The phrase “Dow Jones Index” was heard and read by every resident of the country: in the television news of the RBC channel, on the Kommersant newspaper strip, in melodramatic films about the hard life of a foreign broker; politicians like to put into a speech an outlandish financial term.
In order to develop the business, companies issue securities in the form of stocks and bonds with the prospect of interest income. In this way, free funds of citizens and organizations are attracted. Those wishing to profitably invest and sell with profit are brought down by the stock exchange. For free orientation in financial instruments offered by issuers of securities, and the time of conclusion of a purchase and sale transaction, special indicators are used. What is the Dow Jones Index in simple words? A kind of compass in the turbulent sea of economics.
Does the stock indicator affect the life of an ordinary person, we will understand in the article.
Why do we need
Each participant in the financial market wants to insure risks and minimize losses. Thinking about making a purchase and sale of market assets, the trader is looking for support and confirmation of his own thoughts and plans. What does the Dow Jones index show? An oil painting - how risky it is to enter certain American securities.
In the stock exchange universe, a fair number of indicators of economic health have been developed to help investors and speculators:
- Dou Jones (Dow Jones) - the founder of forecasting tools;
- NASDAQ Composite (Nasdak Composite) - operates with indicators of high-tech companies;
- S & P500 (CP-500) - focuses on the characteristics of 0.5 thousand large American organizations and institutions.
Species diversity
The Dow Jones Index is not the only barometer of the American and global economies. This is usually called one of the five varieties - the industrial, oldest version of the original.
It is believed that the growth of the estimated coefficient correlates with the movement of the value of the dollar. The rise and fall of both values occur in parallel. But not to the extent that 100% match on the chart. The price is affected by many factors.
In the exchange environment, the concept of the first letters of the DJI word form is accepted. The last letters reflect specialization:
- DJIA. The parameter is focused on 30 industrial conglomerates. The author compiled an indicator based on information about large, significant for the economy of the North American states, enterprises. The rotation of participants here is extremely rare. The last time this happened in 2015.
- DJTA. Transport Averidge. The list of players includes 20 representatives of vehicles, aviation and railways.
- DJUA. Filled with securities of 5 utility companies for gas and electricity.
- DJCA. Combined deflator of 65 names of companies included in the other three lists - industrial, transport and utilities.
- DJIAYW. The indicator of 30 defendants calculated on dividend yield.
Exchange traders prefer to forecast the US stock market movement based on the combined or industrial Dow Jones index. A graphical display of information about changes in the value of the indicator contains peaks and troughs. Small ups and downs can be spaced. It is useful to monitor the trend and rate of price change.
Regional landmarks
The interest of the Dow Jones index is not confined to national companies. The economies of countries interact and influence each other. Therefore, the rating company counts the Dow Jones Titans family of meters:
- DJGT50 - “world” indicator;
- DJTT20 - stock valuation of Turkey;
- DJIT30 - stock Italy criterion;
- DJSKT30 - a landmark of South Korean funds;
- DJAT50 - the best of the African continent;
- DJSPT15 - Pakistan.
The listed meters transmit the change in shares of the largest companies in the respective regions.
Buy and sell
DJIA asset trading takes place on exchanges on business days from Monday to Friday. There are four ways to buy.
The first method is available to a trader with access to world exchanges. Buy a little of all the shares from the list. But this is a whirlwind occupation - to follow the evolution of thirty papers, to monitor the composition adjustment in order to make a replacement on time. Although, of course, the list of participants rarely changes. If you suddenly need money or have a desire to transfer to assets with high profitability, you will have to spend significant time on the sale. One plus - issuers of securities from the list pay dividends. In the amount of "cat cried," but they pay regularly.
The remaining three: buying an asset futures, a contract for difference or shares of an ETF fund - an investor in shares of the list - are very expensive operations and are available for professional market participants.
Calculation method
The composition of issuers on the list is diverse. The epithet "industrial" was inherited. Now the list includes not only industrial conglomerates, but also representatives of the financial sector and the insurance business, highly intellectual technologies and the entertainment industry.
DJI's starting price was 40.94. Until 1928, the indicator was calculated as the arithmetic mean. The amount of current prices included in the asset register was divided by the number of issuers: by 12, 20 or 30.
Market life has made adjustments to the methodology. The fact is that sometimes issuers split shares, disappeared from the list and were replaced by others, paid dividends. Therefore, the mathematical model has changed, the concept of “constant Dow divisor” has appeared.
Consider an optimistic example - the calculation of the Dow Jones index based on 5 virtual companies. Suppose the closing of the trading session yesterday occurred at the following levels:
- One - 50;
- Two - 62;
- Three - 80;
- Four - 44;
- Five - 34.
Then the DJIA took the value 270/5 = 54.
Today, the issuers of the most expensive shares decided to split by 5. Three shares began to have a nominal value of 16. But they are popular with investors, and their closing price was 20. The rest of the shares did not change their value per day.
The amount of shares is 270-80 + 16 = 206.
The new DJI value is 206/5 = 41.2.
That is, the parameter fell, although in fact paper prices did not fall, but one generally increased. Hence, the formula is subject to revision.
Due to crushing, the divider must be recalculated. The current amount of assets is divided by yesterday's figure.
(50 + 62 + 16 + 44 + 34) / 54 = 3.81.
This is the new constant divider. Now we calculate the index taking into account the closing price for today:
(50 + 62 + 20 + 44 + 34) / 3.81 = 210 / 3.81 = 55.
Here is the true value after crushing one of the papers. The uptrend is confirmed.
With the development of computer technology, manual calculations are not conducted. This example only illustrates the calculation method.
Advantages
An old-timer of the exchange world. But to take advantage of the accumulated experience, you need to spend time studying the behavior of the asset. Only persistent brainstorming will help to apply the parameter to the benefit of your own budget.
The over-the-counter people apply the Dow Jones Industrial Average as follows:
- if the trend of the DJIA and the selected stock is showing growth, then most likely the upward movement will continue;
- if the measure of economic well-being is growing, and the security is showing a decline, then the decline in the value of the stock will most likely continue.
Reservations “most likely” and “for sure” in the text are not accidental. The pricing of issued securities is affected not only by the actions of 30 companies. Other events are taking place that excite the economic and financial world. Here are the factors that affect the Dow Jones index:
- Military conflicts.
- Terrorism.
- Political unrest in the form of elections, re-elections, strikes and “standing”.
- Riot of nature - floods, eruptions, typhoons and drifts.
disadvantages
It does not take into account the basic values of incoming securities. It is necessary to control the change in the price of assets simultaneously with the value of the market weather indicator.
The method of calculation ignores the issuer's capitalization.
America's economy has more than 30 companies. For an objective picture, use the S & P500 index, on the stock slang called "sipi", "barn owl", "hoarse".
CP is a partner of DJ
The icon of the American stock market is suitable for a big game in blue chips. But the American economy is not only thirty successfully operating enterprises and institutions.
The S & P500, or on the SiPi500 exchange slang, reflects the full picture. As the name implies, the indicator takes into account five hundred securities of successful US companies.
Based on a single Dow Jones index, forecasting is not straightforward.
What affects
Emission volume does not affect the DJI value.
The average price indicator shows where the stock market is moving.
If a person has invested in American companies and in the evening sees a message that the Dow Jones index has grown by 150 points, then for joy you need to check what caused the growth. It may happen that only one paper has grown significantly in price, and the rest of the thirty quietly fell.
The Dow Jones Index in the event of a collapse is like a snake devouring itself. Of course, without adjustment, no asset is traded. The percentage of price subsidence as a risk parameter is determined by each exchange player for himself. But there are deep corrections that lead the investor into a stupor. A chain reaction begins - the index falls, people get rid of assets in a panic, sells at current prices. By closing, the value of the shares decreased by a dozen percent, respectively, the parameter has further decreased. The use of the word “panic” is justified, since most investors do not even try to understand the reasons for the sudden and sharp drop in the Dow Jones index.
This happened in the first quarter of 2018. For ten days from January 29 to February 9, someone went broke by 10%. Given that the amounts traded in the indices trade with six zeros, this is a sensible loss.
Statistics say that during the fall of the DJIA, a wave of philistine economy, unemployment and industrial apathy covers the country.
Dollar and dow
The indicator is interesting to owners of a complete collection of portraits of American presidents. Russian people demand information about the innovations of the Ministry of Finance and the Central Bank in relation to the ruble.
And yet, how does the Dow Jones index affect the dollar? The database of the price of North American money in relation to the leading world currencies and the value of the index provides an interesting summary - the DJIA price and the dollar / euro exchange rate change in parallel or correlate, in technical terms.
Theoretically, the picture is as follows: the dollar is growing - the index is growing. Falling "green" - the indicator of American well-being is also falling off. Consider the table of information at the close of the trading session.
date | Price $ in Euro | DJIA price, rub. | Price $, rub. |
01/29/18 | 0.8021 | 26445.36 | 56,3307 |
02/08/2018 | 0.8075 | 23870.55 | 58,4326 |
A retrospective of the cost of the indicator in question on a monthly chart looks interesting. Reference point - 1921, yellow graph. The end of the period is 1940. Green color shows the index value line from 2001 to 2020 (forecast). Statistics noted - after the 40th year, the indicator fell into the abyss.
Indicator Biography
Calculation of the Dow Jones index for stock market manipulations was first made by the financial market guru from the American edition of The Wall Street Journal. One hundred and twenty years ago, the editor of a magazine for business people with friends invented a mathematical tool for predicting the industrial future based on the past and current value of issuers' securities. Now the calculation is carried out by the international rating agency Standard & Purs.
The history of the Dow Jones index shows that the initial composition of 12 issuers included nine organizations of the American railway. What was justified: the roads were just being built, the spaces were being developed, the number of consumers of freight and passenger transportation services was growing. The transport business was going uphill.
The coefficient has undergone changes. For 90 years, the economic characteristics of thirty companies have been used for calculation.
By the way, for a Russian investor and a speculator are available for purchase on the St. Petersburg Stock Exchange securities of issuers included in the Dow Jones Index:
- Apple Electronics Icon;
- favorite of barbers "Procter and Gamble";
- favorite mommy "Johnson and Johnson";
- financial services provider "JPMorgan Chase Bank".
Extract
The business is looking for an investor. Why issues shares - a promise to share profits. To lure a bird into a cage, a solid apparatus of securities parameters is being invented, which helps the investor to navigate who to invest in.
The impact of the indices is based on the psychology of "everyone ran - and Vasily Alibabaevich ran."
Having decided once to connect fate with a brokerage brotherhood, we must remember that the responsibility for the personal decisions made is not the broker, not the political and economic situation, but the investor himself.
And in the domestic plan - the Dow Jones index falls or rises, an ordinary Russian needs to plant the sprouts of his own well-being - plant tomato seeds on seedlings and check the safety of the potato stock.