The Dow Jones Industrial Average (DJIA) is one of several stock market indices created by Wall Street Journal editor and Dow Jones & Company founder Charles Dow. Dow compiled the DJIA index as a way to gauge the performance of the industrial component of America's stock markets.
It is not currently the actual average of the prices of its component stocks, but a weighted average, to compensate for the effects of stock splits and other adjustments.
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2 Criticism 3 Components 4 External links |
In 1884, the DJIA represented the average of twelve stocks representing various important American industrial businesses. In 1916, the number of stocks in the DJIA was increased to twenty, and finally to thirty in 1928. On the day it was created, the value of the DJIA was 100 and by November 14, 1972 the Average closed above 1,000 (1,003.16) for the first time.
The 1980s and especially the 1990s saw a very rapid increase in the average. On November 21, 1995 it closed above 5,000 (5,023.55) for the first time and on March 29, 1999 the average closed at 10,006.78 which was the first time the index closed above the 10,000 mark. Just over a month later on May 3, 1999, it closed at 11,014.70, its first close above 11,000. The average closed at an the all-time peak of 11,722.98 on January 14, 2000. By mid-2002 however, it had returned to its 1998 level of 8000. On October 9, 2002, the DJIA bottomed out at 7286.27, its lowest close since October 1997. On June 4, 2003, the average closed above 9,000 for the first time since August 22, 2002. Six months later, on December 11, 2003, the average closed above 10,000 for the first time since May 24, 2002.
Some people criticize the DJIA because it is a price-weighted average, which gives relatively higher-priced stocks more influence over the average than their lower-priced counterparts. This can produce misleading results, as a $1 increase in a lower-priced stock can be cancelled out by a $1 decrease in a much higher-priced stock, even though the first stock may have experienced a significantly larger percentage change. Additionally, the inclusion of only 30 stocks in the average has brought on additional criticism of the average, as the DJIA is widely used as an indicator of overall market performance. Because of these issues, the S&P 500 is becoming more widely quoted and used as a more realistic broad market performance indicator.
The individual components of the DJIA change from time to time. Of the original twelve stocks on the 1884 average, only General Electric remains.
As of 2003, the Dow Jones Industrial Average consists of the following 30 companies:
History
Criticism
Components
See also: Dowism, NYSE, Nasdaq
External links
