The Dow Jones Industrial Averages
When Charles H. Dow first published his industrial stock average in 1896, stocks were not considered a prudent
financial investment. Most serious investors bought bonds that returned interest and were backed by tangible
assets. Today stocks are considered a mainstream investment avenue and this was brought about by the
existence
of the Dow which provided an easy to follow index that clearly reflected the direction and health of the overall
stock market. The average was viewed as a benchmark to compare against individual stock prices to give
indication of
market and individual stocks general direction. It was also compared to other economic indicators
to provide insight on overall health and direction of business and commerce as a whole as to whether it was
in an expanding or contracting cycle.
The initial stock averages were calculated manually with paper and pencil making it very difficult to provide a daily overall stock average of all listed companies so the advent of a smaller index that reflected the overall market was of great value. Early on the Dow average was not publicly published on a regular basis, however when The Wall Street Journal started publication in 1896 the Dow was then available on a daily basis.
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In 1928 the Wall Street Journal staff began using a revised formula to calculate the average that compensated for splitting of shares or when a company was replaced with another. That is why you cannot simply add up the prices of the 30 Dow stocks and divide by 30 and get the actual published number. The average was initiated with 12 stocks and was increased to 20 in 1916 and then again in 1928 increased to 30 and has never been changes since. The present-day 30 companies in the Dow are the major corporations in their particular sectors with the shares of each widely held by a broad spectrum of investors. Presently these stocks make up roughly 30% of the total market capitalization of the Dow Jones U.S. TSM Index that gives you almost full coverage of the entire U.S. stock market.
Utilizing these substantial, frequently traded companies assures an essential element of the Industrial Average which is timeliness. At any moment in time throughout the trading day, the price of the Dow Jones Industrial Average is based on relatively current purchases. This is not generally true with indexes that include less-frequently bought and sold companies. The Dow is the most published stock market gauge in newspapers, television and on the Internet. Due to the fact of its permanence, it has become the first to be cited by most publications. This particular practice evolved into routine when Wall Street gained prominence in the popular news each and every day, the routine grew to become tradition once the post-World War II bull market made the general population become interested and start paying attention to the stock market. The Industrial Average is the component to report if you were going to only mention one. Apart from permanence, 2 additional elements play a part in its wide-spread level of popularity in that it is simple to comprehend to the majority of individuals, and it reliably signifies the market's fundamental direction.
How to Invest in the Dow Jones Industrial Average
of ETFs, The DIAMONDS, (NYSE: DIA) tries to meet the daily results of the index. ProFunds, issues DJIA ETFs
using ProShares like the 2x (NYSE: DDM), that endeavors to equal the daily results of the DJIA by 200 percent
while the Inverse 2x (NYSE: DXD), tries to meet the inverse daily performance by 200 percent. ProFunds
additionally issues Inverse Performance (NYSE: DOG) intended to go in the opposite direction of the Dow
so while the Dow trades down the ETF goes up and vice versa. At this time there are also some 3x performance
ETFs available from ProShares. One 3x performance ETF is (NYSE: UDOW), as well as for Inverse 3x performance
you can get (NYSE: SDOW).
the multiplier funds can be risky or rewarding since they go up and down by large amounts and are usually used as hedges on
investments made in the opposite direction. Whether you just watch the Dow to gauge overall market performance or want to trade it, it is the oldest most important market barometer.
Listing and Links of the 30 Stocks that make up the Dow Jones Industrial Average