The Dow Jones Industrial Average (DJIA) is a list or an index of firms and companies which are contemplated to be one of the better indicators to find out the strength of the market.
Charles Dow, the creator of DJIA, came up with this financial barometer as a method to inform the investors about the health of the stock market. Because the index deals with companies that are worth huge amount of money, an uncomplicated method to demonstrate their changes in a different value had to be designed. That’s when Charles Dow broke down everything into points as a representation of dollars.
It was in the news recently that the Dow Jones Industrial Average hit 20,000 points for the first time in its entire history of 132- years. But there has been a big debate going on, on whether this really makes a difference or no. The million-dollar question that does Dow Jones really matter? Here are a couple of theories as to why many people feel that it really doesn’t matter.
- Although there are quite a number of publicly traded companies in the States, the Dow comprises of just 30 of those.
- All of these 30 companies are quite old too and hence not the best representation of the absolute market.
- The way Dow Jones does its calculations is not a great indicator of how the American is really faring in the true sense. The calculations are done using a number called the ‘Dow Divisor’ which is used to moderate the Dow Average. Presently the value of the Divisor is 0.14602128057775.
- The decline or the unpopularity of the Dow Jones Had begun for long periods even before the Nasdaq index pattern had gone off track.
- There are other competitive indexes in the market which show similar results as the Dow Jones.
Ways to Continue investing using the DJIA
There are still some hard-core traders and finance barons who still believe that the DJIA is the best barometer that can define the American Economy. They believe that when the stock prices of the list of companies on the Dow Jones list begin to show signs of weakening, that is the moment from when the U.S. economy will begin to slow down.
Experts advise buying shares of the included companies which are at the top is the only advisable strategy for a profitable trade. This can also be done with the help of the Fincrowd App which is dedicated to assist people in the trade track the economy and benefit from all the information it collects and provides.