What Is The Dow Jones Industrial Average?
We’ve hear a lot about the Dow in the news. It goes up and folks are happy. It goes down and folks panic. But what is this mystical Dow that everyone is talking about?
The Dow actually stand for Dow Jones Industrial Average. It’s made up of the 30 largest and most widely held public companies. The average is a scaled average which is price weighted to account for stock splits. Although it only accounts for 30 companies, the Dow has historically been in line with the larger US market. For this reason it tends to be the most common indicator of the market in general.
The Dow was first published in 1896 and consisted of 12 companies:
- American Cotton Oil Company
- American Sugar Company
- American Tobacco Company
- Chicago Gas Company
- Distilling and Cattle Feeding Company
- General Electric
- Laclede Gas Light Company
- National Lead Company
- North American Company
- Tennessee Coal, Iron, and Rail company
- US Leather Company
- Unites States Rubber Company
Today’s Dow looks very different:
|Bank of America|
|Johnson & Johnson|
|Procter & Gamble|
|United Technologies Corporation|
Update – On June 8, 2009 GM and Citigroup were replaced by The Travelers Companies and Cisco Systems.
When it started the Dow averaged 40.94. It’s recent high was 14,164.53 on October 9, 2007.
Why is it so important?
Since the Dow represents 30 of the largest US companies, changes in the stock prices of the Dow can be seen to represent the general health of US companies. Higher averages mean growth and profits while lower averages represent contraction and losses.
Do you follow Dow prices? Do you think it’s an accurate economic indicator?