The Dow Jones Industrial Average is a stock market index that is in all major newspapers every day. It was created by Charles Dow in 1896. Dow was cofounder of Dow Jones And Company and the financial newspaper “Wall Street Journal”. The other cofounder was the statistician Edward Jones (thus the name Dow Jones Industrial Average).
A recession ended in 1890, and by 1893 huge corporations were being formed. Dow devised an industrial average of these corporations by choosing twelve companies, adding up their closing stock prices, then dividing that amount by twelve. A similar average for railroad stocks was invented in 1897. Using both averages simultaneously quickly became a popular method of determining if the stock market is doing well or poorly.
Nowadays, the index is based on thirty companies. It also has added a divisor which takes into account any dividends or stock splits. The average does not take into account the market values of the stocks, it only takes into account the prices of the stocks.
The DJIA tells how much each stock increases or decreases each day using an integer and a decimal that indicates the dollar amount it changed. If it increases, a plus sign is used. If it decreases, a minus sign is used. For example, if Walt Disney Company’s stock prices increase five dollars and eight cents, it is +5.08. An example of a decrease is if International Business Machines Corporation (IBM) decreases three dollars and fifty cents, it is -3.50. All of the stocks that are included in the Dow Jones Industrials are calculated (plus for an increasing stock and minus for a decreasing stock), then that amount is reported to all the major newspapers. For example, if there are twenty Dow Jones Industrial stocks that increase a total of +50.97, and the remaining ten stocks decrease -10.47, then the DJIA is +50.97-10.47=+40.50. The terminology is the stock market has gone up 40.57 points.
The daily data of the DJIA is collected each day, then comparisons and analysis is done periodically. For example, on June 16, 2011 DJIA was down 2160.17 points (15.25%) from its record highest close of 14164.53 on October 9, 2009. Analysis is used to estimate what the stock market will do in the near future and try to avoid any crashes.
The thirty companies that make up the Dow Jones Industrial average are also called component stocks. In alphabetical order, they are 3M Company, Alcoa Incorporated, American Express Company, American Telephone And Telegraph, Bank of America, Boeing Company, Caterpillar Incorporated, Chevron, Cisco Systems, Coca Cola Company, E.I. Dupont de Nemours, Exxon Mobil Corporation, General Electric Company, Hewlett Packard Company, Home Depot Incorporated, Honeywell International Incorporated, Intel Corporation, International Business Machines Corporation, Johnson And Johnson, JP Morgan Chase And Company, Kraft Foods, McDonald’s Corporation, Merck And Company Incorporated, Microsoft Corporation, Pfizer Incorporated, Proctor And Gamble, Travelers Corporation, United Technologies Corporation, Verizon Communications Incorporated, Wal Mart Stores Incorporated, and Walt Disney Company.
Abbreviations are used to identify the DJIA stocks. They are, following the same alphabetical order in the previous paragraph: MMM, AA, AXP, T, BAC, BA, CAT, CVX, CSCO, KO, DD, XOM, GE, HPQ, HD, HON, INTC, IBM, JNJ, JPM, KFT, MCD, MRK, MSFT, PFE, PG, TRV, UTX, VZ, WMT, and DIS.