough to survive the transition into the next economic era.
James K. Glassman is the chair of Glassman Advisory and the author of "Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence." He does not write about his clients. He currently holds positions in Netflix and Microsoft.
