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What Is The Dow Jones Industrial Average?Every day you hear business reports about the latest movement of the Dow Jones Industrial Average. Down 20 points to 9,820. Up to 10,020. So, what exactly is the Dow Jones Industrial Average and why do investors watch it so closely? The Dow Jones Industrial Average (Dow) was begun by Charles H. Dow, the first editor of The Wall Street Journal newspaper and a founder of Dow Jones and Company. Its first incarnation appeared in the Customer’s Afternoon Letter, a financial news bulletin. Charles Dow selected 11 stocks (mainly railroads) and did a simple average calculation each day. Over a decade later, the current Dow made its debut on May 26, 1896. The Dow, which is the oldest stock indicator, began with a group of twelve U.S. industrial stocks. The stocks included in the Dow at that time consisted of: American Cotton Oil
Over the past century, the Dow Jones Industrial Average has seen many companies come and go from its list. Companies which are representative of a part of the U.S. industry are added or removed from the Dow. Currently, the Dow is made up of 30 stocks. These 30 companies account for more than 25 percent of the market value of all stocks traded on the New York Stock Exchange. The editors of The Wall Street Journal, published by the Dow Jones Company, select the companies that make up the Dow Jones Industrial Average. Today, “industrial” has taken on a broader meaning for the index. Essentially, any company that isn’t in transportation or utility can be included. If the editors decide that a company included in the index should be changed, then the entire listing is reviewed. No stock has been continuously included in the Dow since its inception. However, General Electric was only off the list from 1898 to 1907. Although called an average, the Dow really isn’t a true average. The Average isn’t given in dollars and cents either. After the prices of the 30 different stocks in the Dow are added together, the Average is calculated by adding the current price of each stock and dividing the sum` by a special divisor, which adjusts for stock splits. The Dow divisor currently stands at 0.2252. The thirty companies listed in the Dow Jones Industrial Average today include: 3M Co. |