The DJIA
The DJIA
It is not uncommon for many of us to hear from the business news that the stock market went up or down by so and so points. Usually, if you are not interested in stocks or doesn’t know much about how the stock market or the economy works you brush such news tidbit aside and wait for more important, more interesting news. Such attitude cannot be tolerated if you are really interested in investing in stocks. To truly understand how the stock market works, it is vital to learn about the DJIA or the Dow Jones Industrial Average. The DJIA is a system that has been devised to monitor and gauge how the stock market is doing. But we before we talk about the DJIA and the blue chip stocks, let us first talk about how the DJIA came about.
The DJIA is probably one of the most popular and widely used averages to describe the stock market. It was actually Charles Dow who thought of using various averages to monitor how the stock market is doing. Way back then, when the industrial sector was just booming and railroads were just being constructed, the name of the average was the Dow Jones Transportation Average. Due to the changing times, the name was later changed to what it is today: the Dow Jones Industrial Average. The DJIA is presently managed by the Dow Jones Company. You may still be wondering how the DJIA can actually measure the movement of the stock market.
DJIA actually measures the stock market in the same manner as surveys can measure public opinion or trends in the population. Like the usual surveys, which do not go asking every citizen what they think of the country, the DJIA also does not look into all the public traded companies that are out in the stock market. Instead, the DJIA uses representative companies to measure the pulse of the whole stock market. Like in surveys where only a random few or a carefully selected group are being asked and interviewed, the DJIA selected only thirty corporations to represent the whole stock market. These thirty corporations are from different sectors and varying industries. For example, the companies of Microsoft and IBM, among others, represent the technology sector. AT&T and Verizon, on the other hand represent the telecommunications sector. The behavior of these corporations represents the behavior of their different industries and therefore the aggregate behavior of all the thirty companies represents the aggregate behavior of the companies.
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