Simplifying The Dow Jones Industrial Average (DJIA)

The Dow Jones Industrial Average (DJIA) is a stock market index that was originally created by the Wall Street Journal editor named Charles Dow on May 26, 1896. The DJIA is named after Charles Dow and the statistician Edward Jones. The DJIA index tracks a list of 30 large-scale publicly owned companies in the United States that are traded on the stock market. This stock market index is essentially used by the media and finance professionals to track the overall performance of the stock market. Out of the 30 companies listed in DJIA, 20 companies are consumer goods and industrial manufacturers. The other remaining companies are from various sectors like finance, IT, entertainment, etc.

The Dow Jones Industrial Average was initially designed as a stock market index to track the performances of industrial stocks. Originally, there were only 12 stocks tracked under the DJIA, which included companies like American Cotton Oil, American Sugar, Tennessee Coal, Iron and Railroad Co., National Lead and more. Eventually, the number of companies under the DJIA increased from 12 to 30. While the DJIA was originally launched on May 26, 1896, it only started to appear regularly on the Wall Street Journal from October, 1896.

At that point in time, the stock market was not a very popular form of investment for the general public. Bonds used to be the most popular form of investments as they were a safer alternative. Moreover, the average citizen during that time could not understand the intricacies of the stock market enough to invest in it. The DJIA was created as a means for people to understand the trends of the stock market in a simple manner. In modern times, the DJIA contains a list of 30 large American public companies that are traded on the stock market. This list of companies is periodically updated by the editors at the Wall Street Journal for relevance and market power.

The editors at the Wall Street Journal consider a variety of factors when replacing, adding or removing companies from the Dow Jones Industrial Average. The editors pick those American companies that they believe fairly represent and influence the market. They also look into how old the particular company is, how the company treats its shareholders and the kind of overall reputation the company has in their industry. The Wall Street Journal editors are extremely careful while picking companies for the DJIA as they want companies that are relevant to the current business climate but not necessarily trendy over the short term. They are looking for companies that have a lasting impact on the economy and the stock market. Moreover, they also try to pick companies to represent all the major sectors of the economy.

The Dow Jones Industrial Average has many useful applications. The basic function of the DJIA is to understand and monitor the market trends, and enable potential investors to find the right time to invest in the correct companies. Financial experts also study the history of the DJIA to try and predict the future performance of the stock market as well as individual company stocks based on past trends. However, it should be noted that nobody can exactly predict the future of the market or stocks, even experts can only give rough estimates. Many investors directly invest in the companies listed in the DJIA rather than individually investing in different companies as it’s a highly curated list of well-performing large-scale companies. The DJIA also serves as a benchmark for financial investors to compare with their portfolios. If an investor’s portfolio has been overperforming compared to the DJIA, they can be rest assured that their investments are doing well.