Deciphering the Dow
Over the decades, the Dow Jones Industrial Average (DJI) has maintained its preeminence as the barometer of choice for tracking the day-to-day changes in U.S. equity prices.
Of course, like all other broad market indices the portfolio is dynamic, with membership changing on occasion to either add rising corporate stars or to punt fallen industry representatives. Unfortunately, the most significant flaw in the index composition is its price-weighted approach to calculating index values. The highest-priced stocks have a disproportionate effect on index valuations, irrespective of the size or import of the industry in which it operates or the overall market capitalization of the company itself....824 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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