Dow jones industrial average (DJIA) stock market trading chart

About The Dow Jones 30 : The Dow Jones index was originally compiled by Charles Dow, a financial journalist who first created the Dow Jones Industrial Average ( DJIA) in 1896, which started life with just 12 of the largest US stocks, and as the name suggests was originally set up to measure performance in equities in the industrial and manufacturing sector. It had in fact started life much earlier in 1882, and was not published in the Wall Street Journal until 1896, when the two sectors of industrial stocks and manufacturing stocks were separated. Of the original 12 companies, only one remains, General Electric, with the ticker GE.

The index was originally calculated using a simple average of stock prices, adding all stock prices together, and then dividing by 12 – a simple method, but one which left much to be desired! In particular stock splits were a problem for the index, since a 1 for 2 split would double the number of shares, and halve the stock price, although of course there had been no fundamental change in the underlying stock. In the early years this was not a problem as stock splits were rare, but as the markets developed this increasingly highlighted the weakness of the index and the way it was calculated.

In 1916, eight new companies were added to the Dow Jones index, and later in the 1920′s a further 10 companies were added, bringing the total to 30, which remains the number to this day, and hence the reason the Dow Jones is often referred to as the Dow 30. With more companies being added, the index needed to be revised in the way it was calculated, as well as to overcome some of the problems outlined above, and as a result, a new method was adopted known as the price weighted method. Now curiously, this method has drawbacks as well, and indeed the Dow Jones index is one of the few in the world to use this simple method, with most modern indices such as the FTSE 100S&P 500 etc using the market cap