Explanation of The Dow Jones Industrial Average

The Dow Jones Industrial Average (DJIA) is a stock market index that measures the performance of 30 large publicly traded companies often called blue chips stocks in the United States. The DJIA was the first stock market index and is considered to be one of the most widely followed stock market indices in the world.

The DJIA is not considered to be a representative index of the overall stock market, as it only includes 30 companies, and it’s heavily weighted towards some of the largest and most mature companies. Other indices such as the S&P500, Nasdaq Composite and Wilshire 5000 are considered to be more comprehensive and representative of the overall market.

The DJIA index is not actually an average, it is a price-weighted index. The index is representative of a portfolio containing the same number of shares of each of the 30 companies even though each company has a different share prices and different market capitalizations. A portfolio would follow the DJIA by simply containing an equal number of shares in each of the 30 companies. Since stocks have different prices per share more of the portfolio would be weighted in companies with a higher share price.

The 30 stocks that make up the DJIA are selected by S&P Dow Jones Indices which is apart of The Wall Street Journal. There are no specific set of rules for inclusion in the DJIA however factors such as a company’s market capitalization, liquidity, performance, and industry representation are reviewed when determining which companies should be included in the index. The companies included in the DJIA are considered to be some of the most prominent and influential in the U.S. economy and the world.

DJIA original components

When the DJIA index was created in 1896 it included 12 industrial stocks. The original 12 companies were:

• American Cotton Oil
• American Sugar
• American Tobacco
• Chicago Gas
• Distilling and Cattle Feeding
• General Electric
• Laclede Gas
• National Lead
• North American
• Tennessee Coal Iron and RR
• U.S. Leather
• United States Rubber

The most familiar company of the original 12 is General Electric which was recently removed from the index in 2018 after 111 years of continuously being listed on the index since 1907 and was replaced by Walgreens. (Note that between 1896 and 1907 General Electric had been added, removed and added again)

DJIA current components

The current list of 30 companies or components of the DJIA as of January 2023 are: