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Dow Jones Index
Also known as: DJIA, the Industrial Average, the Dow Jones, the Dow Jones Industrial, DJI, the Dow 30, or simply the Dow
History: Created on May 26, 1896, by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. It is the second oldest U.S. market index
What Is It?: It is an index that shows how 30 large publicly owned companies based in the United States have traded during a standard trading session in the stock market.
How it’s calculated: The original DJIA was simply an average of stock prices. Today it uses a price-weighted system. For example, McDonalds’ stock is worth approximately 5% of the DJIA.
Trading Hours: 9:30 a.m. to 4 p.m. EST, Monday through Friday
Advantages: The DJIA has stood the test of time. It contains 30 of the most familiar blue chip companies in the U.S. and is not considered to be volatile or risky.
Disadvantages: There are well over 10,000 public companies in the U.S. Having only 30 companies, the DJIA doesn’t even come close to being a benchmark for the entire market. For this reason, the S&P 500 is beginning to take over as the benchmark of choice. Also, a weighting based on market cap is generally thought to be more effective than price weighting.
Trading the Dow
The Dow Jones Index which is the basis for the dow jones focus group is one of the oldest and most traded indices in the world. Comprising of only 30 blue chip companies in the US, many investment professionals will not typically recommend investing in products that track the DJIA due its complex make up. However because the companies that constitute the Dow represent 30 of the most well-established companies in the world, the business risk is relatively low because it is very unlikely that they will go bankrupt.