AVERAGES & INDEXES

Averages & Indexes are ways to track a particular market. Be it a stock, bond, or in the commodities market, there is a proxy for that market that is referenced as indicating the direction of that market at any particular time.

THE DOW JONES AVERAGES

The DOW JONES INDUSTRIAL AVERAGE - is the oldest and the most widely quoted market indicator. Comprised of 30 "blue chip" stocks. The DOW was originally computed by adding up the price of one share of each of the stocks in the average and dividing that number by 30. As time has passed, the divisor has eroded down from 30 due to stock splits, mergers and changes in the 30 listed companies. The divisor is less than 0.1.

Listed every day in the Wall Street Journal, the divisor, because of its low value, acts as a multiplier. [Dividing a number by a fractional number increases the value of the numerator.] Critics of the DOW say that the divisor needs to be reset to a number above one. The shrinking divisor is partially responsible for the volatility of the DOW.


DOW JONES TRANSPORTATION AVERAGE - (formerly the rail average) Lists 20 transportation stocks. Average figured the same as the DJIA.

DOW JONES PUBLIC UTILITY AVERAGE - 15 utility stocks. Divisor computed the same as DJIA and TA.

The 65 STOCK AVERAGE - Comprised of the above three averages.

STANDARD & POORS 500 INDEX

STANDARD & POORS PRICE INDEXES - "The S & P 500" Comprised of 400 industrial, 20 transportation, 40 public utility, and 40 financial stocks. S&P publishes indexes that cover capital goods companies, consumer goods, and common stocks. The S&P 500 is the favored measurement of mutual fund portfolios because it covers more companies than the DOW. Mutual fund managers that supervise stock portfolios are held against the S&P 500 to gage their performance.


The DOW Industrial, Transportation and Utility Averages with the Standard & Poors 500 Index are the main market indicators that are covered in finance courses. Other indexes and indicators listed below are part of my notes.



HOW CAN WE BUY A SINGLE SECURITY (LIKE A STOCK) THAT WOULD BE THE SAME AS BUYING AN ENTIRE INDEX?

Wall Street financial engineers are always at work inventing marketable securities to fit investor's needs.

Stock Ticker Symbol DIA is a created share of stock that is traded for 1/100th of the value of the DOW. If the DOW is now at 10,700, a share of DIA will trade for 107. Investors wanting to own a "piece" of the market or capitalize on market movements can purchase a share or shares for a small initial investment.


Check out Ticker QQQQ to track the NASDAQ 100.

AND Ticker SPY for the S&P 500.


WILSHIRE INDEX - Dollar market value of all NYSE and AMEX stocks plus all actively traded OTC stocks. In effect, it is the total price for stocks for which daily quotations may be obtained. It is quoted in billions of dollars w/ a base of $1.404 billion set to December 31, 1980.

THE NEW YORK EXCHANGE INDEX - (or composite index) covers all stocks on the NYSE. In addition, there are 4 sub-group indexes: industrial, transportation, utility and finance. NYSE index uses December 31, 1965 as a base with an index base of 50.

NASDAQ INDEX - covers more than 3000 OTC companies, 7 indexes: composite, industrials, Banks, Insurance, Finance, Transportation, Utilities. Base period = February 5, 1971 at 100.