The Dow Jones Industrial Average is known by many names — the DJIA, the Dow Jones, or just the Dow, but what exactly is it? It’s the 1896 invention of a financial journalist named Charles Dow, who also founded the Wall Street Journal, as a way to monitor stock market movements.
The Dow reflects the price of the top 30 publicly traded American companies over one trading session. Since companies’ inclusion is based on their market capitalization, the 30 companies only gradually change over time as some members ascend and others falter. Since 2013, Apple, Nike, and Goldman Sachs were added as Alcoa, Hewlett Packard and Bank of America were given the heave-ho. (The “industrial” part of the Dow’s title is but a vestige of the old days, since technology and financial service companies have edged out many of the old industrial players.)
Unlike other indices, like the S&P 500, the Dow is price weighted, meaning that it’s computed using what’s called a “scaled average” of the 30 stocks—to compile the number, the 30 stock prices are divided, but according to an algorithm that takes into account factors such as stock splits and dividends.