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A Yahoo! search on Dow Jones Industrial Average turned up some promising results. We chose to go straight to the source with the official Dow Jones Industrial Average site. We poked around the site and picked up some background and interesting facts. The Dow Jones Industrial Average (DJIA), was introduced on May 26, 1896 by Charles H. Dow. At the time, "stocks moved on dubious tips and scurrilous gossip because solid information was hard to come by." Dow decided to develop a benchmark to gauge the state of the market. He likened his industrial average to "placing sticks in the beach sand to determine, wave after successive wave, whether the
tide was coming in or going out." Originally, the DJIA was easy to calculate (computers didn't exist back then, so pen and paper was used for all computations). The original DJIA was, quite simply, the average price of 12 stocks hand-picked by Dow. Things are a bit more complicated today. On the DJIA official site, we uncovered a list of the current 30 blue-chip U.S. stocks picked by the editors of The Wall Street Journal to calculate the DJIA. The stocks prices are weighted, meaning that larger, more-influential companies carry more weight in the calculation. To add another wrinkle to the formula, the stock prices are also adjusted
for splits. A pen and paper probably wouldn't suffice these days. Remember, there is nothing magical about the DJIA. Although it is the oldest market indicator, it doesn't predict the future of the stock market or the U.S. economy. As the site so humbly stated, indices such as the DJIA "are doing their job if they accurately reflect where the market has been."
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