Dow Jones

Financial Dictionary -> Investing -> Dow Jones

You cannot watch the news or read the paper without seeing a reference to things like the stock exchange, the NASDAQ or the Dow Jones. Despite this a good proportion of people have no idea what the Dow actually is. Well the Dow Jones and its various abbreviations and combinations (such as the DJIA, Dow 30, INDP or the Dow) is one of the very important North American stock market indices, technically known as the Dow Jones Industrial Average. Ok but what does this actually mean?

The Dow Jones Industrial Average is a measurement that simply refers to the average value of thirty large company's industrial stocks, such as Microsoft, Coca-Cola, General Motors, IBM, Goodyear, General Electric and Exxon. These and several other companies make up the average and give an overall picture of how the stock exchange as a whole is doing. Somebody simply takes 30 top companies and does some math. Despite this simplicity Dow Jones is by far the most read index in the world. It dates back to 1896 when it was consisting of only 12 stocks. It is during times of economic crisis when investors and regular Joes take notice of the Dow Jones and it is fair to say if the economy is doing bad, so is the Dow and vice versa.

The Dow Jones has many critics that claim taking just 30 companies and plastering their success all over the news is not only misleading in regards to the whole market, but also dangerous for new investors that take it for gospel and think trading successfully is a lot simpler than it actually is.