The Dow Jones Industrial Average is one of our stock market’s most venerable indicies. Every single business day, financial news outlets will report how the Dow, Nasdaq, and S&P 500 performed as a barometer for the overall market. We can dispute whether or not it’s an accurate barometer but we can’t dispute it’s age and it’s place in our financial market’s history.
The Dow Jones was created by Charles Dow in 1896 when he took the dollar average of 12 stocks. Of those twelve companies, only General Electric remains. The rest are either gone, live on as subsidiaries of other companies or have been renamed. The original twelve were American Cotton Oil Company, American Sugar Company, American Tobacco Company, Chicago Gas Company, Distilling & Cattle Feeding Company, General Electric, Laclede Gas Company, National Lead Company, National American Company, Tennessee Coal, Iron and Railroad Company, U.S. Leather Company, and United States Rubber Company.
Companies in the DJIA
There are now thirty companies in the Dow Jones Industrial Average:
- AA  – Alcoa Inc.
- AXP  – American Express Company
- BA  – Boeing Company
- BAC  – Bank of America Corporation
- CAT  – Caterpillar, Inc.
- CSCO  – Cisco Systems, Inc.
- CVX  – Chevron Corporation
- DD  – E.I. du Pont de Nemours and Company
- DIS  – Walt Disney Company
- GE  – General Electric Company
- HD  – Home Depot, Inc. S
- HPQ  – Hewlett-Packard Company
- IBM  – International Business Machines
- INTC  – Intel Corporation
- JNJ  – Johnson & Johnson
- JPM  – JP Morgan Chase & Co.
KFT  – Kraft Foods Inc.
- KO  – Coca-Cola Company
- MCD  – McDonald’s Corporation
- MMM  – 3M Company
- MRK  – Merck & Company, Inc.
- MSFT  – Microsoft Corporation
- PFE  – Pfizer, Inc.
- PG  – Procter & Gamble Company
- T  – AT&T Inc.
- TRV  – The Travelers Companies, Inc.
- UNH  – UnitedHealth Group Inc.
- UTX  – United Technologies Corporation
- VZ  – Verizon Communications Inc.
- WMT  – Wal-Mart Stores, Inc.
- XOM  – Exxon Mobil Corporation
The oldest Dow component is General Electric, which was added in late 1907 (I think the index was reconstituted since being originally formed, hence the later date), and the newest components are Travelers and Cisco, added in mid-2009.
September 24, 2012: On September 14th, 2012, the Dow Jones announced that Kraft Foods will be replaced with UnitedHealth Group, effective September 24th, because of Kraft’s decision to spin off its North American grocery business (finalized October 1st). The spin-off grocery business is called Mondelez International (MDLZ) and the new ticker for the new Kraft Foods Group will be KRFT.
August, 14, 2012: Travelers and Cisco were added to the Dow in mid-2009. Cisco Systems replaced General Motors while Travelers replaced Citigroup. That brought the Dow Divisor up from 0.125552709 to 0.132319125. Before that, in September 2008, Kraft Foods replaced AIG, the second change that year. In earlier 2008, Bank of America and Chevron took the place of Altria Group and Honeywell.
Calculating the Dow
So how do we get from thirty different stock prices to a single Dow value? It’s a calculation that relies on a “Dow Divisor.” You add up all the prices of the thirty stocks and divide by the Dow Divisor , a number that is adjusted for splits, spinoffs and other changes. The last change was in mid-2010 when Verizon spun off a part of its business that was acquired by Frontier Communications.
The current Dow Divisor is 0.132129493, as of July 2, 2010.
I was surprised to learn that the average was calculated this way because it means that stocks with large nominal prices, like Apple at $600, couldn’t be added because they’d break the math. If the stocks aren’t individually weighted, a big number breaks the sum because they’re not normalized in some way.