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What do people mean when they talk about the “Dow Jones”? Why is it significant?

The Dow Jones Industrial Average (DJIA) is the most famous of what are known as stock market averages.

It is designed to measure trends in the stock market, by calculating the average price of stocks in a certain sector, and then tracking that average over time, The Dow Jones index was created in 1896 by Charles Dow. It began simply enough, with only 11 companies making up the list. The stock prices of each of the eleven companies were simply added together and then divided by 11 to arrive at an average. Over the years, more large, blue chip companies were added to the original 11 and today’s total is 30. It is no longer a simple divisor, however, since allowances had to be made for stock splits and other changes. Effective November 1, 1999, the divisor became 0.20435952. You’d use that fraction to divide the combined price of the 30 stocks. That would give you the Dow’s level. The DJIA companies include Coca-Cola, Microsoft and General Motors. “Spin-offs” of the DJIA have been created, including the Dow Jones Transportation Average. The Wall Street Journal lists all the stocks included in the Dow Jones Averages each Monday. While the DJIA has existed as a reliable measure for many years, it includes only 30 companies. The S & P (Standard & Poor’s) 500 is beginning to be seen as a truer benchmark of U.S. stock market trends.