Cents and Sensibility
Cents and Sensibility
Question: What is the Dow Jones Industrial Average? Dow was designed
as a market barometerAnswer: The Dow Jones Industrial Average is the oldest and most widely quoted of 11 market indicators. When people say the market was up or down, they are actually referring to the Dow Jones Industrial Average.
Charles Dow developed the Dow Jones Industrial Average in 19884 to provide investors with a market barometer. By watching the DJIA, investors can gauge what the market as a whole might do.
Over the years, the Dow Jones Industrial Average has grown to include 30 blue chip stocks actively traded on the New York Stock Exchange. Blue chip stocks are issued by some of the best-known quality companies in the nation. These 30 stocks represent roughly 15 percent to 20 percent of the market value of all stocks trading on the New York Stock Exchange.
Because the stock market is closely tied to the health of the U.S. economy, companies in the DJIA reflect the economy's health. The companies are a mixture of manufacturing, technology, finance, health-care and other firms.
The DJIA is based on a formula that adds the price of all stocks listed in the DJIA. This sum is divided by a number that takes into consideration such things as stock dividends and splits. The Wall Street Journal publishes the divisor daily, and the editors of the Wall Street Journal decide which stocks form the Dow Jones Industrial Average. The companies that form the DJIA rarely change. Indeed, the stability of the DJIA is largely responsible for its longevity and popularity.
Guy Steele is a financial planner and head
of the Pali Palms office of Edward Jones. Send
planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, HI, 96734,
or by email at: gsteele2@pixi.com