Dow Jones Industrial Average (DJIA)

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on June 08, 2023

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What Is the Dow Jones Industrial Average?

The Dow Jones Industrial Average or the Dow, as it is popularly known, is the world's second-oldest benchmark index that is used as a barometer of stock market performance and as a wider measure of the state of the American economy.

It consists of 30 companies, also known as "blue chip" companies. They are included in the index because of their importance to the overall economy.

How is the Dow Jones (DJIA) Calculated?

The Dow Jones Industrial Average is calculated by adding the prices of 30 stocks and dividing them by a Dow Divisor. The formula to calculate the Dow Jones Industrial Average is:

The Dow Divisor is used to normalize the effects of structural changes, such as stock splits and dividend distributions, in the market.

Its value is calculated on a rolling basis and changes with time. For example, it was generally above 10 in the early days of stock trading. But it is currently below 1.

Dow Jones Indexing

The Dow is a price-weighted index. This means it ranks companies in the index based on their stock price. Therefore, a company with a higher stock price will have a greater effect on the overall index as compared to one with a low price.

This is a contrast to the S&P 500, which ranks companies in its index based on market capitalization.

Dow Jones History

The Dow Jones Industrial Average was started in 1896 by Charles Dow, an editor for the Wall Street Journal.

There were twelve companies listed in the original index. They were mostly from the industrial and manufacturing sector. Some of the companies listed in the original index were:

  • Chicago Gas
  • American Oil
  • Tennessee Coal and Iron
  • U.S. Leather

Dow Jones Companies

Over the years, the Dow's composition has changed to reflect the American economy's growth.

Today's index reflects the economy's diversity and includes companies from different sectors, such as finance, technology, and consumer goods. Some companies listed in the Dow:

  • Apple
  • Walmart
  • Nike
  • Visa

Dow Jones Industrial Average (DJIA) FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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