|I was always curious whenever I heard television commentator Tom Brokaw say in his deep, distinctive voice, "And now on another note
the Dow is down sharply, falling 72.8 points."
I would catch myself yelling at the TV screen, "Down from what Tom? Falling from where? And
is that good or bad?"
To answer my own question
good or bad
I had to first find out what the Dow is.
Time for the BUYandHOLD glossary, -- Their definition of the Dow Jones Industrial Average (DJIA) is "an often-followed index that is intended to be representative of the U.S. stock market. The DJIA is a price-weighted average, comprised of 30 NYSE & NASDAQ/NMS corporation spanning many different industries."
Hold it! Price weighted average? Numbers? Uh oh
this doesn't feel good. I have a math phobia and I'm arithmetically challenged. I suppose now is as good a time as any to face my fears and tackle this problem head on. The stock market IS numbers, for goodness sakes!
I located a web site, The Syndicate, offers a more comprehensive description of the Dow than I've given here. This site also lists the companies that comprise the 30 actively traded stocks, as mentioned above.
These stocks are all blue chip stocks, i.e., the companies behind the stocks are good at making money. These companies are defined, overall, as of very high quality and they fall under the title of industrials, which includes anything to do with the business of manufacturing products.
it seems that the "powers that be" have agreed that these 30 companies have figured out the secrets to success. They are manufacturing products and the average person is buying these products.
I would imagine that these companies are also good indicators of people's buying habits. If people are buying their products, then the economy is doing fairly well
people are making money and spending money freely. No one is panicking and hoarding their dollars.
When I check the main page at BUYandHOLD, I notice the DJIA and numbers next to it. And underneath there is the NASDAQ and S & P 500 and more numbers
I'm going to put the numbers on hold for a little while. I need to do some intensive research before I can report to you on what in the heck those numbers actually mean.
First the NASDAQ
I believe when this term is listed with the DJIA and S & P 500, it stands for NASDAQ Composite Index, which my BUYandHOLD glossary tells me is "a market value weighted index comprised of about 3,500 stocks traded on the NASDAQ."
The NASDAQ is a market-weighted index? The DJIA is a price-weighted index? What's the difference between market and price indexes? I think I'll add this to my other future research efforts also. So
please hold on
more information to come at a later date.
What I did notice is that the NASDAQ uses 3,500 companies to make a prediction about the health of the economy. The DJIA only uses 30 companies. Hum? I think I like the NASDAQ more than the Dow already. It's using more companies to base predictions
that makes sense to me.
And one more indicator, the Standard & Poor's Index or S&P 500 for short, is defined by my Wall Street Dictionary as "a market performance gauge; this index checks the movement of 500 of the most commonly held stocks, and generalizes the findings to predict the potential movements of other securities and market volatility."
So each of these 3 indicators appears to track different numbers of certain stocks as well as different types of stocks. They are each useful individually, but I can see how I might use all 3 to boost my confidence about the health of the economy in general. That feels right.
It's similar to when my 7 year-old son is sick and has a high fever. At 99 degrees on the thermometer, I am a little concerned but
children's aspirin to the rescue. Even at 101, I don't panic. I'll just watch and wait. At 103, I'm looking for other stuff
blue lips, trouble breathing, pale color in his face. At 104 and all those other indicators
we're off to the emergency room
And other times he's had a temperature of 103 and nothing else. I put him to bed, bring him his lunch on a tray, sit on the bed with him, and comfort him. That's it. The next day, he's fine.
I've learned to trust my intuition with him by looking at all the indicators.
I plan on using all 3 stock market indicators in a similar fashion. Before I celebrate or panic, I will remind myself that these 3 indexes are simply tools that I can use to monitor my money and the economy.
And I feel fairly confident, at this minute, that when Tom Brokaw tells me the Dow is down sharply, I can now say to him, with some surety, "Oh yeah
big deal Tom. What about the NASDAQ and the S & P 500? How are they doing Tom?"
And before I get too smug, I better go find out what those numbers mean next to the listings.
Thank you for joining me,