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What is the Dow Jones Industrial Average

In the world of finance and investment, the words “Dow Jones”crop up at some time or another. So, what is Dow Jones? Dow Jones & Company is among the biggest financial and business media companies in the world. The company was created in the nineteenth century. Since then, the popular Dow Jones Industrial Average (commonly referred to as the market index) and many other averages used in the markets have been formed. 

What is Dow Jones?

Dow Jones wasn’t a single individual but represented a few people who were the founders of Dow Jones & Company. The company was created in 1882, when Charles Dow, Edward Jones, and Charles Bergstresser founded the company. In 1889, the three started the Wall Street Journal. Till today, this publication has remained the most influential of all financial publications internationally. 

Charles Dow was the visionary out of the three founding members and decided that the general public, retail investors, required a clear benchmark indicating the rise or fall of the share market. Dow decided to establish an index to find an average of stock market performance. In doing this, Dow selected many industrial-oriented stocks for his initial index, reporting the very first average as 40.94. Today, if you open a demat account and decide to invest in companies abroad, you may use the index of the Dow Jones Industrial Average to gauge market performance, and by association, stock performance. 

The Dow Jones Index

What is the Dow Jones index? To get the correct answer to the question just put forth, you must have a bit of a background of the beliefs of Charles Dow. He believed that stock market shifts/movements could be predicted based on movements in the prices of various stocks. This resulted in what is called the “Dow Theory”. According to this theory, for example, a trend of industrial stocks moving up should indicate a similar trend in stocks belonging to the transport sector. Thus, investors can easily relate sectors to see trends to help them invest, or invest more in particular industries and sectors. 

In this way, Charles Dow came up with different averages to accurately represent the direction of certain stocks in particular sectors. Now, say any investor wishes to invest in a particular stock or even an upcoming IPO, they can estimate future performance by using the Dow Jones Industrial Average, provided the investor is investing in the equity of a similar kind in the index. Now, this may not be a fool-proof method to predict a stock’s performance going forward, but it can certainly help. 

The Dow Jones Industrial Average

The DJIA, or the Dow Jones Industrial Average, is among the most-respected stock indices the world over. Some of the biggest companies like Apple Inc., Microsoft, Boeing, and Coca-Cola make up its composition. In the initial days of its establishment, there were just 12 businesses positioned on this index. Nonetheless, it soon grew till it was composed of 30 companies. 

The companies originally present belonged to the sectors of railways, gas, cotton, tobacco, oil, and sugar. The performance of industrial firms is viewed as corresponding with the behaviour patterns of the economy overall. Therefore, the Dow Jones Industrial Average provides a great benchmark as a measure of economic health from a broad perspective. 

More Details About the DJIA

Although the economy's health is connected to several sectors, the Dow Jones Industrial Average says a lot about the growth and development of the American economy. If you are an Indian investor and have got answers to the question, “what is Dow Jones”, you may just be ready to take a leap and invest in the American stock market. In the dynamic financial world we live in today, an investor like you may just hear a question like, “What was the performance like in the markets today?”. When American investors speak like this, they are usually talking about the DJIA. It is the index that is most used, and even more sought-after than the S&P 500 index, tracking some 500 stocks. When compared with the NASDAQ Composite, the DJIA is, again, the preferred index. 

Why is the DJIA so popular?

The S&P Dow Jones Indices LLC purchased the DJIA and other indices in 2012. As an investor, you should know that the DJIA is responsible for grouping prices of the 30 main traded stocks which are part of the NYSE, the New York Stock Exchange, as well as the NASDAQ. In the words of investors themselves, it is the index that helps to determine the general direction of prices of stocks. Some of the most well-known and successful companies make up the index, and they include famous names like: 

  • Intel Corp.
  • Honeywell International Inc.
  • Cisco Systems
  • Apple Inc.
  • Boeing Co.
  • Amgen
  • Coca-Cola Co.
  • JP Morgan Chase & Co.
  • Microsoft Corp.
  • Visa Inc.
  • Nike Inc.
  • Walmart
  • Walt Disney Co.
  • Procter & Gamble Co.
  • McDonald's Corp.

Fifteen top companies are listed above, and there are 15 more, but the companies above show you a mix of sectors and this is what makes the DJIA appealing. There is a blend that is balanced enough to indicate the state of their markets and other economic aspects of the nation at large. 

The Way to Investment

As you may well know, you can open a demat account easily and start your investment in the stock markets. You can also have a diversified portfolio with other investment instruments and ways to invest like mutual funds or a subscription to any upcoming IPO. 

With the depreciation of the rupee, you can make certain gains out of stock investment overseas, and this is where stocks on an index give investors valuable information. In your investment portfolio, if you want real diversification and stability, exposure to the US markets could be your ticket to gains. Besides this, the correlation between Indian markets and US markets has been in the range of 0.1-0.2 in the past two decades. For investors, this is vital as the lower the correlation, the better the diversification and balance in a portfolio. 

 

 

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