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For a stock market beginner, it is critical that he understands how the stock market works. He should also be aware of the major indices which drive the market. One of these major indices is the Dow Jones Industrial Average (DJIA).
Understand the Dow Jones Industrial Average
By Jimmy Karter
For a stock market beginner, it is critical that he understands how the stock market works. He should also be aware of the major indices which drive the market. One of these major indices is the Dow Jones Industrial Average (DJIA). As a company, Dow Jones was formed by three people named Charles Henry Dow, Edward Davis and Charles Milford Bergstresser. They also started a newsletter called Customer's Afternoon Letter which is widely known as 'The Wall Street Journal' in current times.
Dow Jones Industrial Average was officially launched in 1896 having only 12 companies listed in this index. These companies 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 (preferred) and U.S. Rubber. Out of these twelve companies only one (General Electric) still appears in the current 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 current system of calculating the index is very refined and complicated. This method also considers the stock splits, mergers and market capitalization of the companies.
Currently, there are 30 companies in this index. These companies 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 is Dow Jones Industrial average that is known 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.
The author is a stock market expert and writes articles on understanding stock market basics and various other topics including understanding Dow Jones Industrial Average.