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What Exactly are the Points in the Dow Jones?

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  • Written By: Dana Hinders
  • Edited By: Bronwyn Harris
  • Last Modified Date: 31 August 2016
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The Dow Jones Industrial Average, often simply known as “the Dow,” is a number that represents the average price of 30 of the largest and most widely traded stocks in the United States. It includes stocks from major corporations such as Wal-Mart, American Express, Home Depot, General Motors, IBM, Microsoft, and McDonalds to use as an indication of how the stock market is performing as a whole.

The Dow Jones Industrial Average is one of several stock market indices created by former Wall Street Journal editor Charles Dow. The “Industrial” portion of the name reflects the fact that the stocks originally selected to be part of the index were heavily representative of the manufacturing industry.

To calculate the Dow Jones Industrial Average, the total price of the 30 selected stocks is divided by a number that is chosen to compensate for splits, spin-offs, or similar structural changes within one particular organization. Without this divisor, the number reflected by the Dow Jones Industrial Average would be very easily swayed by positive or negative events within any one company. A 2-for-1 split would unfairly bring down the entire index, even though no fundamental stock changes had occurred.

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The Dow Jones Industrial Average is expressed in points. While the Dow Jones Industrial Average was 40.94 points at its opening on 26 May 1896, it has since increased significantly. In July 2007, for example, the index passed the 14,000 point milestone.

The largest one-day point drop in the history of the Dow Jones Industrial Average happened on the first day of trading after the 11 September 2001 terrorist attack on the World Trade Center, when the index fell 684.81 points. In comparison, the most significant one-day point gain was 499.19 points on 16 March 2000.

Essentially, a point is equivalent to $1 US Dollar (USD) in stock prices. If you hear on the nightly news that the Dow went up 25 points, this means it would cost approximately $25 USD more to buy the same stocks included in the Dow Jones Industrial Average today than it would have cost on the previous business day.

While the Dow Jones Industrial Average is a heavily regarded figure in the world of business and finance, it is not without its critics. For example, some people feel that the calculation gives higher-priced stocks more influence than their lower-priced counterparts. In addition, since the Dow only includes 30 stocks, several people have speculated that it’s difficult to consider it an accurate representation of overall market performance.

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julies
Post 6

Even though the Dow is only made up of 30 stocks, I still watch this closely to get a feel for what is going on in the overall market.

The three major indexes, the Dow, NASDAQ and S&P often, but not always, move together. I like to invest in technology companies, so don't buy as many stocks listed on the Dow as I do the NASDAQ, but I never discount the importance of knowing what the DOW is doing.

SarahSon
Post 5

I find it very interesting to go back in time and look at the historical prices of the Dow Jones Industrial Average. When you look at where the Dow is today, as compared to many years ago, you become more aware of the power of the stock market.

Many people like to invest in older, stable companies that are listed on the Dow. Often times, these are the companies they are most familiar with.

Many of the companies on the Dow also have dividend programs, and this is a great way for someone to get their feet wet with the stock market.

golf07
Post 4

Following the Dow Jones Industrial Average will give you a general indication of what the market is doing as a whole. Even though this number is only made up of 30 companies, by looking at a composite of all these companies from one number, you get a good picture of what the market is doing on a given day.

The NASDAQ is another index that many people also watch and it is made up of thousands of companies. Most companies listed on the NASDAQ are more of the technology companies. Many times these stocks are more volatile than those that are listed on the Dow Jones.

Watching both of them, along with the S&P are the three indexes that are watched most often.

helene55
Post 3

The only thing that confuses me about the Dow Jones is what if one of the big companies has a serious problem? Like say that Apple or IBM had to do a recall on computer parts, or something. the Dow might fall dramatically, but it's all because of one company.

I mean, I suppose that economists think about these things, but when those of us who don't know much about the stock market hear this on the news, we don't always know the difference or what contributed to the change.

panda2006
Post 2

I didn't realize the Dow was only 30 companies; I knew it was supposed to represent the whole market, so I guess I thought it was everything in the market. I wish I had been made to learn about the stock market in school, but I never did. It seems like something more people ought to know more about, since it has a lot to do with our whole economy.

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