Eye On Your Money: Sept. 10th, 2007

September 10, 2007

Time now for Eye on Your Money with Financial Advisor Bryce Matteson of the local office of Oppenheimer & Co. Inc. The market is up one day and down the next. What do all those numbers mean anyway?

And the market has been all over the place the last several months. The question is what exactly is "the market" that we hear about in the media each and every trading day?

The most popular way we measure how the U-S stock markets are doing is through indexes and the most popular index quoted on a daily basis is something called the Dow Jones Industrial Average.

The Dow Jones Industrial Average is a price-weighted average of actively traded blue chip stocks. It was created by Wall Street Journal editor Charles Dow and first published in his newspaper in 1896 with 12 companies or components making up the index.

The Dow started out with large industrial companies. Today's index is more diverse with many of its components having little to do with large industry.

The Dow has experienced much volatility of late. In April of this year, it broke through the 13,000 mark for the first time and rose through an all-time high back on the 17^th of July when it went through the 14,000 mark. One month later, the index was down to 12,517, a drop of nearly 1,500 points.

Time doesn't allow us to get into the mathematical formula on how the index is calculated. Basically, the sum of the component prices is divided by a divisor, which changes over time, to generate the value of the index.

I mentioned earlier that that Dow started out with only 12 companies. How many companies or components make up today's Dow Jones Industrial Average? Is it 100, 50 or 30?

With thousands of publicly traded companies on the nation's major exchanges, the Dow is made up of only 30 companies so it is a very small index. Take in mind, individuals cannot invest directly in an index.

Also remember, neither Oppenheimer & Co. Inc. nor I provide tax or legal advice. Consult your attorney or tax consultant for such guidance.

We'll talk about some larger indexes next week.

|

|

|