The Dow - A Summary

So, what have we learned about the Dow Jones Industrial Average?

• It is the oldest and most-quoted average.
• It contains only 30 stocks.
• It is price-weighted, which skews the average.
• It is not a reliable indicator of the market averages.
• And, most important for investors, it simply is not that important.

Don't get caught up in the CNBC hype!

Is the Dow a Reliable Market Indicator?

Well, let's see...

The stock market has about 7,000 stocks. The Dow has 30. What are the odds the Dow is a reliable indicator of the total market? Not very good.

There have been many times the Dow has moved in unison with the market and has been an excellent market indicator. Yet, more often than not, it is not a reliable indicator of the general market.

So, the answer to the original question would have to be, generally, no.

DJIA - A Reliable Indicator?

In short, the answer would be no. After all, it's just an average. While it's a famous one, it's just an average with only 30 listed stocks. It's price-weighted. It actually tells us very little. It tells us even less about the Dow itself, unless you dig through the information.

Imagine... last week the Dow was up, but only 8 of the 30 stocks hit new highs. If you owned the wrong 8, you didn't do so well. If you owned the EFT, the Diamonds, you did quite well.

Most investors' portfolios don't coincide with the Dow, so for most investors, the DJIA is just a number. Nothing more. Nothing less.