The Dow Jones Industrial Average is a type of stock index . A stock index is a group of stocks whose performance is suppose to represent all or part of a stock market.
The Dow Jones Industrial Average, also called the Dow, is one of the most watched stock indices in the world. Its performance is suppose to represent the performance of the US stock market.
The Dow has 30 different company stocks in its index. Each company in the Dow is large and stable. And almost every industry is represented in the Dow.
The value of the Dow is calculated by using a formula that takes into account each company’s stock price. Therefore, the Dow is a Price Weighted Index .
Many investors compare the performance of the Dow to their own stock portfolio. If your stock portfolio performed better than the Dow, you beat or outperformed the market. If your stock portfolio performed worse than the Dow, you underperformed the market.
There is one major limitation with the Dow. Since it contains only 30 stocks, one stock can significantly impact the index’s performance. But one stock has little effect on the overall US stock market.
Remember, the Dow is one of the most popular indices to watch. So make sure you know the benefits and limitations of it.