The Dow Jones Industrial Average (DJIA), also referred to as the Industrial Average, the Dow

Jones, theDow 30, or simply the Dow, is a stock market index, and one of several indices created
by Wall Street Journaleditor and Dow Jones & Company co-founder Charles Dow. It is now owned by
the CME Group, who is the majority owner of Dow Jones Indexes. The average is named after Dow
and one of his business associates, statisticianEdward Jones. It is an index that shows how 30 large,
publicly owned companies based in the United States have traded during a standard trading session
in the stock market.[1] It is the second oldest U.S. market index after theDow Jones Transportation
Average, which was also created by Dow.
The Industrial portion of the name is largely historical, as many of the modern 30 components have
little or nothing to do with traditional heavy industry. The average is price-weighted, and to
compensate for the effects of stock splits and other adjustments, it is currently a scaled average. The
value of the Dow is not the actual average of the prices of its component stocks, but rather the sum of
the component prices divided by a divisor, which changes whenever one of the component stocks has
a stock split or stock dividend, so as to generate a consistent value for the index.
Along with the NASDAQ Composite, the S&P 500 Index, and the Russell 2000 Index, the Dow is
among the most closely watched benchmark indices tracking targeted stock market activity. Although
Dow compiled the index to gauge the performance of the industrial sector within the American
economy, the index's performance continues to be influenced by not only corporate and economic
reports, but also by domestic and foreign political events such as war and terrorism, as well as by
natural disasters that could potentially lead to economic harm. Components of the Dow trade on both
the NASDAQ OMX and the NYSE Euronext, two of the largest stock market companies.Derivatives of
the Dow trade on the Chicago Board Options Exchange and through CME Group, the world's
largestfutures exchange company, which owns 90% of the indexing business founded by Dow Jones,
including the Industrial Average.[2][3]
The Dow Jones Industrial Average was founded by Charles Dow on May 26, 1896, and represented
the dollar average of 12 stocks from leading American industries. Previously in 1884, Mr. Dow had
composed an initial stock average called the Dow Jones Averages, which contained nine railroads
and two industrial companies that appeared in the Customer's Afternoon Letter, a daily two-page
financial news bulletin which was the precursor to The Wall Street Journal. Of the original 12 stocks
forming the Dow Jones Industrial Average compiled later in 1896, no longer railroad stocks, but purely
industrial stocks, only General Electric is currently part of that index.
Financial crisis
On September 15, 2008, a wider financial crisis became evident when Lehman Brothers filed for
Chapter 11 bankruptcy along with the economic effect of record high oil prices which reached almost
$150 per barrel two months earlier. The DJIA lost more than 500 points for only the sixth time in
history, returning to its mid-July lows below the 11,000 level. A series of "bailout" packages, including
the Emergency Economic Stabilization Act of 2008, proposed and implemented by the Federal
Reserve and U.S. Treasury, as well as FDIC-sponsored bank mergers, did not prevent further losses.
After two months of extreme volatility during which the Dow experienced its largest one day point loss,
largest daily point gain, and largest intra-day range (more than 1,000 points), the index closed at a
new twelve-year low of 6,547.05 on March 9, 2009 (after an intra-day low of 6,469.95[17] during the
March 6 session), its lowest close since April 1997, and had lost 20% of its value in only six weeks.
Towards the latter half of 2009, the average rallied towards the 10,000 level amid optimism that
the Late-2000s Recession, the United States Housing Bubble and the Global Financial Crisis of
2008–2009, were easing and possibly coming to an end. For the decade, the Dow saw a rather
substantial pullback for a negative return from the 11,497 level to 10,428, a loss of a little over 9%.
During the early part of the 2010s, the Dow made a fairly notable rally attempt in the face of growing
global concerns such as the 2010 European sovereign debt crisis and the Dubai debt crisis. Although
for the most part just a political event, the Dow closed at the 10,785.89 level on March 22, 2010
following the passage of the landmark Patient Protection and Affordable Care Act in Washington. On
May 6, 2010, just after 2:30 pm EDT, the Dow Jones Industrial Average plunged by 998.50 points, an
intra-day loss of 9.2%. The event later became known as the 2010 Flash Crash or the "Flash Crash".
[18]
Although there was an immediate recovery, it was the biggest intra-day fall ever. This would have
put the trading day as the fifth-worst market sell-off on a percentage basis as well. The Dow bottomed
out at 9,869, and then recovered quickly, eventually ending at 10,520.32, a loss of 347.80 points or
3.2%.[18] On November 5, 2010, the Dow would settle at the 11,444.08 level, its highest close since
September 2008.
Calculation
To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a Divisor, the Dow Divisor.
The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that
such events do not in themselves alter the numerical value of the DJIA. Early on, the initial divisor was
composed of the original number of component companies; which made the DJIA at first, a
simple arithmetic average. The present divisor, after many adjustments, is less than one (meaning the
index is larger than the sum of the prices of the components). That is:

where p are the prices of the component stocks and d is the Dow Divisor.
Events like stock splits or changes in the list of the companies composing the index alter
the sum of the component prices. In these cases, in order to avoid discontinuity in the index, the
Dow Divisor is updated so that the quotations right before and after the event coincide:

The Dow Divisor is currently 0.132319125.[21][22] Presently, every $1 change in price in a

particular stock within the average, equates to a 7.56 (1/0.132319125) point movement.
Assessment
With the current inclusion of just 30 stocks, critics like Ric Edelman argue that the DJIA is not a very
accurate representation of overall market performance. Still, it is the most cited and most widely
recognized of the stock market indices.[23][24] Additionally, the DJIA is criticized for being a price-
weighted average, which gives higher-priced stocks more influence over the average than their lower-
priced counterparts, but takes no account of the relative industry size or market capitalization of the
components. For example, a $1 increase in a lower-priced stock can be negated by a $1 decrease in
a much higher-priced stock, even though the lower-priced stock experienced a
larger percentage change. In addition, a $1 move in the smallest component of the DJIA has the
same effect as a $1 move in the largest component of the average. The Dow would see the negative
effects of this price weighted average during September–October 2008 with a former component AIG.
Before its reverse-split adjusted stock price change, the stock collapsed from $22.76 on September 8
to $1.35 on October 27; contributing to sending the Dow down roughly 3,000 points.[25]
As of November 2010, IBM and 3M are among the highest priced stocks in the average and therefore
have the greatest influence on it. Alternatively, Bank of America and Alcoa are among the lowest
priced stocks in the average and have the least amount of sway in the price movement. Many critics
of the DJIA recommend the float-adjusted market-value weightedS&P 500 or the Wilshire 5000, the
latter of which includes all U.S. equity securities, as better indicators of the U.S. stock market.
==========
What is the Dow Jones?
Before I go over the Dow Jones history, its important to know what the Dow Jones is.
The Dow Jones is a stock market index. Currently it is calculated from the stock prices of
30 large US companies. It is actually a complex equation because of repeated stock
splits. It is not the sum of the prices of each of those 30 companies.
What is the history of the Dow Jones?
The Dow Jones history goes way back into the 1800's. The Dow Jones Industrial Average
was founded on May 26, 1896. At the time it only represented 12 stocks. Of those
original 12 only one, General Electric, is still around. By 1928 the number of stocks
increased to 20. By 1928 the number of stocks hit 30.
During the Great Depression the Dow was reduced to 90% of its 1929 peak on July 8,
1932. Not coincidentally, the largest one-day percentage gain of 15% happened soon
after the 90% big drop on March 15, 1933. However, the 1930s was a terrible decade as
the Dow Jones industrial average was cut in half from the beginning to the end of the
decade.
As can be expected after great declines in the Dow Jones history, soon came the great
increases in the 1940s and 1950s. The Dow went from about 40 in 1932 to 616 in the
1950s. The Dow continued to increase into the 1960s and ended the 1960s at about
800. The enthusiasm took the Dow in the early 1970s above the 1000 mark. Thats a
growth of about 25 times your money over 40 years or 8.4% compounded annual
growth rate. That doesn't include dividends - which were about 4-5%.
But the cycle continued with the stagnant market of the 1970s. There was a big crash in
1973 and 1974 where the Dow lost about half its value. For the whole decade the Dow
only rose from 800 to 838.
The 80s saw large gains in the Dow -- despite Black Monday on October 19, 1987, where
the Dow fell 22.61% in one day. The overall increase from the beginning to end of the
90's was 838 to 2,753.
The 90s were even better for the Dow as it reached the 11,000s -- more than tripling the
Dow for the decade. But, as we all know, that just set the Dow up for large losses.
By the end of the week after the September 11 attacks the Dow had fallen 14%. The
Dow eventually bottomed out in 2002 at about 7200 -- its lowest since 1997. By 2006
the Dow was roaring again above 11,000 and by 2007 it was above 14,000. But, the
Dow Jones dropped to 6500 in 2009 -- its lowest since 1997.
What does the Dow Jones history teach us?
There will be ups and downs that will last for years. Do not panic when there is a
protracted downfall. It will rise again even if it takes 10 to 15 years. As long as you put
your money into the stock market for the long run you will be okay. Do not get too
excited when the Dow rises significantly. If you buy more than what you planned when
the stock market peaks, you will regret it.
Regardless of what the Dow is doing continue on your investing plan. Do not increase or
decrease your holdings or investment rate based upon the recent movements of the
market.
Don't think you can predict what the market will do based upon current world conditions
or history. No one knows what the market will do in the short-term and anyone who tells
you they do is either lying or ignorant. If the best investor in the world, Warren Buffett,
doesn't think he or anyone can predict the short-term stock market movements, then
what are the chances you can too? Don't try to time the market because you will lose
more often than not. It's exciting to think that you might actually pick what will happen.
And you might even be right from time to time. But, if you're investing for you and your
family's future, then the boring investing decisions will be the right ones.
History of the Dow Jones Industrial Average
From a niche news agency in an obscure Wall Street basement to a global news and business-
information leader, the vision at Dow Jones & Company has been consistent and defining for more
than a century. Excellence, integrity and innovation are the qualities which started the company in
1882, which sustained its growth in the 20th Century and which guide its progress as it pioneers
new approaches to business and journalism in the digital age.
1882-1902 – Founders and Foundation
The foundation for success is laid by Charles Dow, Edward Jones and Charles Bergstresser who over
two decades conceive and commence three products which define Dow Jones and financial
journalism: The Wall Street Journal, Dow Jones Newswires and the Dow Jones Industrial Average.
The founders state their commitment to excellence in the Journal’s first issue: “We appreciate the
confidence reposed in our work. We mean to make it better.”
1882
Dow, Jones & Company’s first product is brief news bulletins hand-delivered throughout the day to
traders at the stock exchange. Those “flimsies” as they are called later are aggregated in a printed
daily summary called the “Customer’s Afternoon Letter.”
1889
The first edition of The Wall Street Journal is published July 8. An afternoon newspaper, it covers
four pages and sells for two cents.
1896
The Dow Jones Industrial Average is officially launched.
1897
The Ticker, the real-time newswire and the fundamental source for news in the investment
community, is announced.
1898
The Journal, now six pages, adds a morning edition.
1899
The Journal’s “Review & Outlook” column, which still runs in the Journal today, appears for the
first time. It initially was written by Charles Dow.
1902 – 1941 – Professionals and Progress
Dow Jones is acquired in 1902 by the leading financial journalist of the day, Clarence Barron. Over
the next 30 years, Barron recruits and develops a generation of journalists who further Dow Jones’s
reputation for excellence. Those journalists would lead the company successfully through the Great
Depression and into a new era of prosperity and progress.
1921
Barron’s, America’s premier financial weekly, is founded; its first editor is Clarence Barron.
1926
A motor-driven version of the “Ticker” – a key innovation in the delivery of real-time news – was
developed by the Dow Jones engineering department.
1929
The first issue of the Pacific Coast Edition of the Journal rolls off the presses on Oct. 21, eight days
before the great stock-market crash.
1930
Dow Jones is incorporated in New York. It is now known as Dow Jones & Company after the comma
is dropped from the former Dow, Jones & Company.
1934
Afternoon edition of the Journal ceases.
Chief Executive Officer Casey Hogate begins a series of changes during the next decade that
ultimately result in the metamorphosis of the Journal into a new kind of daily newspaper. One of
these changes is advent of the “What’s News” column. Created by Bernard “Barney” Kilgore, that
column was the first major summary of the news, a precursor to omnipresent summaries and
digests on the Internet today.
1941-1967 – The Journal’s Genius
Barney Kilgore takes over as managing editor of the Journal in 1941 and as CEO of Dow Jones in
1945, setting the company on a new and revolutionary course. In print, Dow Jones isn’t satisfied
reporting “what happened”; our publications redefine journalism to include “what it means.” In
business, the Journal would harness new technologies such as microwaves to open new markets to
readers in distant cities.
1947
The Journal wins its first Pulitzer Prize for editorials by William Henry Grimes.
1948
The Journal launches a Southwest edition
1950
The Journal launches a Midwest edition
1953
When the New York Stock Exchange cancels its Saturday trading session, the Journal ceases
publication of a Saturday edition
1962
Making innovative use of microwave technology, Dow Jones is able to reproduce newspaper pages
by facsimile over long distances – a vital step toward a truly national newspaper
1966
Now with regional editions spanning the U.S., the Journal counts more than one million subscribers
for the first time.
1967–2007 – Innovation and Globalization
Innovation would define Dow Jones in the 40 years after Kilgore’s death in 1967 as the news moved
into space and online. Dow Jones pioneered the use of satellites to transmit newspaper pages and
make possible a daily newspaper on truly national scale. A decade before the Internet, Dow Jones
was storing and coding its news digitally so that it could be accessed online. Factiva’s content and
technology tools set the standard for innovation and quality in the news and information industry.
The Journal, Newswires and Dow Jones Indexes built successful franchises in Europe and Asia.
1967
Dow Jones Newswires begins a major expansion outside the U.S. that ultimately puts journalists in
every major financial center in Europe, Asia, Latin America, Australia and Africa.
1970
Dow Jones buys the Ottaway newspaper chain, which at the time comprised nine dailies and three
Sunday newspapers.
1971
A joint venture with Bunker Ramo is the advent of electronic delivery of news from Dow Jones
Newswires in an age before personal computers. It would also mark the company’s pioneering
efforts to store news and information electronically, a business that would evolve into Factiva.
1976
The Asian Wall Street Journal is launched.
1983
The Wall Street Journal Europe is launched.
1995
The initial version of the WSJ.com appears online. Content won’t be all that distinguishes the
Journal on the Web. Dow Jones insists that its differentiated content is worth paying for and thus
built the Internet’s most successful paid news Web site.
1997
The Dow Jones Industrial Average is licensed for the first time, setting in motion a successful new
business called Dow Jones Indexes.
2005
MarketWatch is acquired, adding a key component to what will become the Wall Street Journal
Digital Network
The Journal resumes publication on Saturday with the debut of Weekend Edition.
2006
Factiva is acquired, extending the suite of business-to-business products in what later will become
the Dow Jones Enterprise Media Group.
2007
Dow Jones is acquired by News Corp., the world’s most global media company.
Les Hinton takes over as chief executive. Robert Thomson becomes editor-in-chief and later
managing editor of the Journal.
2007 and beyond – Something Bigger
News Corp. acquires Dow Jones in December 2007, and the horizons expand again. Now part of a
global media company which includes Fox, SKY, HarperCollins and newspapers from London to
Sydney, Dow Jones reinvents the Journal for a new era of news. Now the Journal covers more
political and general news along with its leading business coverage. Fresh investment delivers new
game-changing business intelligence tools as well as new markets in Europe and Asia. At a time
when other media companies are retrenching, Dow Jones is moving aggressively to build on the
success of the past and to capture the opportunity of the future.
2008
The Journal is reconceived as a more complete source of news with expanded coverage of national
and international events as well as more opinion, culture and sports.
Audiences expand. In addition to growth in paid circulation at the Journal, there are new local
language products from Newswires in Spanish, Dutch and Arabic. Newswires also expands
significantly in India.
Dow Jones Indexes launches the Global Dow, a global version of the Dow Jones Industrial Average
aggregating 150 blue-chip stocks from around the world.
WSJ., the Journal’s glossy lifestyle magazine debuts world-wide.
2009
Ottaway Newspapers Inc. is renamed the Dow Jones Local Media Group.
The company moves its headquarters to midtown Manhattan where at 1211 Avenue of the Americas
it joins its sister companies at News Corp. under one roof.