Millions of investors rely on the Dow Jones Industrials (DJINDICES:^DJI) to track the overall stock market. In the midst of a massive shift involving six different companies, the Dow has gotten a lot of attention lately. But there are many basic things that investors don't know about the Dow.
In the following video, Dan Caplinger, the Motley Fool's director of investment planning, looks at the Dow and three key elements of the average. Dan notes that its price-weighted methodology has traditionally given the most weight to IBM (NYSE:IBM), even though the company has a smaller market capitalization than many of its Dow peers. Moreover, two of the newest Dow members, Goldman Sachs (NYSE:GS) and Visa (NYSE:V), have very high share prices. As a result, Visa and Goldman will also have a large influence on the Dow's future moves.
Dan also notes that Dow investors have to pay attention to dividends to avoid being misled by the average's returns. He concludes with comments about the Dow's performance compared to the S&P 500 (SNPINDEX:^GSPC), pointing out that in some conditions, the Dow beats the S&P, while in others, the S&P does better.
Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs and Visa. The Motley Fool owns shares of IBM and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.