Understanding Dow Jones Industrial Average

As a stock market for beginners guide I think the most important point to know is to that how the stock market drives it index and who or what is Dow Jones and what does it mean to you when you see the index up or down.

Dow Jones as company was formed by three folks Charles Henry Dow, Edward Davis and Charles Milford Bergstresser. They started an afternoon bulletin newsletter called the Customers Afternoon Letter which later became the “The Wall Street Journal” as we call it today.

In 1896 the Dow Jones Industrial Average or DJIA was officially launched and at that time it had 12 companies which comprised of the DJIA and they 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)

U.S. Rubber

If you scan the list you will see that only one company from the original list is now in the DJIA.

How the Dow Jones indexes are calculated was based on the initial simple methodology that they are prices weighted and market capitalization weighted which means that they do not take into account the market capitalization of the shares or the shares outstanding in simple language and in fact they only take into account the prices.

So in the initial days the prices all the 12 companies were added and divided by 12 but now that divisor is calculated using formula so that it takes into account stock splits and other actions like mergers or acquisitions.

The current divisor is like this 0.1255527090 it is based on the calculation shown above.

Now each of the components is definitely assigned a weight so that they can be better aligned with what the market thinks about them and their

To answer a question about how many companies make up the Dow Jones Industrial Average index the answer is 30 stocks.

3M Co.	New York SE	MMM	N/A	Diversified Industrials	Broad	5.0568	59.62
Alcoa Inc.	New York SE	AA	N/A	Aluminum	Broad	1.1722	13.82
American Express Co.	New York SE	AXP	N/A	Consumer Finance	Broad	2.3155	27.30
AT&T Inc.	New York SE	T	N/A	Fixed Line Telecommunications	Broad	2.2112	26.07
Bank of America Corp.	New York SE	BAC	N/A	Banks	Broad	1.9330	22.79
Boeing Co.	New York SE	BA	N/A	Aerospace	Broad	3.9932	47.08
Caterpillar Inc.	New York SE	CAT	N/A	Commercial Vehicles & Trucks	Broad	4.1968	49.48
Chevron Corp.	New York SE	CVX	N/A	Integrated Oil & Gas	Broad	5.9279	69.89
Citigroup Inc.	New York SE	C	N/A	Banks	Broad	1.3359	15.75
Coca-Cola Co.	New York SE	KO	N/A	Soft Drinks	Broad	4.0085	47.26
E.I. DuPont de Nemours & Co.	New York SE	DD	N/A	Commodity Chemicals	Broad	3.1578	37.23
Exxon Mobil Corp.	New York SE	XOM	N/A	Integrated Oil & Gas	Broad	6.1985	73.08
General Electric Co.	New York SE	GE	N/A	Diversified Industrials	Broad	1.7812	21.00
General Motors Corp.	New York SE	GM	N/A	Automobiles	Broad	0.5522	6.51
Hewlett-Packard Co.	New York SE	HPQ	N/A	Computer Hardware	Broad	3.5115	41.40
Home Depot Inc.	New York SE	HD	N/A	Home Improvement Retailers	Broad	1.8414	21.71
Intel Corp.	NASDAQ NMS	INTC	N/A	Semiconductors	Broad	1.4453	17.04
International Business Machines Corp.	New York SE	IBM	N/A	Computer Services	Broad	7.8210	92.21
Johnson & Johnson	New York SE	JNJ	N/A	Pharmaceuticals	Broad	5.3164	62.68
JPMorgan Chase & Co.	New York SE	JPM	N/A	Banks	Broad	3.5615	41.99
Kraft Foods Inc. Cl A	New York SE	KFT	N/A	Food Products	Broad	2.4029	28.33
McDonald’s Corp.	New York SE	MCD	N/A	Restaurants & Bars	Broad	4.8558	57.25
Merck & Co. Inc.	New York SE	MRK	N/A	Pharmaceuticals	Broad	2.4953	29.42
Microsoft Corp.	NASDAQ NMS	MSFT	N/A	Software	Broad	2.1612	25.48
Pfizer Inc.	New York SE	PFE	N/A	Pharmaceuticals	Broad	1.4148	16.68
Procter & Gamble Co.	New York SE	PG	N/A	Nondurable Household Products	Broad	5.3681	63.29
United Technologies Corp.	New York SE	UTX	N/A	Aerospace	Broad	4.5912	54.13
Verizon Communications Inc.	New York SE	VZ	N/A	Fixed Line Telecommunications	Broad	2.4538	28.93
Wal-Mart Stores Inc.	New York SE	WMT	N/A	Broadline Retailers	Broad	4.6226	54.50
Walt Disney Co.	New York SE	DIS	N/A	Broadcasting & Entertainment	Broad	2.2663	26.72

It is Dow jones Industrial average that is know 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.

I hope the above tutorial will answer your question about what is the Dow Jones industrial average and will help you better invest in the market.

Now of course the whole Dow Jones index has taken a separate meaning with various Dow Jones index in the market like the Dow Jones finnacila index

Dow Jones Transportation index and dow jones real estate index. And each has the same type of calculation to track and calculate the index.

If you are looking for a dow jones history chart then you need to go their website and get the chart with on a decade by decaed basis.

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