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What is the Dow Jones Industrial Average?

What is the Dow Jones Industrial Average?

What is the Dow Jones Industrial Average? There are many names for it but its official name is Dow Jones Industrial Average. But if you wanna kinda sound hip. If you want to be like one of the cool kids, then you just call The Dow Jones.

What is the Dow Jones?

So what exactly is the Dow Jones? Well, Dow Jones is essentially the stock market. And where did all of this come from? Well, a quick, quick, quick history lesson. Charles Dow and then his business partner Edward Jones.

Have you ever heard of Edward Jones the investment advisory? But I actually learned about that. I didn't aware that was the connection. But Charles Dow and then Edward Jones, they were business partners. They combined to do all of this.

And it all happened in 1896. So, as I said. There we go. There's your history lesson. This all started in 1896 and again this is basically if somebody's talking about the stock market, they're more than likely talking about the Dow Jones, which again, is the Dow Jones Industrial Average.

So, stock market for the most part if people are talking about that, they are talking about the Dow Jones, and then as we just discussed, the Dow Jones is its official name up there. So what actually is this? Well, what's the purpose of it? It's a way to pretty much gauge the health, or lack thereof of an entire economy.

So if the stock market, if the Dow Jones is doing well, then from a general now there's definitely nooks and crannies to all of this, but from a general framework perspective, that implies, then that, the country's economy is doing well.

Now if the Dow Jones, if the stock market. The stock market, the Dow Jones, doing so bad. That would imply that the economy is just doing badly as a whole. Now, what actually makes up the Dow Jones? Well, there are 30 companies that go into making this up.

So again, we'll call it just the Dow. And these 30 companies are companies that you've heard of.

I'm not gonna list them all. But Nike's in it. And just pretty much Procter And Gamble, so that doesn't mean much, but have you ever used deodorant, shampoo, stuff like that, that's Procter And Gamble.

Just big, ExxonMobil, you know, the gas company. Lots of big-name companies that you've heard of, they are making this up, and the reason they're using big name companies was that the logic goes well, those big companies, if they're all doing well, well then as a whole, the Dow Jones is gonna do well which would then reflect and make it at least make sense. Okay, the overall economy is doing well.

So you have 30 companies. Now the one thing to know with this is these 30 companies, so right here, these are not always the same companies.

These can change. So over time, these companies have the different ones that have come in and gone. Off the top of my head, one of the most companies that were taken out of the Dow Jones was General Electric. General Electric has really gone through a rough patch and as of the recording of this video is still going through a rough patch. So they were taken out and I think Walgreens replaced them.

And think about it, Walgreens, they're like on the corner of every street out there, it seems like. So again, a big company, and it's logical to think well if Walgreens is doing well, then the economy as a whole is probably doing well. If Walgreens is doing very, very poorly, maybe the economy isn't doing so well. But that is how those 30 companies are made up. They can change so it's not always the 30.

And for the most part they stay the same. But over time, companies drop out, and new companies are added back in.

Now as far as, how does this calculation work? How does the number? So a lot of people say, well, what did the Dow Jones do today?

What did the markets do today? the markets were down 100 points. Most times they're referring to the Dow Jones was down 100 points. But how was that calculation all made? Well, I'm not gonna get into the nooks and crannies and go through every single calculation, but just understand this is probably I think the easiest way to look at it.

So the higher value a company has, or in other words, the bigger a company is, so Clay's little lemonade stand on the corner versus Apple, you know Apple is much more valuable than my little lemonade stand, right? They're gonna have much more effect on things. 'Cause, they're a much bigger company. So the higher value means the higher influence. Meaning if one of the highest value companies of the 30 has a really, really good day, then the Dow Jones as a whole is gonna have a good day.

Whereas let's say that maybe the top five really biggest ones of the day did terrible, terrible, terrible, but they were still the five biggest, even though the 25 other companies may have still done well, it's still possible for the Dow Jones have actually shown a day that lost some the market as a whole was down. So that's how it reflects. It's just the higher the value, the bigger the company is, the higher influence it has on the number that the Dow Jones is giving you.

And again this number is just based on all these companies' values put together. But at the core, like I said, as far as the top-down general framework, just understand that the higher value companies have a higher influence on that Dow Jones number.

So that is what this is. The Dow Jones is just the stock market. And the stock market is just a way to give a broad sense of the health of an economy or if the economy is struggling, you would expect the stock market to also be struggling. That's not a perfect correlation but that's like I said, the general premise of how this all works and 30 companies in the Dow, they can always be changing, and the higher value companies, the bigger companies, are gonna affect the Dow Jones the most each and every day. So that is how it works and that is what the Dow Jones is and what people are referring to when they talk about the stock market and whether or not, you know, the stock market had a rough day today.

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