What does the Dow Jones avg. Mean? I.E. The Dow Jones closed at 12000. What does this actually mean?

Question

I would like to know what the actual number actually represents. Is it a number culminated from a percentage of the number of stocks traded, is it generated by the price and volume of stocks? Some sort of generic exlanation (in laymans terms) would be greatly appreciated. Thank you...

Answer 1

It's one of several stock market indices created by Wall Street Journal editor and Dow Jones & Company founder Charles Dow in 1896. Dow compiled the index as a way to gauge the performance of the industrial component of America's stock markets. It is the oldest continuing U.S. market index.

Today, the average consists of 30 of the largest and most widely held public companies in the United States. The "industrial" portion of the name is largely historical — many of the 30 modern components have little to do with heavy industry. To compensate for the effects of stock splits and other adjustments, it is currently a scaled average, not the actual average of the prices of its component stocks — the actual average of prices is multiplied by a scale factor, which changes over time, to generate the value of the index.

For actual calculations, visit:

http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average#Calculation

Answer 2

You might check wikipedia to double check this, but I think the Dow is composed of the price per share of the constitient companies of the Dow, adjusted for stock splits since the index was created, and the fact that new companies periodically replace old ones. Probably the easiest way to think of this is that a basket of the 40 stocks in the dow purchased when the index was created and updated with new stocks would now be worth about 12k. I think that's how it works. However I'd recommend looking in up.