Thursday, March 5, 2009

"Like the crashin of Dow Jones stock/I had to connect to cross seals, to catch more mils"

I don't know...I was curious, so I figured you guys might be too.



NASDAQ Composite Index vs. Dow Jones Industrial Average

"Unless you’re reading this book in 2037 and times have drastically changed, the NASDAQ* Composite Index is lower than the Dow Jones Industrial Average.

The Explanation:
The DJIA was created by former Wall Street Journal cofounder Charles Dow in 1896. Dow picked 12 important companies from a variety of industries, from the U.S. Leather Company to the American Sugar Company (things had more transparent names in the days before Exelon). The only company still on the list is General Electric. Today the average includes not 12 companies but 30, from 3M to Wal-Mart. When first published, the DJIA stood at 40.94. The DJIA hadn’t closed above 1,000 until 1972. But the ’80s and ’90s were periods of intense growth for the stock market as a whole, which was reflected in the Average: By January of 2000, just before the dot-com bust, the average reached 11,722.98.

Although it only reflects what’s happening to a tiny percentage of publicly traded companies, the DJIA has been an important measure of the stock market’s health for more than a century, and it’s unlikely to go anywhere. There are broader, more accurate reflections of what’s happening (like the S&P 500 index), but at the end of the day, the most attention is still paid to the DJIA.

That’s starting to change, however, thanks largely to the NASDAQ. Most DJIA companies are traded on the New York stock exchange; the NASDAQ exchange is a relative newcomer to the stock exchange game (it was founded in 1971), and was the world’s first fully electronic stock market. As befits a digital stock exchange, many of NASDAQ’s marquis stocks are tech companies, including Microsoft, Amazon.com, and Dell. The NASDAQ Composite Index is an alternative to the DJIA. Instead of measuring the peaks and troughs of 30 big companies, it measures the change in the more than 3,000 stocks traded on NASDAQ. Because it’s a tech-heavy stock exchange, it suffered much worse than the DJIA after the dot-com bust, falling from 5,132 to a low below 1,200 in 2002. Still, the NASDAQ Composite Index started back in 1971 with a value of exactly 100—so it’s done well overall. If there are any lessons to be drawn from the histories of both DJIA and NASDAQ, it is these: Long-term investors tend to make more money. And, perhaps most important, investors who start out rich tend to get richer."

* National Association of Securities Dealers Automated Quotations

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