What is the Dow?

The Dow Jones Industrial Average (more commonly known as the Dow Jones or Dow) contains 30 of the largest and most influential companies in the USA and is intended to represent the stock market’s general market condition. While the Dow Jones has the word 'industrial' in its official title, many of the 30 components have very little to do with heavy industry and this title is only based on its historical naming. 

Many household names such as McDonalds, Microsoft, Walt Disney, Citigroup & American Express make up the Dow 30.

How is the Dow calculated?

The DJIA is calculated by using price-based weighting. The weight allocated to each of the 30 stocks is based on the stock's price relative to the sum of all the other stock prices.

One shortcoming of price-based weighting as compared to capitalisation weighted indexes is that a stock split changes the weight of a company in the Dow Jones even though there is no fundamental change in the company. To counteract this adverse effect the Dow divisor was created.  The Dow divisor is a number adjusted to account for events like splits that is used as the divisor in the calculation of the average.