WE
WE SEE
WE SEE AND HEAR ABOUT IT A LOT THE DOW JONES INDUSTRIAL
AVERAGE. WELL YOUR EYES MAY
GLAZE OVER AND IT'S NOT
SOMETHING YOU NECESSARILY
UNDERSTAND OR ARE INTERESTED IN
BUT IT DOES MATTER. HERE'S A
CRASH COURSE ON THE DOW SO
THE DOW JONES IS A STOCK INDEX.
SO BACK IN THE LATE EIGHTEEN
HUNDREDS OF THING. EIGHTEEN
NINETY SIX CHARLES DOW WHO WAS
NAMED AFTER CAME UP WITH A HE
WAS TRYING TO FIGURE OUT A WAY
TO HELP PEOPLE FIGURE OUT HOW
IS THE OVERALL STOCK MARKET
DOING SO HE PUT TOGETHER 30
COMPANIES CALLED THEM THE DOW
JONES INDUSTRIAL AVERAGE AND
SAID THESE 30 COMPANIES ARE A
GOOD REPRESENTATION OF
THE ENTIRE U.S. ECONOMY AT THAT
TIME AND SO HE CAME UP WITH A
POINT SYSTEM AND SAID WE'RE
GOING TO MONITOR THIS OVER TIME
AND THAT TELLS YOU GENERALLY
HOW THE STOCK MARKET'S DOING
OVER THE YEARS THEY'VE TAKEN
OUT COMPANIES THEY'VE ADDED
IT'S A POINT SYSTEM SO
LITERALLY WHAT THEY DO IS WHEN
YOU SEE A STOCK THAT'S TRADING
AT ONE HUNDRED DOLLARS PER
SHARE OR 50 DOLLARS PER SHARE
PER SHARE EACH OF THOSE
COMPANIES IS GIVEN A CERTAIN
NUMBER OF POINTS CONTRIBUTES TO
THE DOW JONES THEM THE HIGHER
THE PRICE OF THE STOCK THE MORE
POINTS IT GETS IN THAT INDEX.
SO LITERALLY WHEN YOU SEE
TWENTY SEVEN THOUSAND IT'S AN
ADDITION OF ALL THE POINTS OF
ONLY THIRTY COMPANIES SINCE
THAT TIME WHEN IT WAS CREATED
OVER THE LAST HUNDRED YEARS
THERE'S LOTS OF THAT'S CALLED
INDEX. THERE'S LOTS OF INDEXES
NOW ARE INDICES ALL OF THESE
ARE MEANT TO GIVE YOU KIND OF
AN IDEA OF HOW THE OVERALL
STOCK MARKET'S DOING IN
PARTICULAR DAY MONTH OR YEAR SO
IF IT SAYS THE DOW JONES IS UP
10 PERCENT THIS YEAR THAT MEANS
ON AVERAGE MAYBE A LOT OF
STOCKS ARE UP ABOUT 10 PERCENT
THIS YEAR? HOW CAN 30 COMPANIES
GIVE AN ACCURATE OR I GUESS A
GREAT SNAPSHOT OF THE HEALTH OF
THE ECONOMY. WELL IT'S IT'S
IT'S AN EXCELLENT QUESTION AND
THAT'S WHY A LOT OF PEOPLE
DON'T USE THE DOW JONES AS A
BAROMETER ANYMORE BECAUSE IT IS
ONLY 30 COMPANIES SO THEY WILL
USE SOMETHING PROBABLY THE ONE
THAT'S MORE POPULAR IS
THE STANDARD POOR'S 500 AND IF
YOU LOOK ON THE NEWS EVERY DAY
YOU'LL SEE THE DOW JONES YOU'LL
SEE THE STANDARD POOR'S 500 AND
YOU'LL SEE THE NASDAQ THERE ALL
THREE DIFFERENT INDICES THEY
HAVE THREE DIFFERENT BASKETS OF
STOCKS IN THEM BUT TO YOUR
POINT FIVE HUNDRED COMPANIES
HAS GOT TO BE A BETTER
REPRESENTATION THAN 30 IN IT
IS. HOWEVER EACH OF THOSE
INDICES ARE CALCULATED
DIFFERENTLY? FOR EXAMPLE
THE STANDARD POOR'S 500 IS
CALCULATED BY THE SIZE OF
THE COMPANY NOT NECESSARILY
THE SHARE PRICE WHEREAS THE DOW
JONES AS I MENTIONED IS
CALCULATED PURELY OFF OF
THE POINTS OR THE PRICE PER
SHARE. AND SO TWO DIFFERENT
METHODOLOGIES AT THE END OF
THE DAY THEY DON'T VARY TOO
MUCH AT THE END OF THE YEAR IF
YOU WERE TO LOOK FOR EXAMPLE
FROM JANUARY 1ST TO DECEMBER 30
FIRST IF THE DOW JONES IS UP 25
PERCENT YOU MAY SEE
THE STANDARD AND POOR'S UP
TWENTY SEVEN OR TWENTY THREE
IT'S GOING TO BE WITHIN
THE BALLPARK BUT I THINK THAT'S
A VALID QUESTION WHY NOT USE
ONE THAT HAS MORE COMPANIES
THERE'S EVEN ONE CALLED
THE WILSHIRE 5000 WHICH IS 5000
COMPANIES. AND SO AGAIN YOU CAN
LOOK AT THAT AND SEE WHAT'S
THE OVERALL STOCK MARKET DOING.
SO AT THE END OF THE DAY SHOULD
THE AVERAGE PERSON WORRY ABOUT
THE DOW AND FOR EXAMPLE WHEN IT
COMES TO THEIR 4 1 K IT'S A
GOOD GAUGE TO SEE ARE YOU IN
THE IN THE BALLPARK OF WHAT
THE MARKET IS DOING. SO FOR
EXAMPLE IF YOU HAD A WHOLE
PORTFOLIO OF STOCKS IN YOUR
PORTFOLIO WAS DOWN 10 PERCENT
AND YET THE DOW JONES WAS UP 10
PERCENT AT THE NEW YEAR YOU
WOULD SAY WHY IS THAT UP 10
PERCENT AND I'M DOWN 10 PERCENT
SOMETHING MAYBE MAYBE ONLY
THE WRONG STOCKS NOW BECAUSE OF
THAT TWENTY SEVEN THOUSAND
PEOPLE ASK ALL THE TIME HOW
MUCH HIGHER CAN THIS GO. AND
THERE IS NO LIMIT. IN FACT IF
IT JUST CONTINUES ON
THE TRAJECTORY IT'S BEEN ON
SINCE 1896. IT JUST CONTINUES
THAT PATH IT WOULD BE A DOW ONE
HUNDRED THOUSAND AND JUST
TWENTY THREE YEARS AND MOST
PEOPLE CAN'T FATHOM THAT. BUT
REMEMBER THE PERCENTAGE IT GOES
UP RIGHT NOW THESE ARE BIGGER
NUMBERS THAN THEY USED TO BE
WHEN THE DOW WAS AT ONE HUNDRED
IF IT DOUBLED IT WENT TO 200.
NOW IF IT DOUBLES IT GOES TO
54000 SO SOMEDAY