Understand the Dow Jones Industrial Average

Posted by admin as shares and stocks

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For a stock market beginner, it is critical that he understands how the stock market functions. He ought to also be mindful of the key indices which drive the market. 1 of these key indices is the Dow Jones Industrial Regular (DJIA). As a company, Dow Jones was formed by three people named Charles Henry Dow, Edward Davis and Charles Milford Bergstresser. They also started out a newsletter known as Customer’s Afternoon Letter that is widely identified as ‘The Wall Street Journal’ in current situations.

Dow Jones Professional Regular was officially launched in 1896 having only 12 companies listed in this index. These organizations were American Cotton Oil, American Sugar, American Tobacco, Chicago Gas, Distilling & Cattle Feeding, General Electric, Laclede Gas, National Lead, North American, Tennessee Coal & Iron, U.S. Leather and U.S. Rubber. Out of these twelve organizations only one still appears in the existing list of DJIA.

When this index was launched, the way to calculate the index price was very simple. It used to consider the weighted stock prices of the listed companies. The market capitalization was not considered. Therefore, the index value was calculated by adding the stock prices of all 12 companies divided by 12. The existing system of calculating the index is very refined and complicated. This method also considers the stock splits, mergers and marketplace capitalization of the companies.

Currently, there are 30 organizations in this index. These organizations are 3M Co., Alcoa Inc., American Express Co., AT&T Inc., Bank of America Corp., Boeing Co., Caterpillar Inc., Chevron Corp., Citigroup Inc., Coca-Cola Co., E.I. DuPont de Nemours & Co., Exxon Mobil Corp., General Electric Co., General Motors Corp., Hewlett-Packard Co., Home Depot Inc., Intel Corp., International Business Machines Corp., Johnson & Johnson, JPMorgan Chase & Co., Kraft Foods Inc. , McDonald’s Corp., Merck & Co. Inc., Microsoft Corp., Pfizer Inc., Procter & Gamble Co., United Technologies Corp., Verizon Communications Inc., Wal-Mart Stores Inc. and Walt Disney Co.

The above mentioned companies are blue chip companies representing different sectors like banking, metal, technology, auto, food, retail etc. It’s Dow Jones Professional average that is identified by the world over as the primary index and is tracked by the entire US nation as well as the world as an indicator of the world health economy. Currently there are other indices which are based on this index like Dow Jones financial index, Dow Jones Transportation index and Dow Jones real estate index.

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