The Dow Jones industrial average has long been used as a benchmark of the health of the U.S. economy, even if the average itself includes only a selected few blue-chip companies—30 in total—making it hardly representative to the U.S. equity space.

Still, as we mark 120 years since the DJIA’s inception, consider these interesting facts about one of the most well-known benchmarks globally:

  • Originally, the DJIA had only 12 components. The number of holdings was increased later, and only General Electric has lasted from inception to today in the mix.
  • The DJIA is price-weighted, not market-cap-weighted. That’s why it’s known as the industrial “average” rather than “index.” It was originally calculated by just adding up the prices of the component stocks and divided by the number of components. As stocks split, or were replaced, or made large distributions, the divisor was adjusted accordingly.
  • The composition of the DJIA—what stocks it includes—used to be determined by the Wall Street Journal’s markets editor. Today it’s the Averages Committee—including three S&P Dow Jones Indices employees and two WSJ employees—that handles the selection process.

Source:  Cinthia Murphy