Are you into the stock market? Do you want to know about the index most famous in the stock market? Have you ever heard about DJIA-Dow Jones Industrial Average? Don’t worry. We are sharing brief details on it. So you will know all about Dow Jones Industrial Average.
What is Dow Jones Industrial Average?
The Dow Jones Industrial Average is famous as Dow Jones. It is an index that keeps track of the 30 largest companies. Moreover, these are publicly-owned companies trading on the New York Stock Exchange (NYSE) and National Association of Securities Dealers Automated Quotations (NASDAQ).
Especially, it is named after the business partners Charles Dow and Edward Jones and the index was created in 1986 to serve as a proxy for the broader U.S. economy.
History of DJIA
In particular, Dow Jones initially had 12 companies, which were purely industrial sectors. However, in starting, the components were railroads, cotton, gas, sugar, tobacco, and oil. After Dow Jones Transportation Average, The Dow Jones Industrial Average is the second oldest Market index of the U.S. economy.
Understanding DJIA
With the changing economy, the composition of the index is also changing. The Dow changes when a company does not fit to represent the economy, or when the economy shift occurs broadly, and hence a change needs to be made to the index to reflect it. For instance, if a company loses its value in the stock market due to financial distress. That company or component might be removed from the DJIA.
How the DJIA is calculated
However, the higher the share prices of the stocks, the higher is the weightage of the company in the index. Hence, the high-valued or high-priced component has a greater impact. So, Charles Dow used an average technique, adding the prices of all twelve components of Dow and dividing it by 12, as simple as average.
Over time, this method of averaging the index did not fit the calculation. Whereas, ultimately, this led to the emergence of the Dow Divisor. The Dow divisor determines the change or effect of the one-point move in the stocks. So, the latest value of the Dow divisor is 0.14748071991788. Indeed, one can find this divisor in the Wall Street Journal.
DJIA Price = Sum of the Component Stock Price / Dow Divisor
Latest Components of Dow Jones Industrial Average
As of April 2019, below are the companies or components included in the Dow Jones:
- The 3M Company
- The American Express Company
- Apple Inc.
- The Boeing Company
- Caterpillar Inc.
- Chevron Corporation
- Cisco Systems, Inc.
- The Coca-Cola Company
- DowDuPoint, Inc
- Exxon Mobil Corporation
- Walgreens Boots Alliance, Inc
- The Goldman Sachs Group, Inc
- The Home Depot Inc
- Intel Corporation
- IBM Corporation
- Johnson & Johnson
- JPMorgan Chase & Co.
- Kraft Foods
- McDonald’s Corporation
- Merck & Company, Inc
- Microsoft Corporation
- Nike, inc
- Pfizer Inc.
- Procter & Gamble Co.
- The Travelers Companies, Inc.
- UnitedHealth Group Inc
- Verizon Communications, Inc
- Visa Inc.
- Walmart Inc.
- The Walt Disney Company
Conclusion
The Dow Jones has changed and evolved in the past century. We hope this article made you know about the Dow Jones Industrial Average and its history. Now, we hope you can decipher a few financial terms if needed.
