I saw today that the "average" was up 100+ points. Do they literally just take all the + and - points and average them out? Sorry if this seems like a silly question, but I've just started looking into the market and it just seems so basic for something I've always thought was so complicated LOL!
2006-07-19 14:30:48 · 5 answers · asked by tagi_65 5 in Business & Finance ➔ Investing
Each company is not equal in terms of a stock going up or down say $1.
Let's use small numbers to make it easy. Say GE (General Electric -a monster-sized co.) has 1000 shares that are "out" there owned by anyone. And Bank of America has 500 shares "outstanding" and owned by anyone.
If they were both to go up $1 then 'essentially' GE is worth $1000 more and BofA is worth $500 more.
That's why "bell-weather" stocks make a greater impact on the Dow Jones because there are in some cases billions of shares "outstanding" in those companies which means that a $1 move in the stock causes billions of dollars to be lost or gained.
Each company has a "weighted" value in proportion to its size and then that is multiplied by the price movement which is then added up to give you the Dow Jones Index.
2006-07-19 14:49:56 · answer #1 · answered by Dirtt 3 · 1⤊ 0⤋
The original Dow Jones average was literally that -- an average of several stocks. The current average uses 30 stocks. If they were to start the index now, you could get the average by just adding the prices together and dividing by 30.
However, you then have to think about what happens when there is a dividend paid or a stock split. Someone replicating the index would take the extra money & spread it out so the same number of shares of each stock is owned. For this reason, whenever there is a stock split or dividend payment, Dow Jones changes the divisor.
This leads to some problems Stocks with higher prices have a bigger effect on the index than stocks with small prices. The S&P 500 uses a different rule -- they weight the prices by the number of shares outstanding -- so larger companies have more of an effect.
2006-07-19 15:42:23 · answer #2 · answered by Ranto 7 · 0⤊ 0⤋
No offense but you are both completely wrong. First to calculate the change in the DOW, it IS actually the average of all the +,- of all the stocks that day. However, u don't divide by 30 but by a number that is closer to .14. The DOW is also not a market weighted index, it is a price weighted index. The S&P 500 is a market weighted index.
2006-07-19 15:14:45 · answer #3 · answered by The Time 2 · 0⤊ 0⤋
The DOW points are are a weighted average of 30 Blue Chip stocks.
2006-07-19 15:44:09 · answer #4 · answered by Common Sense 7 · 0⤊ 0⤋
I'm sorry but markets ARE complicated. Dow Jones Industrial Average (DJIA) is not calculated by taking + and - (not sure what that means actually). Rather, it is calculated by using traded prices of 30 blue-chip U.S. stocks. The stocks prices are weighted, meaning that larger, more influential companies carry more weight in the calculation. In addition, the stock prices are also adjusted for splits.
You can find a history behind DJIA index here:
http://va.essortment.com/whatisthedo_rteo.htm
2006-07-19 14:49:09 · answer #5 · answered by BOPOHA 2 · 0⤊ 0⤋