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Dow Jones Industrial Average
By: Craig Tesch
The oldest stock market index, the Dow Jones Industrial Average (DJIA), was
started on May 26, 1896 by financial reporter Charles Dow. At its inception, the
DJIA started with just 12 stocks and was priced at 40.94, far from today’s
levels. The index is calculated officially on a price-weighted basis. In other
words, stocks with higher prices are given a greater weighting in the index than
lower-priced stocks (regardless of each company's actual size).
The Dow tracks 30 of the largest public companies in the stock market and is the
most frequently quoted index when discussing how the market is doing. When the
media reports on how the market fared you'll likely see them report on the
closing price and daily change of the Dow. It has survived as a gauge of market
activity for over a century and is found to be highly correlated to more diverse
indices like the S&P 500.
The companies within the Dow Jones have changed during its existence. The only
original company from 1896 is General Electric. Changes occur for reasons such
as mergers and bankruptcy and some are done to reflect changing times. The index
broke tradition and added leading technology names Microsoft and Intel in 1999.
The Dow doesn’t reflect industrial activity adequately as it includes companies
such as Citigroup, Home Depot, Walt Disney, and Microsoft.
The list below shows each of the eleven 1,000 point DJIA milestones and how long
it took to reach that point.
Milestone – Date – How Long It Took
1,000 – Nov 14, 1972 – 76 years
2,000 – Jan 08, 1987 – 14 years
3,000 – Apr 17, 1991 – 4 years
4,000 – Feb 23, 1995 – 4 years
5,000 – Nov 21, 1995 – 9 months
6,000 – Oct 14, 1996 – 11 months
7,000 – Feb 13, 1997 – 4 months
8,000 – Jul 16, 1997 – 5 months
9,000 – Apr 6, 1998 – 9 months
10,000 – Mar 29, 1999 – 12 months
11,000 – May 3, 1999 – 1 month
The Dow took 76 years to hit its first milestone but it took less time to reach
the next ones because the higher the Dow, the easier it is to jump 1,000 points.
Most of the milestones occurred during the 1982-1999 bull market.
Some argue that the Dow is outdated and does not truly represent the overall
market because it is price weighted and only contains 30 companies. When the Dow
reached the 11,000 point milestone in 1999 the majority of non-index companies
exhibited declining or lackluster stock price movement. Many money managers and
financial advisors prefer to use the S&P 500 because it tracks the 500 largest
companies measured by market value.
About the Author:
You may freely reprint this article provided the following author's biography
(including the live URL link) remains intact: Craig Tesch is the founder of
X-investing, a free resource guide to investing and personal finance at
www.xinvesting.com
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