If you have ever listened to a business report on the news, you have heard of the Dow Jones Industrial Average. Established in 1896 by Charles Dow, it's an icon in the trading industry. But what exactly does it mean?
Basically, the Dow Jones Industrial Average's a stock market index that offers a quick way to get a feel for how the stock market is fairing on any given day. It does not offer specifics, but rather, lets us know the general trends that the stock market is following.
The way it is calculated is actually fairly simple. 30 very large companies are selected and the values of their stocks are added together. An average daily value is then derived (the average is scaled using a divisor, which modifies regularly).
The first Dow Jones Industrial Average was comprised of only 12 companies. Of the original 12, only one - General Electric is still used in today's Dow Jones reports. Over the years, the number of stocks included in the average gradually increased.
The Dow has been criticized by several market analysts for not including enough companies to represent overall market performance. Other critics argue that trading on all 30 stocks included in the Dow does not almost always open at the same time every morning, thereby skewing that day's average. Despite these issues however, the Dow Jones Industrial Average has, over the years, consistently performed similarly to the broader US market, which is no doubt why it remains so favorite today.
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Dow Jones Industrial Average - How's the Stock Market Doing?.....
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