If you visit stock listings regularly, or you frequently check your stocks portfolios online, you will probably also see results for three key market measures -- the Dow Jones Industrial Average ("the Dow"), the S&P 500, and the Nasdaq Composite. Most people are familiar with the Dow, and the S&P 500 has become better known in large part because index funds based on it have become much more widely used.
Let's take a closer look at the Nasdaq, though, as it's often underappreciated -- despite being the world's second-largest stock exchange (measured by market capitalization), after the New York Stock Exchange (NYSE).
It's got an interesting history
For starters, the Nasdaq has been around for quite a while. It began in 1971, and "NASDAQ" stood for the National Association of Securities Dealers Automated Quotations. It was an innovation, offering a more efficient way for stocks to be traded -- in an automated, computerized manner instead of in the old-fashioned in-person way, such as on the floor of the New York Stock Exchange. It utilized computer bulletin boards and telephones.
Over the years the Nasdaq bought other exchanges, such as the Boston Stock Exchange and the Philadelphia Stock Exchange. The Philadelphia exchange was the nation's oldest -- two years older than the New York Stock Exchange -- so now the Nasdaq can trace its roots back to 1790. Over time, the Nasdaq became home to many younger and faster-growing companies than the more established ones that tended to populate the New York Stock Exchange, in part because the Nasdaq listing fees were lower.
Today the Nasdaq is the largest electronic stock market, with the highest trading volume among U.S. exchanges and with more than 3,000 listed companies that recently totaled about $11 trillion in value. The biggest company on the Nasdaq is also the biggest in the world -- Apple -- at a market value recently near $800 billion.
It's a stock!
Few people realize that Nasdaq (NASDAQ:NDAQ) is also a publicly traded company. Based in New York City and currently led by CEO Adena Friedman, it recently sported a market capitalization of about $11 billion -- greater than companies such as Wyndham Worldwide, Harley-Davidson, Gap, and Domino's Pizza.
Nasdaq the stock pays a dividend, too, recently yielding about 2.3%. Its beta of 0.62 reflects lower-than-average volatility, and the fact that its price-to-earnings (P/E) and price-to-sales ratios were recently well above their five-year averages suggests that the stock is not a bargain right now.
It has two key indices associated with it
The Nasdaq is a stock market, not a stock index, but that doesn't mean there aren't Nasdaq-focused indices.
The main Nasdaq index is the Nasdaq Composite, which reflects all the 3,000-plus components of the Nasdaq stock market. When you hear that "the Nasdaq" rose a few points or fell some, the Nasdaq Composite index is what's being referred to.
The Nasdaq 100 is a rather prominent index, too, featuring roughly 100 holdings. Making its debut in 1985, it's a widely followed index today, averaging annual returns of about 10.8% over the past 15 years, compared with only 7.4% for the S&P 500. It's a tech-heavy index, without any financial companies in it. It's market-cap-weighted, too, meaning that the largest companies in it (in terms of market cap) will wield the biggest influence on it. Its main components are Apple, Microsoft, Amazon.com, Facebook, Google parent Alphabet, and Comcast. You can invest in the Nasdaq 100 through the PowerShares QQQ ETF (NASDAQ:QQQ).
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Selena Maranjian owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, and Microsoft. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Facebook. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.