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The Dow Jones index serves a different purpose: it's meant to be easy to update without the use of a computer. It's easy to update and publish the index since
by millipede 2y ago
The Dow Jones index serves a different purpose: it's meant to be easy to update without the use of a computer. It's easy to update and publish the index since the math is a lot easier, and doesn't involve pulling in hundreds of quotes and trying to tabulate a weighted average.
It's not that useful now that we have computers, but in the early 1900s it was a reasonably good approximation of a market cap using fast math.
- staticman2 2y agoIndex funds didn't exist until 1975 while the Dow was formed in 1896. So I suppose it didn't really matter if the Dow was tracking things well, it wouldn't have impacted your investments.
- dredmorbius 2y agoIt was still useful to have a general idea of how stock markets were valued, particularly in light of the events on and about 29 October 1929, a/k/a Black Tuesday. Valuation of equities markets themselves has a profound impact on the monetary and financial systems as a whole. On which point, John K. Galbraith's The Great Crash: 1929 (1954) remains an excellent history of those events (and notes the DJIA's value frequently), as well as a general primer on equities and investments, and how they may go wrong.