Dow Jones: What Is The Dow? How Did It Start?

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The Dow Jones today is a stock market index tracking the performance of 30 major companies in America for over 100 years. It’s a very popular barometer of the U.S. economy, measuring how its largest companies are performing. In this article, we’ll go over what stocks are and why they’re important to us all when it comes to our finances and investments. Read on below to learn more!

What is a stock?

There are a variety of kinds of stocks. Most common are the kinds of companies that people think of when they hear the word “stock.” This includes oil companies, restaurant chains, and your local grocery store. Continue Reading Below But there are other kinds of stocks, too. For example, a company that operates a toll road like Martin’s Transport is in the business of transporting goods. A company that just makes things like movies, video games, or music is called a consumer-products company. It has multiple lines of business that make the business more stable. The Dow Jones Industrial Average is a stock market index that includes both these kinds of companies. So what is the Dow Jones?

The Dow Jones Industrial Average

The Dow Jones Industrial Average is a composite of 30 large-cap U.S. companies, tracked by the New York Stock Exchange (NYSE). The companies that make up the index are part of the S&P 500, representing the large-cap portion of the broader U.S. stock market, which consists of 500 stocks. With only 30 components, the Dow Jones is an extremely concentrated index — companies are very large, and investors closely track their performances. As a result, many economists view the average as a better barometer of the U.S. economy than the Standard & Poor’s 500 index (the S&P 500) or the Russell 2000 index (the S&P SmallCap 600). The first Dow Jones Industrial Average was calculated in the 1890s.

Why should I care about the Dow Jones Industrial Average?

The Dow Jones Industrial Average was originally designed to provide a broader representation of the country’s economy than just the S&P 500, a more broad measure of the entire stock market. Created on March 25, 1896, as the Dow Jones Mining Index, it was originally made up of stocks from mining companies. The idea was that the more mining companies there were in an index, the more of an indicator of the country’s economic health. At first, there was no way to separate companies that were actually mining operations from those that just bought and sold mining stocks, so the companies were simply ranked based on their share price. By the 1930s, they were making a bold effort to further distinguish the two. The first differentiation they made was separating stocks by size.

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How did the DJIA start?

The Dow Jones Industrial Average was created in 1896 by Frank Dow, Charles Dow’s father, to track the stock market’s performance after he got tired of reading about companies on the ticker tape, which listed every stock in the United States. Originally, the index consisted of 30 stocks, known as the “Dow Jones 30,” which were all connected by their trading volume in the Wall Street Journal’s financial newspaper. Then, on May 26, 1896, the publication offered an advertisement that allowed interested companies to purchase their shares from the newspaper. This started the “at-the-paper” selection process to determine which companies would be included in the index. The idea was to have these names eventually be used as ticker symbols for them.

Conclusion

First of all, you should know that a stock is simply a contract between you and a company. In order for your stock to become active, the company (or a group of them) has to do something for you – for example, you want the company to buy you something at a later date for money that they owe you. The company, on the other hand, wants you to invest in them. When you do this, you become an investor and you become an owner of a piece of the company. This ownership of a piece of the company brings your money together with the company’s money, and when the company makes money (they’ve earned enough money to be able to buy more stock for you), that profit gets returned to you as a return on investment.

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