You hear it everday , the Dow is up, the Dow is down. How is it computed one might ask. First a little history lesson.
The Dow Jones Industrial Average started out in 1896 with 12 stocks. For any trivia buffs out there, they were:
American Cotton Oil
American Sugar
American Tobacco
Chicago Gas
Distilling and Cattle Feeding
General Electric - the sole surviving company btw
Laclede Gas
National Lead
North American
Tennessee Coal and Iron
U.S. Leather
U.S. Rubber
The number of stocks increased to 20 in 1916. It jumped up to 30 in 1928 and has remained at that number ever since.
For those of you who care, the companies that currently make up the Dow are:
Alcoa
American Express
Boeing
Caterpillar
CitiGroup
Disney
Du Pont
Eastman Kodak
General Electric
General Motors
Hewlett Packard
Home Depot
Honeywell
Intel
IBM
International Paper
Johnson & Johnson
JP Morgan Bank
Coca Cola
McDonalds
Microsoft
Minnesota Mining & Manufacturing (3M)
Philip Morris
Merck
Proctor & Gamble
SBC Communications
AT & T
United Technologies
WalMart Stores
Exxon Mobil
Anyway, the average is computed by summing the prices of the stock and then dividing the total by a constant (the divisor). The divisor for the DJIA is adjusted periodically to reflect splits in the stocks that make up the average. The divisor was originally 30 but has been reduced over the years to a value of less than one. The current divisor is about 0.20. If you really need it, the precise value of the divisor is published in the Wall Street Journal and Barron's.
It's actually not as complicated as some of the rest of the Wall Street mumbo jumbo that you hear everyday.