A group of securities whose overall value is determined by giving equal weight to each security’s performance rather than weighting by other factors like its market weight (think Nasdaq 100) or price weight (the Dow Jones).
It’s nothing more than a straight-up, vanilla average of the performance of all the securities in the index. Like if we have in our index 1,000 shares of GE at $15 and 2,000 shares of MO at $58 and 5,000 shares of AAPL at $200, even though the weighted average in the index of AAPL is way more than the other stocks in there, the arithmetic index ignores the weighting. It just takes the plain jane average of 15, 58, and 200 and reports what the arithmetic mean index did.
Related or Semi-related Video
Finance: What is the Dow Jones Industria...2710 Views
finance a la shmoop- what is the Dow Jones Industrial Average? well it's just
an index. it's a basket of 30 industrial stocks hence the catchy industrial word [list of the 30 stocks involved in the Dow]
in there and it was started in 1896 by Charles Dow and Edward Jones sort of the
Coke and Pepsi of stock averages in the day .worth noting is the fact that while
the Dow average is quoted often in the press it's not something that real Wall
Street traders really rely on that much as a market place holder anymore. why?
well because the Dow comprises only 30 stocks. it isn't really a broad market [Dow Jones in the trash]
representation, and you know the way the S&P 500 is the 500 is bigger than 30. Big
Brother has way more stocks and is thus way more liquid than the relatively
blippi set of 30 stocks that the Dow offers. over time the Dow has changed as
companies were bought and/or died and or just withered and became no longer
relevant. i.e. newspaper industry. which means that this thing has gone through
more faces than Kanye West .yeah. [Kanye West faces pictured]
Up Next
What is compounding value or compounding interest? Compound interest or value basically makes an investment grow much faster. This is because of th...
What are ETFs? They are Exchange Traded Funds, and unlike index funds, they don't really change, or rebalance, based on the industries represented...
What is the S&P 500? It's Standard & Poor's 500 generally largest companies, with a U.S. domestic bias. The S&P 500 is usually what investors think...
The Wilshire 5000 is an index fund, which is kind of a bummer...it sounded like a cool financial robot.