What Is The Dow Jones Industrial Average – (DJIA)

The question in the mind of many has been What Is The Dow Jones Industrial Average? Yes! We will get you all the facts you will be needing as it concerns Dow.

What Is The Dow Jones Industrial Average

The DJIA is probably the most followed stock market index in the world. Although most people don’t know that it just represents 30 companies.What Is The Dow Jones Industrial Average

The birth of the Dow Jones Industrial Average

The DJIA was announced on the 26th of May 1896. Meanwhile, The Dow was created by Charles H. Dow who was one of the founders of Dow Jones & company. It was formed in 1882.

In 1884 Dow’s first index was introduced and it comprises about 11 transport-related stocks. He later modified the index and renamed it the Dow Jones Rail Average. In other words, the company was later updated to Dow Jones Transport average in 1970.

He (Dow) then finds out that other industrial companies are of more relevance than railroads. After the discovery, he then created a new index of stocks comprising of 12 companies and the index was called Dow Jones Industrial Average A.K.A DJIA.

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The index consisted of some companies that were focused on sugar, gas, cotton, and tobacco.

Dow added the stock price of the companies and divided it by the number of companies in the DJIA to get the index figure.

The first 12 Dow Jones Stocks

The original twelve include stocks in the DJIA includes

  • American sugar company
  • General Electric
  • American tobacco company
  • American cotton company
  • Also, Chicago gas company
  • Laclede Gas company
  • Distilled and cattle feeding company
  • National lead company
  • Also, North American utility company
  • Tennessee Coal and iron
  • S. leather company
  • LAstly, S. rubber company

However, These were the major 12 as at that time.  Meanwhile, some were later replaced by other companies. It has to be so to keep the system useful and up to date.

Changes over time

In 1916 the Dow Jones Industrial Average was upgraded from 12 to 20 stock but by 1928 it got to 30. And this has been the standard to date. Little wonder while Dow is still the biggest and most loved Stock marketplace.

What’s More? There are no direct steps to be included. In other words, just a set of broad guidelines that require large, respected, substantial enterprises that represent a significant portion of the economic activity in the United States.

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Which companies are In the Dow today?

Some companies like Amgen, Honeywell, and Salesforce were included in this list on the 31st of August 2020.

The 30 Dow companies include:

  • 3M
  • American Express
  • Amgen
  • Apple
  • Boeing
  • Caterpillar
  • Chevron
  • Cisco Systems
  • Coca-Cola
  • Dow
  • Goldman Sachs Group
  • Home Depot
  • Also, Honeywell International
  • IBM
  • Also, Intel Corporation
  • Johnson & Johnson
  • Also, JPMorgan Chase
  • McDonald’s
  • Merck
  • Microsoft
  • Nike
  • Procter & Gamble
  • Salesforce.com
  • The Travelers Companies
  • UnitedHealth Group Inc
  • Also, Verizon
  • Also, Visa
  • Walgreen’s
  • Walmart
  • Lastly, Walt Disney

Criticism of DJIA

One of the major flaws was concerning Dows calculation. For instance, a stock with a $100 share cost would have multiple times the impact on the DJIA as one with a $20 share cost. This is regardless of whether the last organization had a market cap that was 10 times as large.

This is one of the reasons why a company such as Berkshire Hathaway (BRK/A), which regularly trades at over $250,000 per share, couldn’t be included in the Dow without any form of modification in the formula.  That is to say, it would instantly represent the entire index.

Bottom line

In brief, The Dow Jones has evolved over the past 100 years and will keep evolving as the economy also evolves.

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To this end, Understanding the DIJA will help you understand more things in the financial system.

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