Dow Jones Industrial Average
The Dow Jones Industrial average is heading for a imminent change with the expected bankruptcy filing of auto giant General Motors. With the falling out of the once legendary blue chip stock, many of my clients have inquired to how companies get listed on the Dow Jones Industrial Average and when are they replaced. I thought I would give a brief background on the origin of the Dow Jones, with the current holdings as well as what it takes to be listed.
What is the Dow Jones?
It never fails that everyday I get the question, “How did the market do?” or “How’s the market doing?”. The market that everybody is always referring to is the Dow Jones Industrial Average. The Dow (for short) was founded May 26, 1896 initially only having 12 companies from important American industries (hence: “Industrial” average). The Dow currently reflects the top 30 U.S. Companies across it’s various industries. To compute the Dow that you hear about each day, a lengthy geometric formula is used that takes the price-weighted stock price of each company and divides by the “DJIA divisor”. The divisor is a number that is constantly adjust to reflect stock splits, mergers, and dividend payments. […]
