Author Topic: Newbie Question  (Read 739 times)

tophdna

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Newbie Question
« on: August 25, 2016, 02:09:39 PM »
I'm embarrassed to ask this. Although, truthfully, I don't know the answer and no question is truly stupid (in my opinion).

Here it goes: Dow Jones Industrial Average 18,448.41

What does the 18,448.41 represent specifically?

dandarc

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Re: Newbie Question
« Reply #1 on: August 25, 2016, 02:16:44 PM »
You add up the price of one share of each of the stocks included in the Dow Jones Industrial Average, then divide by the divisor.

The divisor was 12 when Mr. Dow first published his average - so the DJIA was literally the simple average price of the 12 stocks included.  Over the many decades, the components of the DJIA have changed and stocks have split and so on and so the divisor today has been adjusted for all of these changes.

seattlecyclone

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Re: Newbie Question
« Reply #2 on: August 25, 2016, 02:29:26 PM »
It's a weighted average of 30 stock prices. The index was created in 1896 with 30 of the day's largest publicly traded companies. From time to time as the original companies went out of business, merged, etc., they have had to swap out an old company for a new one. When they do this, they give the new company the same weight in the index as the old one had so that the index's value doesn't change much on the day of the event. Thus the 30 companies have varied and rather arbitrary weights. See here for a list. The weightings range from less than 1.2% for Cisco and GE all the way up to 6.65% for 3M.