Let's Get Started - The Dow Jones Industrial Average

I have to begin with a sincere apology to my readers.  I know that it has been quite some time since I posted to this blog, and I am sorry for the lag in posting.  That's enough of that.  I won't let it happen again.  

Well, as I said in the very first post, this blog is dedicated to financial education.  So, let's get started, shall we?  This post is dedicated to the Dow Jones Industrial Average (DJIA), or Dow, for short. So what is the Dow?  Well, anytime you hear someone refer to the markets in a broad sense, they are probably talking about the Dow.  While there are several other "markets," or "averages," the general public typically refers to the Dow as "The Market." 

The Dow Jones Industrial Average was created by Charles Dow in 1896, and is the oldest and most watched index in the world.  The DJIA is a price-weighted average of 30 large corporations across several different industries, and serves as pretty accurate indicator of how the broad markets are doing.  The companies represented range from ExxonMobil to Verizon, Bank of America to Wal-Mart, and AT&T to United Technologies.  Want more?  The entire list can be found at http://www.djindexes.com.

How is it calculated?  Quite simply, actually.  The Dow Jones Industrial Average is calculated by adding the stock prices of each of its components (Bank of America, ExxonMobil, etc.), and dividing that number by the price-adjusted divisor, published by the Dow.  For example, the total price of stocks in the DJIA today of $1,447.27 divided by 0.122834016 (DJIA divisor), equals today's DJIA of 11,782.35.  Easy, huh? 

I challenge you to come back in 2 weeks and calculate it yourself using the components found at the Dow's website, listed above.  You can use the divisor I used for your calculation.  You want to impress someone?   Start off by telling them you know how to calculate the Dow Jones Industrial Average.