What is the Dow Jones Index?

by Charlotte Wood
(last updated February 21, 2009)

It would be considered unusual if you hadn't heard the phrase "the Dow" or the "Dow Jones." You have some idea of what that kind of is, but no real concrete knowledge. You know it has something to do with money, but there again, you're just not sure beyond that. So what exactly is the Dow Jones and does it affect you? If you're an investor, even just a casual one, you'll completely fail if you don't know what the Dow Jones is, so let me enlighten you (whether you are a novice investor or even not an investor at all) and hopefully you'll find success!

The Dow Jones is a stock index of the thirty largest, most stock held public companies in the country. These corporations include Coca-Cola, Hewlett-Packard, Home Dept, AT&T, McDonalds, Wal-Mart, IBM, ExxonMobil, and Walt Disney. The Dow Jones' objective as an index is to gauge the success of the top businesses in the country, to take account of the financial state of the country. When you see the Dow Jones index on stock quotes, you're actually seeing the scaled average of the stock prices of those thirty companies.

The Dow Jones came about in the 1896 and represented the top twelve industrial companies of the day. It grew in prestige and size from then on, becoming one of today's leading stock indices in the world. The Dow Jones is criticized for its exclusiveness in regard to other stock indices. With only thirty companies in its data, it can't truly represent the market as a whole, despite the fact it's one of the most quoted indices in the world.

Also, the prices of the stocks within the Dow Jones are price-weighted where higher priced stocks are given more weight in the average than "regular" priced stocks. The price or value of the Dow Jones is determined by it's opening and closing prices of the day, but not all markets open at the same time and not all close at the same time either, resulting in not necessarily accurate data regarding the actual value of all the stocks within the Dow.

Despite its criticisms however, the Dow Jones is one of the primary sources of market information in the world and the oldest stock index in the country. The Dow Jones is crucial in informing about and influencing the market and if you want to have any kind of success as an investor, you have to have at least a rudimentary understanding of the Dow Jones Index. The basics aren't that hard to understand and once you do, you'll be glad!

Author Bio

Charlotte Wood

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