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I don't think this is true -- the index rises in proportion to the stock's price. The stock price of company A would have to rise $26.66~ to incur the same inde
by ccallebs 12y ago
I don't think this is true -- the index rises in proportion to the stock's price. The stock price of company A would have to rise $26.66~ to incur the same index increase as company B.
It does ignore market cap though. So if company A's market cap was $800M but company B's market cap was $3M, and the shares rise as I explained, they'd still have the same impact on the DJIA. That's why it's flawed.
However, it's a really good indicator of investment performance. Just not necessarily market or economic performance.
- minimax 12y agoI don't think this is true It is 100% true. The way the DJIA is computed is by summing the share prices of each of the 30 constituents and then dividing by a magic constant (the divisor). When you think about it this way it's obvious that a $1 increase in share price for any of the constituents will have exactly the same impact on the value of the DJIA.
- ccallebs 12y agoAh, my understanding was flawed then. Sorry to spread misinformation!