The Dow Jones Industrial Average is unlike any other major market index in that it is a price-weighted index. In other words, the highest-priced stocks in the Dow carry the most weight.

The price-weighted nature of the Dow differs from the S&P 500, which is a market-capitalization weighted index. (A stock's market capitalization is the number of outstanding shares multiplied by the stock price.)

Because of the different way the two indexes are computed, some interesting things can occur. For starters, a stock in the Dow that carries a high price (but has a relatively small market capitalization) will impact the Dow in a much bigger way than it will the S&P 500. In other words, the same stock will influence the Dow and S&P 500 in different ways.

Another difference is in how each index handles stock splits. With the market-capitalization weighted S&P 500, stock splits are meaningless. Since splits don't effect a company's market capitalization, they don't affect the company's weighting in the S&P 500 index.

It's a different story in the Dow. Since the Dow is a price-weighted index, a stock split (since it reduces the stock price) will reduce the stock's weighting in the Dow.

A good example of this is Intel. The stock recently split 2-for-1. Prior to the split, Intel account for more than 7% of the Dow. Now that the stock has split, however, the weighting is roughly half. Keep in mind, however, that Intel's weighting in the S&P 500 is still the same as it was prior to the split.

Interestingly, Intel fell sharply on the day before its split was effective. One reason for the heavy selling that day was that investors who index the Dow had to sell a big chunk of their Intel holdings in order to keep Intel's post-split weighting consistent with the index.

Since index investing has become very popular with investors, especially with the growth of exchange-traded funds, it is important to know how an index is computed before choosing a particular index investment.