FAQ on Mutual Funds

DOW JONES

History of Dow Jones Averages

When Charles H. Dow first unveiled his industrial stock average on May 26th 1986, the stock market was not highly regarded. Prudent investors bought bonds, which paid predictable amounts of interest and were backed by real machinery, factory buildings and other hard assets.

Today, stocks are routinely considered as investment vehicles, even by conservative investors. The circle of investors has widened far beyond the Wall Street cliques of the past century to millions of everyday working men and women. These people are turning to stocks to help them amass capital for their children�s college tuition bills and their own retirements. Information to guide them in their investment decisions is abundantly available.

The Dow Jones Industrial Average played a role in bringing about this tremendous change. One hundred years ago, even people on Wall Street found it difficult to discern from the daily jumble of up-a-quarter and down-an-eighth whether stocks generally were rising, falling or treading water. Charles Dow devised his stock average to make sense out of this confusion. He began in 1884 with 11 stocks, most of them railroads, which were the first great national corporations. He compared his average to placing sticks in the beach sand to determine, wave after successive wave, whether the tide was coming in or going out. If the average�s peak and troughs rose progressively higher then a bull market prevailed; if the peaks and troughs dropped lower and lower, a bear market was on.

It seems simplistic nowadays with myriad market indicators, but late in the Nineteenth Century it was like turning on a powerful new beacon that cut through the fog. The average provided a convenient benchmark for comparing individual stocks to the course of the market, for comparing the market with other indicators of economic conditions, or simply for conversation at the corner of Wall and Broad Streets about the market�s direction.

The mechanics of the first stock average were dictated by the necessity of computing it with paper and pencil: Add up the prices and divide by the number of stocks. This application of grade-school arithmetic, which create is hardly worthy of remembrance more than a century later. But the very idea of using an index is differentiate the stocks market�s long-term trends from short-term fluctuations deserves a salute. Without the means for the ordinary investor to follow the broad market, today�s age of financial democracy (in which millions of employees are actively directing the investment of their own future pension money and as a result are substantially corporate shareholders) would be unimaginable.

Following the introduction of the 12-stock industrial average in the spring of 1986, Mr. Dow, in the autumn of that year, dropped the last non-railroad stocks in his original index, making it the 20-stock railroad average. The utility average came along in 1929 (more than a quarter-century after Mr. Dow�s death at age 51 in 1902) and the railroad average was renamed the transportation average in 1970.

At first, the average was published irregularly, but daily publication in The Wall Street Journal began on Oct 7, 1896. In 1916, the industrial average expanded to 20 stocks; the number was raised again, in 1928, to 30, where it remains. Also in 1928, the Journal editors began calculating the average with a special divisor other than the number of stocks, to avoid distortions when constituent companies split their shares or when one stock was substituted for another. Through habit, this index was still identified as an average�.

The 30 stocks now in the Dow Jones Industrial Average are all major factors in their industries, and their stocks are widely held by individuals and institutional investors. The Dow Jones Industrial Average accounted for more than 26% of the investable U.S. market, as measured by the D.J.U.S. Total Market Index (about $11.6 trillion as of December 31, 2003).

Using such large, frequently traded stocks provides an important feature of the Industrial Average: timeliness. At any moment during the trading day, the Dow Jones Industrial Average is based on very recent transactions. This isn�t always true with indexes that contain less-frequently traded stocks.

The Dow Jones Industrial Average is the most-quoted market indicator in newspapers, on TV and on the Internet. Because of its longevity, it became the first to be quoted by other publications. The practice became habit when Wall Street earned at least a mention in the general news each day, and habit became tradition when the Post-World War II bull market galvanized the nation�s attention. The Industrial Average became the indicator to cite if you were citing only one. Besides longevity, two other factors play a role in its widespread popularity: it is understandable to most people, and is reliably indicates the market�s basic trend.

What are its components?

Company Name Primary Exchange Ticker Style Sector Mkg. Cap Range Weigh. % USD Close
3M Company NYSE MMM GRO Diversified Industrials Large 5.4968 73.81
Alcoa Inc. NYSE AA VAL Aluminium Large 1.9430 26.09
Altria Group Inc. NYSE MO VAL Tobacco Large 4.7812 64.20
American Express Co. NYSE AXP GRO Consumer Finance Large 3.9821 53.47
American International Group Inc. NYSE AIG GRO Full Line Insurance Large 4.4140 59.27
Boeing Co. NYSE BA N/A Aerospace Large 4.8541 65.18
Caterpillar Inc. NYSE CAT N/A Commercial Vehicles Large 7.2499 97.35
Citigroup Inc. NYSE C VAL Banks Large 3.4459 46.27
Coca-Cola Co. NYSE KO GRO Soft Drinks Large 3.1100 41.76
E.I. DuPont de Nemours & Co. NYSE DD VAL Commodity Chemicals Large 3.1792 42.69
Exxon Mobil Corp. NYSE XOM VAL Integrated Oil and Gas Large 4.4326 59.52
General Electric Co. NYSE GE VAL Diversified Industrials Large 2.5455 34.18
General Motors Corp. NYSE GM VAL Automobiles Large 2.5187 33.82
Hewlett Packard Co. NYSE HPQ VAL Computer Hardware Large 1.7985 24.15
Home Depot Inc. NYSE HD GRO Home Improvement Retailers Large 2.9315 39.36
Honeywell International Inc. NYSE HON VAL Diversified Industrials Large 2.6371 35.41
Intel Corp. NASDAQ INTC GRO Semiconductors Large 1.9780 26.56
International Business Machines Inc. NYSE IBM GRO Computer Services Large 5.7627 77.38
Johnson & Johnson NYSE JNJ GRO Pharmaceuticals Large 4.7603 63.92
JP Morgan Chase & Co. NYSE JPM VAL Banks Large 2.5663 34.46
Mc Donald�s Corp. NYSE MCD VAL Restaurants & Bars Large 2.0852 28.00
Merck & Co. Inc. NYSE MRK VAL Pharmaceuticals Large 2.2327 29.98
Microsoft Corp. NASDAQ MSFT GRO Software Large 1.8365 24.66
Pfizer Inc. NYSE PFE VAL Pharmaceuticals Large 1.9922 26.75
Proctor & Gamble Co. NYSE PG GRO Non durable household products Large 3.8845 52.16
SBC Communications Inc. NYSE SBC VAL Fixed Line Telecommunications Large 1.7397 23.36
United Technologies Corp. NYSE UTX GRO Aerospace Large 3.7788 50.74
Verizon Communications Inc. NYSE VZ VAL Fixed Line Telecommunications Large 2.5552 34.31
Wall-Mart Stores Inc. NYSE WMT GRO Broad Line Retailers Large 3.6872 49.51
Walt Disney Co. NYSE DIS N/A Broadcasting & Entertainment Large 1.8209 24.45
Total 100.0000

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