About stock market indices
History of the world stock indexes opened more than 120 years ago, namely, July 3, 1884 -
the day a prominent financier Charles Dow and his associate, Edward Johnson, came up with
his concept of a new and unique method of calculating bids.
At that time, America's stock market its infancy and is mainly carried out by real trade
in goods, which could "feel" hands. And the securities as such was not the
confidence of investors and their value was only on what paper they were printed. But when
business began to appear among those who wanted to trade in securities, then there is a
need in a convenient instrument that would give everyone the opportunity to learn the
current trends in the stock market. And while the Dow and Johnson have proposed a
universal method of calculating the commodity, which is first of all, 11 companies - 9
rail and 2 industrial. And then he called the Dow Jones Railroad Average. For his
calculation was taken the arithmetic mean of all its constituent stocks. First of its
value was 69.93 points - i.e. laid down the cost of all 11 shares, and divided by 11.
Later, the Americans have introduced another index, called the industrial average - Dow
Jones Industrial Average (DJIA). Calculated as if he, too, but it included shares
of the largest industrial companies in the U.S.. And since that time, it became the main
stock index, which reflects the situation in the U.S. market for the world.
Function market index
When this same code appeared, it became a turning point for stock trading, as Now I could
easily determine where the market is going in general, the mood of the main mass of
investors, identify patterns, dynamics, analysis, etc. If the peaks and troughs index
climbed high enough, then stock prices that were part of the index, also rose - i.e.
economy is on the rise, companies make a profit and investors willing to invest in shares
of these companies. If on the contrary - the index fell lower and lower, meaning things
are not very well, and investors, thus, began to worry.
With the index could distinguish between short-and long-term trends in the market and on
their basis to build its investment strategy. You could also compare the behavior of
individual stocks with the movement of the market in general, choose the best and avoid
the worst, etc. Thus with the advent of market index investors appeared a huge space for
action and analysis.
History of
Over time, the Dow Jones began to grow both quantitatively and qualitatively. By the 30th
year DJIA stood at 30 companies and has not changed to this day. Also increased the number
of indexes themselves. And so far there are 4 sorts index Dow Jones:
1. Dow Jones 30 Industials - it includes the 30 largest industrial companies in the
U.S..
He is considered an index of U.S. blue chips ".
2. Dow Jones 20 Transportation - Transport index.
3. Dow Jones 15 Utility - an index of utility companies.
4. Dow Jones Composite Average - total index that combines all above.
Today Dow Jones
Today the Dow Jones Industrials is an index of "blue chips" of America. Its
composition was constantly changing and the 11 companies originally were part of it,
leaving only General Electric (GE). Others were excluded from it or even cease to exist.
Criteria for entering the index are the same - the company must have a solid history and
stable financial performance, include the largest companies in America and have a good
demand for their products and services to a wide range. To date, changes in the index are
very rare. Several years ago it managed to Intel and Microsoft.
Due to the fact that the Dow Jones index also includes a small number of companies
appeared remarks that he (the index) is insufficient to adequately and accurately reflects
the state of the U.S. economy. Then, came the second major index S & P 500, which
covers a wider range of U.S. stocks. It is calculated as a weighted market value of
securities 500 largest corporations of America. Later they began to appear and other
indexes, such as the NASDAQ 100, AMEX Composite, and others.
The ideas laid out by Charles Dow and Edward John, became the basis for the emergence of
many other stock market indices and indicators, principle analysis and all financial
science in general.