Over the past few years, financial crises have been rolling over the global economic community in waves. Truly creepy name - Dow Jones Industrial Average begins again and again to rock the public and political life, exerting an increasing influence on international concerns and companies, the activities of banks and industrial enterprises. Some are happy to see this notorious index rise or fall. What is the main essence and how does its fluctuation affect global business?

The history of the Dow Jones Company

How possible is all this and how does some abstract index influence the parameters of the development of the world economy on such a global scale that it is simply impossible to cope with this situation using simple levers of influence. Historically, the rise of this completely incomprehensible index affects all countries, no matter what continent they are on. Where did this influential index come from and how did it become so powerful? This value is so influential and eloquent only because of two very important and active stockbrokers. That’s what this system of work was called back then. One who could perform procedures with material and intangible assets called a stockbroker. The oldest and most active indicator of activity owes its indicators to two of the most prominent figures - Charles Henry Dow, 1851 to 1902, and Edward Davis Jones, 1856 to 1920.

Dow managed to forever imprint his business name in the branch of financial theory and practical science, which today has come to be called the applied and technical technique of securities analysis. This was due to the fact that at the dawn of his activity, Charles Dow was far from being of any practical interest either as a financial figure or as another practitioner in the field of financing industrial enterprises. The struggle for life, earning a piece of bread for a simple guy from Connecticut cost him unfinished school, a lack of education, and early work for a provincial newspaper, where he began to understand this life very early. It was here that he became the most highly qualified expert in the stock market game. Thanks to his brilliant analytical articles, his name became a real hit in the field of applied economics and financial analytics.

A little about the work of Dow and Jones

Only in the field of statistics and analysis of stock market movements in the thirties of the last century a new name appeared - Edward Jones. The general public found their newspaper fatally uninteresting and boring. It lacked funny stories from the lives and activities of celebrities, and piquant intriguing gossip. This was the first newsletter where each issue contained tables of fluctuations in stock exchange rates, many lines of numbers and absolutely nothing more interesting. The articles, which contained nothing interesting, were devoted to the level of financial condition of companies that are listed on the stock exchange quorum of securities. The Wall Street Journal became the main mouthpiece for what became known as the new financial elite of the international economic community. Here everyone found exactly the information that was of interest to him and only during that certain period of time when the stock exchange game was taking place. The discovery of important and valuable analytical information was a major breakthrough in the field financial activities and determining the level of its effectiveness.

Index essence

If previously everyone was interested in articles about robberies, heroic sieges of banks by police officers and predecessors federal services, then after the appearance of articles about the stock market game, the financial community and stockbrokers began to become interested in the newspaper and the system for calculating the level of guarantees of certain shares. This has become not only a universal game for adults, but also such an accurate tool for those who lead one or another that this improvement was quickly appreciated by everyone. Important and valuable has become open to small entrepreneurs and large banking officials with extensive experience in various systems. The activity of the New York Stock Exchange became the basis for the Dow Jones index to become the most important and in demand in the field of activity of those other firms and corporations engaged in production and any business activity. What was interesting and new was precisely that an analysis was made of all financial movements and changes in all changes in cash flows. It was the primary incarnation of the Dow Jones Industrial Average, which was a pioneer in the field of financial activity analysis. The analysis became an independent expert assessment American economy in general, the general situation became clear and predictable. The index was made as an indicator to track the US stock market and its condition. At the very beginning, the index showed the average price (arithmetic) of the 12 largest US stocks, i.e. each had an equal impact on the final Dow Jones index. The index still includes General Electric, an American diversified corporation that produces literally everything, from the production of any equipment (cars, locomotives, turbines, etc.) to medical supplies. In 2011, it took 3rd place in the Forbes list of public companies, and currently does not lose its position, being in the top ten.

The rest of the companies are:

• American Cotton Oil Company, currently part of the Unilever corporation
• American Tobacco Co, divided into several smaller companies in 1911
• American Sugar Co., renamed Domino Foods, Inc.
• Chicago Gas Co. also has a new name - Peoples Energy Corporation
• Distilling & Cattle Feeding Co, now Millennium Chemicals
• Laclede Gas Light Co, existing as The Laclede Group
• North American Co, divided into smaller companies in 1940
• National Lead Co, now NL Industries
• Tennessee Coal, Iron and Railroad Co., purchased by S. Steel in 1907
• S. Leather Co, ceased to exist in 1952
• U.S. Rubber Co, acquired by Michelin in 1990

Currently, the Dow Jones index is no longer calculated for 12 companies, but takes into account the value of shares of the 30 largest corporations in America. It is the simplest indicator to track the economic state of the United States, as well as the most widespread. This list includes industrial, financial companies, light industry corporations, pharmaceutical, oil and gas, etc.

If previously the Dow Jones index was calculated as a simple average of shares of 12 companies, now it is the so-called scaled average. It allows you to compare the index, taking into account changes in the structure of the company and its shares that are included in the index.

Below is a partial list of companies/corporations that are included in the Dow Jones index (the most recognizable):

Industrial companies:

• General Electric Co (company described above), Boeing Co (American manufacturer of aviation and space equipment)

Therefore, today, like several decades ago, this simple indicator, familiar to many first-hand, remains the most relevant and eloquent for short-term and long-term analytics in the field of development of financial activity and entrepreneurial initiative.

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The Dow Jones Index was originally created as a tool to quickly assess the economic condition of a country or individual sectors of the economy. It was the result of careful study of price movements in the stock market.

It was found that the activities of giant enterprises greatly influence the state of affairs in the state. The study, processing and analysis of statistical data contributed to the emergence of a global indicator, without which it is impossible to imagine the modern stock market.

Many derivatives have been created in the likeness of the Dow Jones Industrial Average. This contributed to improving the quality of stock market analytics and forecasting. And with such information, a smart investor can make good money.

History origin

With the advent of the first trading exchanges It was very difficult for people to objectively monitor the real state of affairs in the market. The stock market needed a universal indicator to focus on.

A way out of this situation was proposed by the Americans Charles Doe and Edward Jones, who were business partners. They were engaged in analytics and studying the economic life of the country.

Initially, the index was used for the internal needs of the company, which processed data and provided daily summaries of its activities.

On May 26, 1896, the index was first presented to the general public. Initially, it was calculated using a notepad and pen. The average value was calculated economic indicators 12 companies in the US industrial sector.

This simple but innovative idea served as the beginning of the formation of the “index direction” in the science of technical analysis of financial markets. Over time, the index was modified and supplemented with new companies and calculations.

The discoveries and operating principle of the Dow Jones index made it possible to interrupt the chaotic reaction of markets to various geopolitical events. This marked the beginning of a more developed and scientifically based process for analyzing and conducting trade transactions.

Index calculation procedure

The principle of calculating the Dow Jones indicator is very simple, convenient and understandable. Its practicality has been proven by its long history of existence.

With the growth and improvement of financial analytics, new indicators were constantly added to index calculations. Today it represents the average value of the stock price of the giant enterprises included in its composition.

Due to the fact that the index takes into account the actual price of enterprise securities, and not their capitalization, changes in the index affect only the price itself included in its composition.

Initially, the index was calculated as the average of all its components. For example, an index includes three companies priced at $10, $20, and $30 per share. Their closing average is $20 per share.

Suppose that a company whose shares cost $30 per unit expands and opens a new line of trade. In this case, the price of its shares due to temporary reorganization may become $25 per unit.

To ensure that the indicators were not distorted and corresponded to market realities, a conditional indicator “divisor” was introduced. It is used if the opening price of a new day corresponds to the closing price of the previous one.

3 - (10+20+30)/25=0.6 (“divisor” of the above companies)

If it is not introduced, then a sharp and biased jump will occur:

(10+20+25)=18.3 - when one of the companies strengthens, the indicator decreases. As you can see, this form of calculation is not entirely correct.

Index today

At the end of 2014, the Dow Jones Industrial Average was highly overvalued. It, together with other financial indicators of the world market, has significantly lost its position.

However, the growth of the exchange rate American dollar gives rise to an increasing trend in the price of shares included in the index. By March 2014, it reached the level of 16,154 points. In April 2014, the index is expected to move slowly to the level of 16,450 points.

The dynamism and constant sorting of the composition of the Dow Jones index allows you to objectively monitor the state of the market.

Skillful use of this financial instrument allows global investors to increase their profits many times over.

The heat of stock exchange battles, fever, passion for profit,

An innumerable chorus of prayers for gold,

The gleam of possessed eyes, the impatient rise

Millions of traders for golden Favor!

My soul, look! It's crazy on the stock exchanges

A dream of gold, an insatiable dream!...

Emil Verhaeren,<Город>

Prologue

The Dow Jones Industrial Average will celebrate its 120th anniversary next May. It is the oldest stock index in the world and was first officially published on May 26, 1896.

The index, as an indicator for describing the processes observed on the stock market, has become the tool that makes it possible to understand the daily confusion and chaos of movements caused by changes in stock quotes of certain companies on stock exchanges.

The index was invented in 1884 by the American journalist Charles Henry Dow, long before its official introduction. But then it served more for internal analysis and was not published anywhere. Introduced in 1896, the index originally consisted of the shares of 12 industrial companies of the time. It currently covers the 30 largest companies in the US. Throughout the entire period, the composition of the securities presented, as well as their number in the index, changed periodically, but the essence and main idea of ​​its calculation as an indicator of processes occurring in the financial market remained the same. But the importance and role has grown many times over in the economic and financial life of various economic entities!

The dynamics of the Dow Jones index gives us a wonderful picture of the events that took place both in the financial market in particular and in the economic life in general, not only of one individual country, but also of a number of countries in the world for more than a century.

Fig.1.

Falls and rises, bearish and bullish markets, periods of crisis and rapid growth - we can clearly see all this (or almost all) on the chart of the Dow Jones index.

A bear market is associated with an economic downturn (recession, depression), in other words, with a crisis in the economic life of the country. At the same time, a “bear market” is considered to be a market in which there is a steady trend of falling prices over a relatively long period of time, as a rule, we are talking about a price decline of at least 20%.

The Dow Jones Index, in this regard, gives us information about the following number of periods when the stock market declined by 20% or more from 1900 to 2015 (see Table 1 below):

Table 1.

An analysis of the index dynamics shows that from 1900 to the present, the American stock market has seen prices decline below 20% - 13 times. Of which the stock market fell below 50% twice - this was during " Great Depression"in 1929-1932 and during" Mortgage crisis"in 2007-2009.

Crisis periods are presented more clearly in Table 2. (see below):

Table 2.

The index showed its greatest decline in history during the Great Depression. The Dow Jones index reached its minimum value of 41.22 (or -89.19% of the previous maximum - September 3, 1929) almost 3 years later - July 8, 1932, after the notoriously sad " black monday"and what followed" black tuesday", the decline in indices in those days was -13.47% and -11.73%, respectively.

The period of the “Great Depression” of the 30s of the 20th century was also marked by the statistically largest number of worst periods of change in the monthly dynamics of the Dow Jones index from 1900 to 2015. In total, 6 months of that period showed the worst monthly dynamics of the index.

Fig.2.

It should be noted that the same number of months during that period showed the best monthly dynamics of the percentage change in the index. All this highlights the high volatility that was present in the American stock market in the 1930s.

Fig.3.

The dynamics of the average monthly percentage change in the Dow Jones index by the beginning of the year for the period from 1900-2015 is as follows:

Fig.4.

Part 1. Historical analysis of the dynamics of the Dow Jones Industrial Average

1.1. Elements of risk

The average annual return of the Dow Jones Industrial Average for the period from 1896 to 2015 was ~7.29% per annum.

At the same time, the standard deviation, a measure of profitability variability, was 21.24%.

Table 3.

It should be noted that the obtained indicators are not an accurate indicator of expected values ​​in the future. They only provide information about past events.

Daily volatility, shown in the chart below, shows us how wide the daily changes in the Dow Jones Industrial Average can sometimes be.

Fig.5.

Average daily fluctuations in index volatility over the period under review were predominantly in the range from -5% to +5%, narrowing and expanding from time to time. At the same time, you can see how often she easily broke through this corridor of values. This tells us the extent of the possible level of risk.

In the chart below we see the frequency of observed daily index change events.

Fig.6.

Often, to analyze the negative change in a particular investment asset, an indicator for analyzing market risk such as Value-at-Risk (VaR) is used. VaR - shows a value that, with a certain level of probability, will not exceed a particular value. There are three most common methods for calculating VaR - parametric, historical and Monte Carlo. Using the parametric method for calculating VaR assumes the presence of a normal distribution, but as we can see in Fig. 6. the existing actual distribution of events does not correspond to it. Checking the normality of the distribution using the Kolmogorov-Smirnov test confirms this.

Let's consider the obtained VaR values ​​calculated in three ways simultaneously:

Table 4.

In Table 4. daily VaR values ​​with a maximum confidence level of 99.9% are visible. This confidence level covers the maximum distribution of the random variable, the so-called " three sigma rule" (99,73%).

VaR calculated by the historical modeling method shows values ​​higher than when using the other two calculation methods (see column 4 of Table 4.).

In the last three columns of the table, the values ​​​​highlighted in red indicate to us that the actual maximum daily declines were higher than the obtained VaR values ​​during the crisis periods in the stock market under consideration. This suggests that VaR calculated even with a very high level of confidence cannot serve as a fully reliable mechanism for protecting against potential risk.

However, using such a tool as Value-at-Risk also has its positive sides. Identification and quantitative assessment of negative changes in certain events, presented in the manner presented, is an important element in the overall market risk management system, which includes such components as experience and motivated expert assessment in particular.

1.2. Analysis of nominal and real returns

Nominal yield

Having considered the risk parameters of the Dow Jones index above, I propose to return to the consideration of the indicator of profitability or investment attractiveness of the American stock market.

In terms of percentage change, the index's dynamics for the period from 1896 to August 2015 look quite impressive (see figure below).

Fig.7.

Theoretically, having invested $100 in 1896, by August 2015 this amount would have grown to ~ $38,730 in nominal terms and excluding the dividend component.

The return of the Dow Jones index for 119 years (1896-2015) was ~5.14% per annum (excluding the dividend component).

The annual rate of dividends paid on shares of companies included in the Dow Jones index was ~ 4.55% per annum for the period.

Below is the dynamics of the dividend yield of the index for the analyzed period.

Fig.8.

The graph shows that the percentage of dividend payments has a characteristic downward trend.

In the stock market, the return on investment must be considered both taking into account the increase in the market value of securities and the dividend component on them. For these purposes, the TSR (Total Shareholders Return) indicator is used - total return investor.

Taking into account the dividend component, the percentage change in the dynamics of the Dow Jones Industrial Average looks even more impressive.

Fig.9.

In this case, theoretically investing $100 in 1896 would have grown to ~$5,987,849 by August 2015, taking into account dividends paid and reinvested, but still in nominal terms.

Including dividends, the return of the Dow Jones Industrial Average over 119 years (1896-2015) was ~9.68% per annum.

Real yield

It is necessary to talk about real profitability adjusted for purchasing power monetary unit investments. Therefore, it is necessary to take into account the inflationary component of the American economy for the period under study when analyzing the dynamics of the Dow Jones.

In general, the indicators of changes in the yield of the Dow Jones Industrial Average and the US Consumer Price Index, broken down into 20-year periods and as a whole, will look like this:

Table 5.

The annual inflation rate in the United States of 3.04% led to the fact that over 119 years from 1896 to 2015, the purchasing power of the US dollar fell by 97.15% (see Figure 10 below).

Fig. 10.

A small inflation per year of 3.04%, as seen in the figure above, can significantly reduce the purchasing power of a currency over a long period of time.

Now, if we convert the nominal return on investment into real return, we get ~$163,092.

Fig. 11.

Please note that the real return of the Dow Jones index, taking into account dividends and adjusted for inflation, was 6.41 percent per annum.

Fig. 12.

The index in real terms during this period increased to 70,807.78 points, its growth rate was 162,992% versus 38,630% in nominal terms.

1.3. Relationships in the stock market - their presence or absence.

Market returns and inflation

Stock returns and inflation: " ...common sense dictates that stock returns should be relatively high when inflation is relatively high, and relatively low when inflation is relatively low. Why? Because shares represent their owner's claim to real property, the value of which should increase with inflation." - from the book “INVESTMENTS” Sharpe W., Alexander G., Bailey J.

In fact, let us consider this connection on our horizon under study.

Fig. 13.

Correlation coefficient between the nominal return of the Dow Jones Industrial Average and inflation rates for the period from 1896-2015. - (+0.06). The correlation is weakly positive. The level of the coefficient is insignificant, it can be considered equal to zero, which indicates that there is no relationship between these two variables.

Note: in one of the first versions of the analysis of the relationship between the nominal return of the Dow Jones index and the inflation rate, the correlation coefficient was negative and amounted to -0.15. The difference between the earlier version of the calculation and the current one is that in the first case, the source of information on inflation was the Federal Reserve Bank of Minneapolis, in the second - data from the American economist Robert Shiller, winner of the Nobel Prize in Economics for 2013. The inflation data series from the Federal Reserve Bank of Minneapolis had gaps in early years, while Robert Shiller had this information presented in full. It should be noted that the available official information on inflation in the United States provided by the U.S. Bureau of Labor Statistics, contains data only since 1913. Earlier information on inflation was collected by two scientists, George Warren and Frank Pearson of Cornell University, and published in 1933 in a book called Prices.

In the previously mentioned book “INVESTMENTS” - one of the authors, which was William Sharp, a Nobel Prize laureate in economics, a graph of a similar order was already presented, with the only slight difference that instead of the Dow Jones index, annual stock returns were presented and the period of data analysis was slightly less (1926–1993). And it talked about the resulting correlation coefficient equal to (-0.02), which also essentially indicated a zero connection.

Moreover, if we look at the relationship between inflation and the return of the Dow Jones index in real terms, we get a negative correlation - (-0.16).

Fig. 14.

This result suggests that high inflation is accompanied by low real stock returns.

Analysis of the data obtained also shows that stocks in the short term are not a means of protection against inflation, while the presence of a stable additional cash flow in the form of dividends, followed by their reinvestment, can neutralize this unpleasant moment in the long term.

Dividend yield as an indicator of future market behavior

Dividend earnings are an indicator of the growth and decline of a company's net assets, which signals the state of its affairs - whether it is far from bankruptcy or approaching it.

Above in Table 5. we could see that dividends occupy a significant share in total income investor in the stock market. Historically, the US stock market between 1896 and 2015 had a dividend yield of ~4.6% out of a 9.7% compound annual return in nominal terms. And this amounts to approximately 50% of the investor's annual income. At the same time, taking into account the possibility of subsequent reinvestment of received dividend payments, their overall contribution to the process of generating profit on the stock market becomes even more significant. Hence, dividends are the most important component of investment in the stock market as a whole.

In the world of finance, there is a fairly well-known Price/Earnings Ratio (P/E) - the ratio between the price of a stock and earnings per share. In other words, this is a coefficient that helps determine whether the stock of a particular company is cheap or expensive. It is important not to overpay for investments.

When analyzing the Dow Jones index, an approximate indicator of P/E will be the Dow Jones Index/Dividends (Dow Price/Dividend Ratio, P/D). This ratio shows how much an investor pays per dollar of dividends or how many years it will take for his investment to pay off.

Fig. 16.

The chart above shows that the current P/D is at a historically high level of $47 per dollar of dividends. It will take 47 years for the investment to pay off. Historically, the P/D ratio has averaged ~22. Currently, the current value exceeds the historical value by more than 2 times.

In the case of a high P/E ratio of a particular company, they often talk about high degree investor confidence in its good future. Wherein high level may also be a sign that the company is overvalued.

In relation to our P/D indicator, its high values ​​over the past 20 years may indicate great optimism among investors regarding the prospects of the stock market, but on the other hand, a series of financial crises during this period could not but affect such a positive assessment of it.

It turns out that some overvaluation of the market is likely?

Robert Shiller, who was already mentioned here earlier, in the late 80s, to identify the overvaluation of the market, came up with a modified Price/Earnings ratio - CAPE Cyclically Adjusted Price Earnings Ratio (cyclically adjusted P/E ratio).

The interpretation of the obtained values ​​of the CAPE coefficient suggests the following - a high level of its coefficient signals subsequent low performance of the stock market for some long time.

At the same time, it should be noted that in calculating the indicator, the ten-year average real profitability of companies is used as the denominator. The formula repeats the principle proposed in 1934 by Benjamin Graham and David Dodd in their joint work “Security Analysis”, where the use of a ten-year average in their opinion allows smoothing out temporary sharp changes in yield growth. Thus, the CAPE ratio gives a good forecast of future stock returns over the next 10 years.

Using the same calculation algorithm when calculating the CAPE indicator, but in relation to the P/D ratio (Price/Dividend Ratio), we will arrive at the following results:

Let's call our indicator CAPD Cyclically Adjusted Price Dividends Ratio (cyclically adjusted P/D ratio).

First, let's recalculate the dynamics of the Dow Jones index in today's real prices.

As a result, we get the following dynamics for the analyzed period:

Fig. 17.

Fig. 18.

But to what extent can this coefficient serve good indicator future dividend yield of the stock market, and through dividends and total return as a whole?

Calculating the subsequent 10-year average annual growth rate of the CAPD indicator will help us with this.

Fig. 19.

In the graph above, you can see the inverse relationship between the coefficient and its average annual 10-year growth rate (taking into account compound interest). The correlation coefficient is -0.45.

Fig.20.

The resulting correlation coefficient is not very high, but it still demonstrates some connection. It should be noted that the longer the investment horizon we consider, the higher this relationship will be.

So for a 5-year investment horizon, the correlation of CAPD with future stock returns is (-0.40), for a 10-year investment horizon, the correlation is (-0.45), for a 15-year horizon, (-0.57), for 20 -year-old - (-0.75).

Further analysis of the average annual growth rate of CAPD allows us to identify such an aspect of the market state in which we can say whether the market is currently too “expensive” or, on the contrary, “cheap” (see the figure below).

Fig.21.

The above graph tells us that when the CAPD value is in the range from 17 to 20, then over the next 10 years the stock market tends to increase dividend yield, showing an average annual growth rate of about 2%.

If the CAPD is in the range of 37 to 51, as in our case (the current CAPD value is 47), then over the next 10 years we can expect a decline in overall returns in the stock market, the average annual rate of decline will be about 1.2%.

Thus, the American stock market is currently overvalued.

Lately, many investors have been wondering if the market is too high. The analysis presented above provides an answer to this question. But the analysis does not mean that a correction in the market will happen “tomorrow”!

Part 2. History of crises

2.1. "Barings Crisis" 1890

The second half of the 19th century, with its rapid industrialization, led to rapid growth in international trade and investment between countries. The first large-scale era of globalization covered almost the entire world from 1850 until the outbreak of the First World War in 1914. The export of European capital easily crossed seas and oceans - the USA, Canada, Argentina, India, Egypt, China, Russia and many other countries.

The emergence of the Dow Jones index occurred against the background of industrial revival in the second half of the 90s of the 19th century, after the crisis of 1890, which received its name “Barings crisis”. The consequences of which were felt until 1895.

The rise in discount rates that began at the end of 1889 led to an increase in the cost of loans, and as a result, they became very difficult to obtain on acceptable terms. Investors in Germany began to get rid of Argentine securities, which provoked a sharp depreciation in France and the UK. Subsequently, a wave of bankruptcies occurred in Argentina, which caused mass unrest not only in their own country, but also in other countries of South America.

At that time, significant capital from British banks was invested in Argentina, the largest of which was Baring Brothers. At least half of the £30 million in Argentine and Uruguayan bonds issued in the last two years of that period were issued by Baring Brothers. In 1890, he sent money of about 10 million pounds to Argentina to finance a large investment project, without waiting for the completion of the issue of shares and bonds of the water supply company, and already in November of the same year, Barings Bank was forced to suspend payments, faced with a liquidity crisis. Thus causing even greater panic on the stock exchanges. The bank had a dominant position in the financial market at that time. Famous credit organisation, which at one time financed Napoleon’s military campaign, the Louisiana Purchase, was saved at that time by the Bank of England, which itself received assistance from the Bank of France and the Russian government.

But after 105 years, the bank, with more than 200 years of history, came to an end in 1995, caused by the unauthorized actions of only one senior trader working at Barings in Singapore - Nick Leeson. This time, the Bank of England failed to save the oldest financial institution. The “Great Power of Barings” was no more. In 1818, the Duke of Richelieu, Prime Minister of the French King Louis XVIII, uttered the famous phrase:

"There are six great powers in Europe: England, France, Prussia, Austria, Russia and Barings"

During the crisis period from 1890–1895. bill discount rates fell in Germany from 3.81% to 1.62%, in England from 3.5% to 0.92%.

Ultimately, the “crisis of 1890” changed the balance of power in the global economy, the key role in which passed from Great Britain to the United States.

The first signs of recovery after the "Barings crisis" appeared in Russia in 1893 as a result of the rapid development of heavy industry in the country, which attracted large investments from a number of European countries at that time. The rapid growth of industrial growth during this period in Russia was mainly due to large-scale railway construction in the country, which served as the development of the mining and metallurgical industry. According to experts of those years, foreign investment in Russian industry in the second half of the 90s in the total volume of investments amounted to about 30%, and in the mining, metallurgical and engineering industries - up to 70%.

2.2. Crisis of 1900 or "Metallurgical Crisis"

The massive construction of new and modernization of old factories and mines in both America and Europe, which took place against the backdrop of the industrial boom of the late 90s of the 19th century, required more and more additional metal, machinery, and coal. As a result, metal and fuel prices went up. Prices for metal alone in the United States rose by almost 70% in the two years from 1898 to 1900. The increase in coal prices in England, Germany and Russia ranged from 40 to 70% in the last year of the outgoing 19th century. In Russia, the lack of coal, due to the poor development of the coal industry at that time, was felt most strongly. All this provoked growth in the textile industry and agricultural goods, albeit to a lesser extent.

Against this background, there was tension and money market. Bill discount rates in 1900 rose again to the crisis levels of 1890 - in Germany to 4.4%, in England to 3.6%. The discount rate in the USA in 1899 rose to 11.1% from 2.4% in 1898, in Germany to 7%, in England to 6%, in Russia to 6.5%.

Russia was the first to give an alarming signal in the summer of 1899 about the onset of a new wave of crisis in 1900. The too rapid growth of heavy industry in recent years due to foreign investment has caused some dependence on the influx of new money, which played an important role in financing the industrial boom in the country. A monetary crisis occurred, caused by the beginning of a widespread increase in interest rates in the world. This made it difficult to obtain new loans and led to a wave of sales of Russian securities by foreign investors. In the spring of 1899, there was a decline in prices for shares of railway companies. And already in the summer of the same year, the companies of large Russian industrialists S.I. went bankrupt. Mamontov and S.P. von Derviz, who were the founders of more than two dozen joint stock companies, among them are banks, insurance companies, metallurgical, cement and engineering plants. Bankruptcy caused panic on the St. Petersburg stock exchange and a new wave of defaults among other industrial enterprises. The discount rate for bills of exchange in a number of regions of Russia has risen to 12%.

In the second half of 1899, a reduction began in Russia. industrial production. The bankruptcy of some (Verkhnedneprovsky Metallurgical Plant) and the increased supply of iron from others led to the fact that, starting in the fall, prices for metallurgical products began to fall due to the resulting overproduction.

Beginning in 1900, a change also occurred in American metallurgy - by the fall, metal smelting decreased by approximately 30% due to a decrease in orders for railway products (rails, locomotives, cars), and demand for Construction Materials and other various metal products. The consequence of this was a fall in industrial stocks from late November 1899 to October 1900 (see figure below).

Fig.23.

The need to sell the metal, due to its overproduction within the country, pushed to enter foreign markets and export it to European market, in particular, resorting to dumping tricks. Which intensified the already high competition in the global metals market of that time.

The import of cheap metal into Germany in 1900, where there was also an overproduction of it, led to a strong drop in shares of metallurgical and coal companies on the Berlin stock exchange. This caused a chain reaction of falling stocks and various other industrial enterprises and banks.

By mid-1900, a wave of bankruptcies hit German banks. In May, several large banks went bankrupt in Germany - Pommeranbank-Grupe, Berlin und Mecklenburg Strelitzsche Hypothekenbank. Panic began and the subsequent mass withdrawal of deposits began.

The situation gradually developed into a global crisis of overproduction.

In England the total volume also fell industrial products, metal production decreased, iron ore production decreased, and this despite military orders of that time, which ensured a certain load on industrial enterprises (England fought a war in South Africa - the “Second Anglo-Boer War”).

In Austria-Hungary, a crisis was observed in the metallurgical, engineering and woodworking industries, as a result of which mass layoffs began to occur.

The crisis also affected countries such as France, Belgium, Holland and even Switzerland.

And yet the crisis of 1900 was only an intermediate link; it served as the beginning of another big crisis 1901–1903

The oldest existing indicator of the health of the US economy, based on a list of the top 30 US companies, first published in 1896 by The Wall Street Journal

Definition and concept of the Dow Jones index, industrial, transport, utilities and composite Dow Jones index, history of the Dow Jones index, properties and features of the Dow Jones index, structure and calculation of the Dow Jones index, dynamics of the Dow Jones index

The Dow Jones Index is, definition

The Dow Jones Industrial Average is an indicator of the state of the US economy, which is calculated on the basis of the largest 30 companies. The list of these companies is dynamic and may change. It is compiled by the editors of The Wall Street Journal. The index was first published in 1896 and named after its inventors. The Dow Jones Index is one of the simplest, but at the same time the most authoritative indicators of the US economy. Therefore, knowledge of the dynamics of the index and its forecast are necessary for the successful work of any trader.

The Dow Jones Industrial Average is the oldest existing American market index. It was created by Charles Dow, editor of The Wall Street Journal and founder of Dow Jones & Company, to track the development of American stock markets. The index was first published on May 26, 1896. Initially, the index was calculated as the arithmetic average of the stock prices of the 12 largest companies. Currently, a scaled average is used for calculation to maintain comparability of the index, taking into account changes in the internal structure of the stocks included in it.

The Dow Jones Industrial Average is the simplest and most commonly used indicator of the state of the US economy. The list of companies covered by the Dow Jones Industrial Average is revised as the stock market situation evolves. This list is compiled by the editors of The Wall Street Journal. Currently, the Dow Jones Industrial Average covers the 30 largest companies in the United States.

The Dow Jones Industrial Average is one of several stock indices, created by Wall Street Journal editor and Dow Jones & Company founder Charles Dow. Dow's first publication took place on May 26, 1896. Initially, the index was calculated as the arithmetic average of all stock prices of 12 large American companies. Nowadays, a scaled average is used for calculation, which allows maintaining the comparability of the index, taking into account all changes in the internal structure of the stocks included in it.

Dynamics of the Dow Jones Index

The Dow Jones Industrial Average is the oldest among all existing American market indices. It was developed by Charles Dow, editor of The Wall Street Journal and founder of the aforementioned Dow Jones & Company. The purpose of creating the index: tracking the development of American stock markets. This is the average stock price of a group of the largest US companies. Published by Dow Jones & Company and is the arithmetic average of daily currency quotes at the time the exchange closes.

The Dow Jones Industrial Average is average stock prices of major US companies, published by the Dow-Jones company since the late 19th century. Represents the arithmetic average (unweighted) of daily quotes for a certain group of campaigns at the time the exchange closes. The method for calculating the DOW JONES INDICATOR has changed several times. In modern conditions, several indices are published: for industrial campaigns based on shares of 30 corporations (including American Telephone and Telegraph Company, Dupont de Nemours, General Motors, etc.); railway companies (20 largest companies) and utility companies (15 companies). Based on the specified indices, the overall INDEX is calculated. The DOW JONES INDEX serves as an indicator of the current economic situation in the United States and reflects the reaction of American business circles to various economic and political events.

The Dow Jones Industrial Average is The average stock price of a group of the largest US companies. The index is published by Dow Jones & Company and represents the arithmetic average of daily quotes at the time the stock exchange closed. There are Dow Jones indices for shares of utility, industrial and transportation companies. The Dow Jones Index serves as an indicator of the current economic situation in the United States and reflects the reaction of American business circles to various economic and political events.

The Dow Jones Industrial Average is an index calculated based on stock quotes of the largest US companies. Calculated by Dow Jones.

Review of the world's largest companies

The Dow Jones Industrial Average is the arithmetic average of the daily stock prices of a group of the largest US companies at the time the stock exchange closed; published by the Dow Jones company since the end of the 19th century, serves as an indicator of current economic conditions. The method for calculating the Dow Jones Industrial Average has changed several times.

The Dow Jones Industrial Average is The average stock price of a group of the largest US companies. Named this way because it is published by the Dow Jones Company. Represents the arithmetic average of daily quotes at the time the exchange closes.

What is the Dow Jones Index?

The Dow Jones Industrial Average is The average stock price of a group of major U.S. companies as published by the Dow Jones Firm. It represents the arithmetic average (unweighted) of daily quotes of a certain group of companies at the time the exchange closed.

The Dow Jones Industrial Average is an index calculated from the stock prices of the 30 most traded blue chips in the United States. Dow index Jones is the oldest continuously operating US market index. Its history goes back to the century before last and goes back more than 100 years. The companies whose shares make up the stock index change, both their number (in 1896 - 12, in 1916 - 20, from 1928 to the present day - 30), and names (not all of the first companies participating in the Dow Jones index) "survived" until today).

The Dow Jones Industrial Average is a tool used in the work of large financial organizations in the formation of portfolios and funds. This use of the index is called a “benchmark”. But to obtain more accurate analytical calculations on the stock market, as a rule, they use a comprehensive study of indices compiled by the Standard & Poor`s agency, taking into account the indicators of five hundred companies operating in the United States. And based on a set of indices, stock market events are predicted and portfolios and funds are formed.

Standard & Poor's is an American rating agency engaged in economic research

What is the Dow Jones Index?

What determines the price of a company's shares? Undoubtedly, the determining factors are the position of the company itself, as well as the general state of the market. The stability of the stock market contributes to an increase in prices for shares of companies whose position is somewhat weakened. Conversely, stock market unrest causes stock prices of even the most promising companies to fall. It was for the purpose of analyzing the “weather” in the stock market that stock indices were introduced. Each index has its own characteristics and scope of application. The Dow Jones Index is perhaps one of the most famous stock indices.

The Dow Jones Industrial Average, the premier and oldest index of stock market activity, is named after two people: Charles Henry Dow (1851-1902) and Edward Davis Jones (1856-1920). Charles Dow forever imprinted his name in that section of financial science, which is now commonly called technical analysis of securities. However, early in his life, his relationship with finances was like that of most people: there was never enough. After all, C. Doe was born not into a family of financial oligarchs, but on a farm in Connecticut. The boy had to get involved in hard work very early. When he was six years old, his father died, and the family had to struggle to survive.

Therefore, C. Doe never finished high school. But he was not a stupid village fool, and by the age of 18 he was already working as a correspondent for a famous newspaper. One of the topics that interested the young journalist was business news. C. Dow's brilliant analytical articles very soon made his name popular among both readers and business people. In 1882, he moved to New York and a year later founded here, with partners Edward Jones and Charles Bergstresser, the first publication devoted to the analysis of American business life. The small, two-page daily newspaper gained popularity, and in 1889, the Wall Street Journal began publishing on its basis.

Today this newspaper has successfully completed the second century of its existence. She is a recognized leader in American and world financial periodicals. And for its time it was simply a revolutionary publication. Until then, no one published daily stock reports. Information about financial condition companies were also published extremely rarely. The reason was obvious: executives, not without reason, feared that a publication revealing the value of the company's assets could lead to a hostile takeover by larger corporations. The law that required firms issuing securities to publish quarterly and annual reports was adopted quite late in the United States, only in 1934.

Example of analysis of the Dow Jones index

It was not legislators who changed the rules of the stock market, but journalist Charles Dow and statistician Edward Jones. The average public might find their newspaper deadly boring. No funny stories from the lives of celebrities, no juicy gossip! The main part of each issue was occupied by tables of exchange rates, lines of numbers and nothing more. The articles were devoted to the financial condition of companies listed on the securities exchange. Also indigestible reading! But the Wall Street Journal was intended for a completely different reader, who “swallowed” it from the first to the last page, since his financial success depended on it. Or failure. In the same way, the chief of the general staff reads with great interest intelligence reports on the state of the enemy army - also, as a rule, boring tables.

Stories about specific skirmishes and adventures of scouts are of little interest to him. A shootout or a chase are the most interesting parts in adventure novels. But they usually mark the failure of the reconnaissance team. The newspaper C. Doe made it very open to everyone important information, which until that time was owned by few. Thus, large and small players on the stock exchange were equalized. Everyone became their own field marshal. The publication of the newspaper confronted C. Dow and E. Jones with the need to introduce some global indicator of the activity of the New York Stock Exchange.

To do this, they selected the ten largest companies whose shares were listed on the stock exchange at that time, and began to determine the average price of securities of these companies every day. This was the first Dow Jones index. Naturally, the growth of this index was associated with an increase in the value of indexed companies (and therefore, in a sense, the entire American economy), and the fall recorded a decline in business activity and a decrease in the capital of the main players of the then business. Interestingly, among the ten largest companies chosen by C. Dow and E. Jones to calculate their index, nine were railroads. The 1880s were a time of rapid construction of American railroads.

By 1928, the number of companies included in the group when calculating the Dow Jones Industrial Average had increased to thirty. It is interesting that since then the number of companies taken into account in the calculation of this index has not changed. The basis for calculating the Dow Jones Index are those companies whose shares are traded only on the New York Stock Exchange, moreover, the selection is made very carefully and does not depend on the fame and position of the company. Thus, Microsoft does not have any influence on the formation of the Dow Jones Average, since its shares are listed on the NASDAQ exchange. Calculating the value of the Dow Jones index is currently extremely complicated, and the arithmetic average, which was originally the basis for this indicator, has lost its relevance these days.

We can say that the Dow Jones Average is one of the most unique and moving stock indices. The method for calculating it is based on many factors: division of shares, emergence of new companies, etc. What makes the Dow Jones index so popular and representative? And can a small base number of companies taken to calculate it have a significant impact on its value? Most likely no. Today, according to experts, changes in the value of the Dow Jones index depend on absolute stock prices. In addition, the calculation of this index can be called relative. However, despite this, the Dow Jones index does not lose respect and popularity.

The current Dow Jones Industrial Average (Dow Jones Industrial Average, or DJIA for short) is basically calculated the same way. Naturally, among the largest US companies listed today there are no railway companies, but there are Microsoft, Coca-Cola and McDonald’s. The NASDAQ index is also calculated, characterizing the activity of over-the-counter transactions for the purchase and sale of securities. In other countries, the stock exchange activity index is calculated similarly, as the average cost of capital of the largest national firms. But in each country this index is called differently. The activity of the Tokyo stock exchange is indicated by the NIKKEI index, and the business activity of the German economy is characterized by the DAX index.

There are 4 types of the Dow Jones Index (Industrial, Transportation, Utilities, Dow Jones Composite). The most famous of them is the Dow Jones Industrial Average. The Dow Jones Industrial Average is the oldest existing American market index.

World stock indices

Dow Jones Industrial Average (DJIA)

The Dow Jones Industrial Average (DJIA) is a simple average of the stock price movements of the 30 largest industrial corporations. The Dow Jones Industrial Average is the oldest and most widely used stock market index. The industrial prefix is ​​a nod to history - many of the companies included in the index do not belong to this sector. Its composition is not constant: its components may change depending on the positions of the largest industrial corporations in the US economy and on the market, but in modern conditions such cases are quite rare. Its components account for 15 to 20% of the market value of stocks listed on the New York Stock Exchange.

This index is calculated by adding the prices of the shares included in it and dividing the resulting sum by a certain denominator (which is adjusted for the amount of stock splits and dividends in the form of shares constituting more than 10% of the market value of issues, as well as for substitution of components and mergers and acquisitions). The Dow Jones Industrial Average is quoted in points. Over the course of more than a century of history, the composition of the Dow Jones Industrial Average has changed significantly - various companies have entered and disappeared from it. Only General Electric remained constant. In addition to Home Depot and SBC Communications, the DJIA includes Intel and Microsoft, which are also listed on the NASDAQ market.

As a result, today we have the following list of “thirty”: Alcoa, American Express, AT&T, Boeing, Caterpillar, Citigroup, Coca-Cola, DuPont, Eastman Kodak, Exxon Mobil, General Electric, General Motors, Home Depot, Honeywell International, Hewlett- Packard, IBM, Intel, International Paper, J.P. Morgan, Johnson & Johnson, McDonald's, Merck, Microsoft, Minnesota Mining & Manufacturing, Philip Morris, Procter & Gamble, SBC Communications, United Technologies, Wal-Mart Stores, Walt Disney. Industrial Average - these are average prices of the above shares, but if one of these companies announces a stock split or dividend payment, then the so-called current divisor decreases.

Dow Jones Industrial Average

Dow Jones Transportation Average (DJTA)

The Dow Jones Transportation Average (DJTA) is an average indicator characterizing the movement of stock prices of 20 transport corporations (airlines, railway and road companies). January 2, 1970 Dow Jones 20 Railroad Stock Index companies was modified to include shares of companies representing other types of vehicles. It is now known that the index of shares of transport companies is still an index of shares of railways. companies, but nine railway shares were replaced by nine shares of companies of other modes of transport.

Thus, the number of stocks in the index remains 20, and the total number of 65 that make up the Dow Jones Industrial Average remains unchanged. The transition to a revised index system was achieved by adjusting the divisors to produce an index for transport stocks and an index for 65 stocks. The additions and withdrawals resulted in the Dow Jones Transportation Index divisor being set at 4.084 (the railroad index's previous divisor was 4.721) and the 10.568 divisor being replaced by a 10.141 divisor to calculate the 65 index. shares Dow Jones Industry Group also provides information related to other industries.

Dow Jones & Co. explained that the conversion of the railroad stock index. companies in the index of shares of transport companies was dictated by fundamental changes in the structure of commercial transportation. At the end of the 19th century, when the railway stock index first appeared. companies in the railway system d. transportation of both goods and passengers was carried out on a colossal scale. The time of cars, trucks, buses and airplanes has not yet come. Just 20 years ago, according to d. 62% of all intercity transport was carried out, as shown by an analysis of tonnage and miles traveled. However, by 1969 this figure had dropped to 41%. During the same 20-year period, the share of commercial trucking nearly doubled, jumping from 11% to 21%, with pipelines, watercraft and airplanes doing the rest of the work.

By 1969, total intercity ridership had fallen to 1.2 percent, down from nearly 10 percent two decades earlier, according to passenger-mile calculations. In 1969, 86% of the total number of passengers used private cars, previously preferring intercity trains, airplanes - 9.4% and buses - 2.5%. When revising the index, the reduced share of railways was also taken into account. companies due to the merger of leading railways. companies and the transformation of some railways. companies in non-transport.

All about the Dow Jones index

Dow Jones Utilities Index (DJUA)

The Dow Jones Utility Average (DJUA) is average stock price movements of 15 gas and electricity companies. The Dow Jones Utility Index began in 1929 for 20 stocks, including Commonwealth & Southern and Niagara Hudson Power, which were not traded for all of 1929, so when calculated backdated The constant divisor method was used to average the average for the entire year 1929, and the calculation was made on the basis of 18 shares during the period during which the shares of these two companies were not available for sale. On June 2, 1938, the number of shares for settlement was reduced to 15.

Dow Jones Composite Index (DJCA)

The Dow Jones Composite Average (DJCA) is an indicator compiled on the basis of the Dow Jones industrial, transport and utility indices. The Dow Jones Composite Index is based on 65 stocks. The composite average was a simple arithmetic average of 70 shares, which at the time of calculation were among the shares of industrial, railway. and utility companies for which the Dow Jones Industrial Average was calculated beginning November 9, 1933. The number of stocks became 65 after June 2, 1938, when the number of stocks for the calculation of the average utility stock index was reduced from 20 to 15. Changes in the constant divisor method were introduced on May 10, 1945.

History of the Dow Jones Industrial Average

People who plan to connect their activities with stock exchanges will certainly come across the concept of an exchange activity index or, as it is called, the Dow Jones index. Let's figure out how it appeared and what it means. “Why do we need all this? After all, we are going to work not on the stock market, but on the foreign exchange market!”, you say. Reasonable! But the point is that stock market dynamics have an impact on currency market Forex has a very significant impact. Stock indices clearly show us health national economy in general and its individual industries in particular. If, for example, the US economy shows good growth rates, investors around the world rush to buy shares of American companies, which causes not only an increase in the prices of these shares, but also an increase in the exchange rate of the US national currency - the dollar.

Therefore, keep in mind: when the Forex market does not have its own drivers for movement, it, as a rule, begins to move in line with the dynamics of stock markets: national indices grow - grows National currency. We hope you now understand why currency traders around the world closely monitor stock market indices? Then let's get acquainted with index No. 1.

Dow Jones Index for Dummies

Charles Dow and the Wall Street Journal

Charles Dow became famous in the field of technical analysis of securities, despite the fact that he was born into a poor family of a farmer in Connecticut, where finances were always scarce. The situation was aggravated by the fact that when Charles was 6 years old, his father died, and the boy had to go to work early. He never finished high school. However, from the age of 18, Doe held a position as a journalist for a local newspaper and was especially interested in business news. He wrote analytical articles so well that this brought him fame not only among ordinary people, but also among serious business people. Therefore, it is not surprising that just a year after moving to New York, Charles Dow founded an analytical newspaper that covered events in US business life. His partners were Charles Bergstresser and Edward Jones. In 1889, the famous Wall Street Journal began to develop on the basis of this publication.

The Dow newspaper published stock exchange reports, tables with exchange rates, information on the financial condition of companies listed on the securities market - in a word, everything that was previously subject to an unspoken ban. Despite the fact that the publication of quarterly company reports was only permitted by law in 1934, Dow and Jones changed the rules of the stock market game much earlier. The Wall Street Journal did not publish anything funny, no gossip or crossword puzzles, so it was of no interest to the average person. However, knowledgeable people literally read the newspaper to its core, because their financial success depended on the information contained there.

Who is Charles Dow?

First Dow Jones Index

Dow set out to create a kind of “barometer” of the stock market, that is, an indicator that could quantitatively - in the form of a single figure - express the “well-being” of the market as a whole. The task is more than important: after all, at the same time, the value of shares of some companies grows, others fall, and others remain unchanged. How to assess the condition not of an individual company, but of the entire American stock market as a whole? Mr. Doe has the answer to this question. On July 3, 1884, his “barometer” was created. The method was simple, like all ingenious things: the journalist simply began to calculate the average closing price of shares of eleven companies every day. Some shares could rise in price, others could fall, but the change in their average price made it possible to see some kind of general trend.

Of course, this first index was far from perfect. Firstly, there are only eleven companies. Secondly, almost all of them were railway companies, that is, in fact, the index showed the “well-being” not of the entire national stock market, but rather only of its railway sector (it was later called the “railway index”). However, the proverb “the first pancake is lumpy” is in no way appropriate here. After all, the general principle of quantitative measurement of market dynamics was invented.

The emergence of the industrial index

Apparently, Dow himself was aware of the “skew” of his brainchild towards the transport side, and therefore in 1896 he created another index - the industrial one. It was calculated based on the shares of twelve industrial companies and was called DJIA (Dow Jones Industrial Average). By the way, in the name of this index, in addition to the surname of Dow himself, there is the surname of his partner in the publishing business, Edward Jones. Of the twelve companies, only General Electric is represented in today's version of the index. The remaining 11 companies were:

Dow Jones Indices

Changing the list of index stocks

At first, the index appeared irregularly, and its daily publication in The Wall Street Journal began on October 7, 1896. In 1916, the industrial index expanded to 20 stocks; in 1928, the number was increased to 30, where it remains today. In 1928, the newspaper's editors began calculating the index using a different divisor instead of the number of shares to avoid distortion when companies downgrade shares or when one share is replaced by another. Out of habit, this index continued to be perceived as “average”.

In addition, the calculation formula has become more complicated in order to prevent a sharp change in the index value in such cases as, for example, a “split” of shares. In fact, imagine: one of the companies included in the index suddenly decided to “split” its shares - for example, it announced that from now on the owner of one share priced at $10 is considered the owner of two shares at $5. But the index is calculated as the average of 30 shares. And suddenly one share out of these thirty fell in price by half. As a result, the entire index swung down, although there were no objective reasons for this.

Dow Jones Industrial Average today

To avoid such distortions, some changes have been made to the DJIA calculation formula. Since then, for over eighty years, the Dow Jones Industrial Average has faithfully served stock market analysts and traders (and at the same time us, currency speculators). Today, all 30 companies in the Dow Jones Industrial Average are leaders in their industries, and large numbers of individual and institutional investors hold these stocks. These 30 companies account for about 1/5 of the market value of all American stocks ($8 trillion) and about a quarter of the value of stocks listed on the New York Stock Exchange.

The use of such large, highly liquid stocks in the index creates an important feature of the industrial index - relevance. At any point in a trading session, the current Dow Jones Industrial Average is based on the most recent transactions. DJIA is the most famous of the Dow Jones indexes. This is what they mean when they say “The Dow crashed” or “The Dow opened in the green” (the word “industrial” is omitted for brevity). Every half hour, the New York Stock Exchange, on which the shares of its thirty leading US industrial companies are listed, publishes its latest value.

Concept of stock index

Properties of the Dow Jones Index

Most experts believe that the Dow Jones Index includes undervalued rather than fast-growing companies. Such a statement cannot, however, be considered absolutely fair. Let's say Alcoa (AA) at the beginning of 1999 was considered an undervalued company and was sold at 30. Six months later, the company's shares were already sold at 45, i.e. her performance improved by 50 percent. A legitimate question arises: Should a stock that could rise in price so sharply not have been considered a high-growth stock when its price was 30? Or, if the stock was undervalued at 30, is it still that way now? The division of stocks into fast-growing and undervalued is very arbitrary.

Classification, in our opinion, should primarily be based on price. The attitude towards a stock is still too strongly influenced by its “image”. The numbers, not the image, should be taken into account by the investor. One thing is certain about the companies in the Dow Jones Industrial Average: many of them are cyclical in nature. Stocks such as DD, GM and IP are securities of established, mature companies that have been included in the index for a long time. Cyclical companies are characterized by the fact that their prices rise and fall depending on the ups and downs of the overall economy. It should also be taken into account that the Dow Jones agency staff is determined to make as few changes to the index as possible.

Dow Jones believes that by avoiding dramatic reshuffling, compilers make its index a particularly reliable tool for tracking the fortunes of specific stocks under a wide range of market conditions. Dow Jones experts believe that stability is the quality for which investors value the Dow Jones Industrial Average most. In other indices, permutations are much more commonplace. The S&P 500, for example, removes a company's stock every month.

Another important property of the Dow Jones index is the following: this index mainly covers shares of large companies. Most small companies are not represented in any way - however, it cannot be argued that the fate of the index does not reflect their fate at all. Events occurring in the global economy affect the shares of companies included in the Dow Jones index, and they, in turn, determine the behavior of other indices. The rising Dow is a sign of the well-being of society, a sign that even the smallest companies can read and interpret in their own way.

Work of the largest US companies

Features of the Dow Jones Index

The peculiarity of the Dow Jones index is that it shows the average current stock prices without comparing them with the underlying value. Therefore, the index must be considered in comparison with a certain value taken as the basis for comparison (by a certain date).

Advantages of the Dow Jones Index

The most important advantage of the Dow Jones Industrial Average over other American indices (such as the S&P 500) is that the Dow Jones Industrial Average has stood the test of time. The index was founded in the 19th century, and still retains its popularity and relevance. This long-term success makes the Dow Jones Industrial Average a classic representative of the US stock market. The companies included in the Index are so-called “blue chips”, very reliable and stable.

Blue chip concept

Disadvantages of the Dow Jones Industrial Average

One of the significant disadvantages of the Dow Jones index is the way it is calculated - when calculating the index, the prices of the stocks included in it are added up and then divided by an adjustment factor. As a result, even if one company is noticeably smaller in capitalization than another, but the value of one of its shares is higher, then it has a stronger influence on the index. Even a large percentage change in the price of a relatively cheap stock can be offset by a small percentage change in the price of a more expensive stock. Despite its popularity, with the growth and development of the US economy, the Dow Jones Index reflects the market situation less and less reliably. There are more than 10 thousand joint stock companies in the United States, and a sample of the 30 largest and most stable cannot possibly fairly represent the entire population. Because of this, many analysts and traders choose the S&P 500 Index, which contains 500 companies, which for objective reasons more accurately represents the entire US stock market than the Dow Jones Industrial Average.

Reasons for the popularity of Dow Jones

Oddly enough, the Dow Jones Industrial Average (DJIA) still remains the stock market barometer and the most popular index. The main reason for the popularity of this index is simple: it works. At all times, starting from 1896, this index has indicated to investors the main trends in the development of the securities market. The Dow displays price declines and rises with the same accuracy as the S&P 500. In 95 out of 100 cases, the readings of both indices converge. The Dow has another very attractive quality: people understand how it works. Dow invites us to perform a familiar operation: add up prices and then divide them. The mechanism of the index remains unchanged, except that the divisor changes. Stock splits, stock exchanges, and other factors led to the divisor being changed in 1928, and Dow Jones has regularly adjusted it since then.

Most other indices are capitalization weighted, which means that a company's price change is multiplied by its size (capitalization). As a result, large companies have a more noticeable impact on the index than small ones. The Dow Jones Industrial Average is value weighted only. A change in the price of a small company by a point is just as significant here as a change in the price of a huge company. Which of the two approaches is more correct? Experts have not yet answered this question unambiguously. The Dow Jones Index is especially respected among private investors. The bull market we're experiencing today is awash with private money, from employee bonuses to executive stock options. It’s safe to say: few financiers foresaw the huge demand for working with private investor portfolios, which has been characteristic of the stock market in recent years.

Stock market activity

The popularity of the Dow Jones index among private investors is understandable. People like the fact that the index includes the very companies whose shares they buy for their portfolios - usually these are prominent companies whose names are always heard. In addition, it is always easier for a non-professional to work with a small number of items. Typically, private investors make up portfolios of shares of 20 - 25 companies, which is why they are closer to an index that analyzes the activities of 30 enterprises than those that include 500 or even 2000 types of securities.

Composition of the Dow Jones Index

The Dow Jones is the oldest existing American market index. This index was created to track the development of the industrial component of the American stock markets. The index covers the 30 largest US companies. The prefix "industrial" is a nod to history - many of the companies included in the index currently do not belong to this sector. The index was initially calculated as the arithmetic average of the stock prices of the covered companies. Currently, the calculation uses a scaled average - the sum of prices is divided by a divisor, which changes whenever the stocks included in the index undergo splitting or consolidation. This allows the index to remain comparable, taking into account changes in the internal structure of its constituent stocks.

The list of companies covered by the Dow Jones Industrial Average is revised as the stock market situation evolves. This list is compiled by the editors of The Wall Street Journal. All thirty companies whose shares are represented in the Dow Jones Industrial Average are leading companies in their industries. A huge number of investors hold shares of these companies. The shares of these thirty companies represent about one-fifth of the market value of all American stocks. They make up a quarter of the value of all shares that are listed on the New York Stock Exchange.

On October 19, nineteen eighty-seven, the stock exchange was gripped by a crisis. In just under seven hours, industrial stocks fell twenty-three percent. This meant a reduction in transactions securities five hundred three billion dollars. In two months, stock exchange transactions fell by about one trillion dollars, that is, by thirty-six percent. At that time, six hundred and four million shares were traded, and the stock exchange's computers were simply overloaded.

Technical analysis stock markets

The Wall Street Journal's editors select companies carefully when compiling their lists. Preference is usually given to companies that have a high market value, are owned by various investors or individuals, have regular dividends and earnings, and have a leading position in their industry. The Dow Jones Industrial Average currently covers the companies listed below.

Public company 3M Co.

3M Co. - This American diversified innovation and manufacturing company. Headquarters - in St. Paul, Minnesota (USA). The President and Chairman of the Board of Directors is Inge Thulin. Today, the company's enterprises in 60 countries around the world produce more than 50 thousand types of goods for medicine and various industries, including automotive, oil and gas, mining, etc. (abrasives, adhesives, etc.).

American Express Co.

American Express Co. - This American financial company. The company's well-known products are credit cards, charge cards and traveler's checks. The company's headquarters are located in New York. The company's common stock is traded on the New York Stock Exchange. It is one of 30 companies included in the Dow Jones Industrial Average. In 2008, Sberbank of Russia became the world leader in the sale of American Express traveler's checks (over $1 billion). In 2013, American Express was ranked 51st on Fortune's list of the 100 Best Employers published each year.

Media conglomerate AT&T

AT&T is one of the largest American telecommunications companies and one of the largest media conglomerates. It is the largest provider of both local and long-distance telephone communications in the United States, as well as one of the largest wireless service providers in the United States (85.1 million users). The total number of AT&T customers is more than 150 million people. Headquarters are in Dallas, Texas.

The company provides services in the field of telephony, long-distance communications, Internet access, cable television, etc. At the beginning of 2006, AT&T served over 50 million telephone lines. The total number of employees is 294.6 thousand people. The number of personnel is 303.5 thousand people. The company's revenue for 2010 amounted to $124.28 billion (for 2009 - $122.51 billion), operating profit - $19.57 billion ($21.0 billion), net profit - $20.18 billion ($12.44 billion).

Boeing Co Corporation

Boeing Co. - This American corporation. One of the world's largest manufacturers of aviation, space and military equipment. The headquarters is located in Chicago (Illinois, USA). The corporation consists of two main divisions: Boeing Commercial Airplanes (civilian products) and Integrated Defense Systems (military products). In addition, the corporation includes Boeing Capital Corporation (project financing issues), Shared Services Group (infrastructure support) and Boeing Engineering, Operations & Technology (development, acquisition and implementation of innovative technologies and processes).

Basic production capacity companies are headquartered in the state of California. The company produces a wide range of civil and military aircraft, being, along with Airbus, the largest aircraft manufacturer in the world. In addition, Boeing produces a wide range of aerospace equipment for military purposes (including helicopters) and conducts large-scale space programs (for example, the CST-100 spacecraft).

Public company Caterpillar Inc.

Caterpillar Inc. - This American corporation. One of the leading manufacturers of the largest special equipment in the world. It produces earth-moving and transport equipment, construction equipment, diesel engines, power plants (powered by natural and associated gases) and other products, as well as footwear. Recently, also secure mobile phones and smartphones. It consists of more than 480 divisions located in 50 countries on five continents. In Russia it has its own plant in the Leningrad region, in the city of Tosno (since 2000).

Cisco Systems Inc.

Cisco Systems is American multinational company that develops and sells network equipment. Strives to present a full range of network equipment, and thus provide the client with the opportunity to purchase absolutely all the necessary network equipment exclusively from Cisco Systems. One of the world's largest companies specializing in high technology. Initially, I dealt only with corporate routers.

Cisco calls itself "the world leader in networking technologies designed for the Internet." Cisco Systems has created a multi-level, extensive certification system for computer network engineers. Due to the fact that the exams of this system test knowledge not only of Cisco products, but also knowledge of network technologies and protocols, many organizations, even those working on network equipment from other companies, recognize the value of Cisco professional certifications. In particular, the CCIE certification is one of the most well-known and respected in the computer industry.

Energy company Chevron

Chevron Corp. - This the second integrated US energy company after ExxonMobil, one of the largest corporations in the world. The company ranks 5th in the Fortune Global 500 (2009). Included in the Fortune 1000 list at the end of 2005 (3rd place). Headquarters in San Ramon, California (USA).

The company produces oil in various regions of the world. It owns a number of oil refineries, as well as an extensive network of gas stations. Chevron's proven oil reserves are 13 billion barrels. In 2007, the company produced 87.8 million tons of oil (in 2006 - 86.6 million tons) and 50.2 billion m³ of gas (49.56 billion m³). The company's revenue in 2007 amounted to $214.1 billion (in 2006 - $204.89 billion), net profit - $18.7 billion ($17.14 billion).

The Coca-Cola Company

Coca-Cola Co. - This a carbonated soft drink produced by The Coca-Cola Company. Coca-Cola was recognized as the most valuable brand in the world in 2005-2011 in the ranking of the international research agency Interbrand. Today this drink is sold in more than 200 countries around the world.

The Coca-Cola drink was invented in Atlanta (Georgia, USA) on May 8, 1886. Its author is pharmacist John Stith Pemberton, a former officer in the American Confederate Army (there is a legend that it was invented by a farmer who sold his recipe to John Stith for $250, as John Stith allegedly said in one of his interviews). The name for the new drink was invented by Pemberton's accountant, Frank Robinson, who, also skilled in calligraphy, wrote the words “Coca-Cola” in beautiful curly letters, which are still the logo of the drink.

E.I. du Pont de Nemours and Company

E.I. du Pont de Nemours & Co. - This American chemical company, one of the largest in the world. Included in the Fortune 1000 list at the end of 2008 (81st place). Headquarters are in Wilmington, Delaware and Geneva, Switzerland. Founded in 1802 as a gunpowder production company. DuPont produces a wide range of chemical materials with extensive innovative research in this area.

The company is the inventor of many unique polymer and other materials, including neoprene, nylon, Teflon, Kevlar, Mylar, Tyvek, etc. The company was the developer and main manufacturer of freons used in the production of refrigeration devices. In 1968, the company introduced the world's first fully automated discrete chemistry analyzer for blood and serum. In 2004, DuPont sold its textiles business to Koch Industries, along with one of its most successful brands, Lycra. Number of personnel - 70,000 (2012). The company's revenue in 2005 amounted to $26.6 billion. Du Pont's napalm and defoliants were used by the US Army during the Vietnam War.

Oil company Exxon Mobil

Exxon Mobil Corp. - This American company, the largest private oil company in the world, one of the largest corporations in the world by market capitalization ($417.2 billion as of January 28, 2013, $336.5 in May 2009 according to the FT 500 market capitalization rating). In 2007, it took 2nd place in the list of the largest public American companies Fortune 1000 and in the list of the world's largest corporations Fortune Global 500 (lists were compiled by revenue in 2006).

The company's headquarters are located in Irving, a suburb of Dallas, Texas. The company produces oil in various regions of the world, including the USA, Canada, the Middle East, etc. ExxonMobil has a stake in 45 refineries in 25 countries and has a network of gas stations in more than 100 countries. Proven reserves are 22.4 billion barrels of oil equivalent.

General Electric Corporation

General Electric Co. - This American diversified corporation, manufacturer of many types of equipment, including locomotives, power plants (including nuclear reactors), gas turbines, aircraft engines, medical equipment, household and lighting appliances, plastics and sealants. The company in 2011 ranked third in the Forbes list of largest public companies, and was the world's largest non-financial TNC, as well as a major media concern. The company's headquarters are located in Fairfield, Connecticut (USA).

The most famous chairman of the company's board of directors was Jack Welch. The current Chairman of the Board of Directors and Chief Executive Officer is Jeffrey Immelt. The company is owned by a large number of institutional and individual investors, mutual funds, none of which has a significant (more than 5%) stake. As of December 31, 2009, the largest stakes were held by the State Street Corporation bank (3.51%) and the investment company Vanguard Group Inc. (3.36%). In addition, a large number of shares belonged to mutual funds.

Conglomerate Goldman Sachs Group Inc.

The Goldman Sachs Group Inc. - This one of the world's largest commercial banks (until September 2008 - investment bank), which is a financial conglomerate, is known among financiers as "The Firm". Since September 20, 2013, it has been included in the Dow Jones Industrial Average. The bank was founded in 1869 and is headquartered in New York, in Lower Manhattan. Chairman of the Board of Directors - Lloyd Blankfein, President - Gary Cohen. The bank's market capitalization as of July 2013 is $78 billion.

The company's business is divided into 3 key divisions: investment banking, stock trading and asset and securities management.

Home Depot retail chain

Home Depot Inc. - This American retail chain, which is the largest on the planet selling repair tools and building materials. The company's headquarters are located in Vinings, Georgia. The company employs 355 thousand employees. The chain operates 2,144 stores in the USA, Canada, Mexico and China. The Home Depot is one of the largest retail retailers in the United States. The company is ranked 101 on the 2011 Fortune Global 500 list.

Intel Corp.

Intel Corp. - This an American corporation that produces a wide range of electronic devices and computer components, including microprocessors, system logic sets (chipsets), etc. Headquarters in Santa Clara, California, USA. Intel is the world's largest manufacturer of microprocessors, occupying 75% of this market in 2008. The main buyers of the company's products are personal computer manufacturers Dell, Hewlett-Packard and Apple.

In addition to microprocessors, Intel produces semiconductor components for industrial and networking equipment. The company's revenue in 2011 was $53.99 billion (an increase of 24.7%, in 2010 - $43.62 billion), net profit - $12.94 billion (an increase of 12.89%, in 2010 - 11.46 billion.

International Business Machines Corp.

International Business Machines Corp. - This a multinational corporation headquartered in Armonk, New York (USA), one of the world's largest manufacturers and suppliers of hardware and software, as well as IT services and consulting services. The corporation is represented in almost all countries of the world. At the end of 2010, the largest number of company employees work in the United States (105 thousand, about 27%), in India 75 thousand personnel (about 19%) are permanently employed by IBM.

The company came to the USSR in 1974. In 2006, IBM opened a research laboratory in Russia to develop mainframe technologies. Over three years, the company was going to invest about $40 million in it and increase the number of employees from the current 40 to 200 people. The IBM Technology School project is also being implemented.

JPMorgan Chase and Company

JPMorgan Chase and Co. - This one of the oldest financial conglomerates on the planet. Financial institution, based in New York, is a leader in investment and commercial banking services. JPMorgan Chase's $2.3 trillion in assets puts it first among the largest banks in the U.S., ahead of Citigroup and Bank of America. The hedge fund managed by JPMorgan Chase is the second largest fund of this kind in the United States with assets of US$28.8 billion (2006). Formed by the merger of Chase Manhattan Corporation and J.P. Morgan & Co., the company serves millions of customers in the United States.

Johnson & Johnson Inc.

Johnson & Johnson Inc. - This American company, a large manufacturer of cosmetic and sanitary products, as well as medical equipment. Included in the Fortune 1000 list. Headquarters in New Brunswick, New Jersey (USA). Johnson & Johnson produces a wide range of medicines, body care products under the brands JOHNSON'S Baby, Neutrogena, o.b., Carefree, Reach, Clean & Clear, RoC, Acuvue contact lenses, etc. The company also produces various materials, tools, equipment and technology for medical institutions.

The corporation includes about 230 subsidiaries in more than 50 countries; Johnson & Johnson products are sold in more than 175 countries. The total number of personnel is more than 116 thousand people (2006). The company's revenue in 2008 amounted to $63.7 billion, net profit - $12.9 billion.

McDonald's Corporation

McDonald's Corp. - This American corporation, until 2010 the world's largest chain of fast food restaurants. At the end of 2010, the company ranks 2nd in the number of restaurants worldwide after the Subway restaurant chain. Included in the 2011 Fortune Global 500 list (403rd place). The company's headquarters is located in Oak Brook, a suburb of Chicago, USA. As of mid-June 2009, 32,060 restaurants operated under the McDonald’s brand in 118 countries (including about 14 thousand of them located in the USA). Of these, a significant proportion (25,578) were franchised, so the variety of restaurants, portion sizes and composition may vary greatly from country to country.

At the end of 2010, 32,737 restaurants around the world operated under the McDonald’s brand (thus, McDonald’s lost its leadership to the Subway chain). One of the company's most developing projects recently has been the McCafé coffee shop chain. The total number of personnel of the company in 2008 was about 400 thousand people. The company's revenue in 2008 amounted to $23.5 billion (in 2007 - $22.8 billion), operating profit - $4.3 billion ($2.4 billion), net profit - $2.6 billion ($2.3 billion). In 2010, the corporation's revenue reached a record high of $24.07 billion. At the same time, McDonald's net profit amounted to $4.94 billion.

Merck&Co Corporation. Inc.

Merck & Co. Inc. - This The world's oldest pharmaceutical and chemical company, founded in 1668 by Friedrich Merck. The headquarters is located in Darmstadt, Germany. Known as EMD in North America. The activities of the Merck group of companies located around the world are carried out in two main areas - pharmaceutical and chemical. The company's pharmaceutical business includes the development and production of prescription or licensed drugs, generic drugs and drugs for over-the-counter retail sale.

Pharmaceutical products (Nasivin, Concor, Cebion, etc.) on Russian market is represented by Nycomed. More than 30% of revenue comes from the production of liquid crystals for mobile phones, televisions and computer displays, pearlescent pigments for packaging and cosmetics, cosmetic ingredients, solvents and consumables for HPLC and TLC, granular microbiological media, instruments and rapid tests for analytical laboratories. The Merck group of companies includes the following biochemical brands: Calbiochem, Novabiochem, Novagen - today known collectively as Merck Biosciences.

Public company Microsoft

Microsoft Corp. - This one of the largest transnational companies producing proprietary software for various types of computing equipment - personal computers, game consoles, PDAs, mobile phones and others, the developer of the most widely used software platform in the world at the moment - the Windows family of operating systems. The company's divisions also produce the Xbox family of gaming consoles, as well as accessories for personal computers (keyboards, mice, etc.).

Since 2012, it has been producing its own tablet computer - Surface and its edition Surface RT. Microsoft products are sold in more than 80 countries, and programs have been translated into more than 45 languages. The company's headquarters is located in Redmond, Washington, USA. The corporation's staff is about 90 thousand people. A Microsoft representative office has been operating in Russia since November 1992 (since July 2004 - Microsoft Rus LLC). Microsoft is under court supervision as a result of a 2002 settlement.

Nike Inc.

Nike Inc. - This American company, world famous manufacturer of sportswear and footwear. Headquarters in Beaverton, Oregon. Analysts say Nike has nearly 95 percent of the U.S. basketball shoe market. In 2008, the company employed more than 30,000 people worldwide. The brand is valued at $10.7 billion and is the most valuable brand in the sports industry.

Since September 20, 2013, it has been included in the Dow Jones Industrial Average. Nike is one of the largest manufacturers of sporting goods in the world. Products are manufactured under the brands Nike, Air Jordan, Total 90, Nike Golf, Team Starter, etc. Nike also controls companies that produce goods under the Converse and Hurley International brands.

Pharmaceutical company Pfizer

Pfizer Inc. - This American pharmaceutical company, one of the largest in the world. The company produces the world's most popular drug Lipitor (Atorvastatin, used to lower blood cholesterol). The company also sells the following popular drugs: Lyrica, Diflucan, Zithromax, Viagra, Celebrex, Sermion, Dostinex, Champix. Pfizer shares were included in the Dow Jones Industrial Average on April 8, 2004.

Headquarters are located in New York City, and the main research center is in Groton, Connecticut. The company produces drugs for a wide range of consumers under the well-known brands Benadryl, Sudafed, Listerine, Desitin, Visine, Ben Gay, Lubriderm, Zantac75 and Cortizone. Pfizer is the inventor and manufacturer of the world famous drug Viagra. The production of drugs is carried out at the company's factories located in the USA, Great Britain, France, Italy, Holland, Germany, Turkey (in total - in 46 countries around the world).

Procter & Gamble Co.

Procter & Gamble Co. - This American company, one of the leaders in the global consumer goods market. The company ranks 22nd on the Fortune 500 list and is one of the leading US companies by revenue and market capitalization. P&G is the world's largest advertiser, the company's advertising expenditures exceed $8 billion. Its headquarters are in Cincinnati, Ohio. The P&G representative office in Russia was opened in 1991, and currently the company has opened 4 regional offices and 3 factories. The main Russian office is located in Moscow.

Travelers Insurance Company

Travelers is holding Insurance Company. The company provides a wide range of insurance services for private and corporate clients, as well as non-profit and government organizations. The company provides accident insurance, debt insurance, property insurance and other types of insurance.

UnitedHealth Group Inc.

UnitedHealth Group Inc. - This diversified company operating in the healthcare sector. The group operates through two companies, UnitedHealthcare and Optum, which provide pharmaceuticals and healthcare services to private clients and healthcare institutions.

United Technologies Corporation

United Technologies Corp. - This one of the largest financial and industrial groups in the United States. Headquarters are in Hartford, Connecticut. UTC includes the following companies: Carrier Corporation is one of the world's leading companies producing heating, ventilation, air conditioning and refrigeration systems. UTC Aerospace Systems - merger of Hamilton Sundstrand and Goodrich in 2012. Hamilton Sundstrand is a defense company that develops and produces aviation and other military equipment.

Otis is the world's largest manufacturer of elevators, escalators, etc. Pratt & Whitney is a manufacturer of aircraft engines, gas turbines, etc. Sikorsky Aircraft Corporation is a world leader in the development and production of helicopters for commercial, industrial and military needs. The total number of personnel of the holding companies for 2008 is 223.1 thousand people. The total revenue of United Technologies enterprises for 2008 was $58.7 billion (for 2007 - $54.8 billion), net profit - $4.7 billion ($4.2 billion). Assets at the end of 2008 - $56.5 billion.

Telecommunications company Verizon

Verizon Communications is American telecommunications company, one of the largest in the United States and around the world. Headquarters - in New York. Verizon Communications provides fixed and mobile communications services (cdma 800/1900 MHz), satellite broadband Internet access services, and information services. In addition, the company owns a large business producing telephone directories. The number of personnel for 2005 is 217 thousand people. Revenue in 2006 - $88.144 billion (in 2005 - $75.1 billion), net profit - $6.197 billion ($7.4 billion).

Transnational company Visa Inc.

Visa Inc. - This American multinational company providing hosting services payment transactions. It is the basis of the association of the same name. Since September 20, 2013, the price of its shares has been included in the calculation of the Dow Jones index. The annual trade turnover of Visa cards is 4.8 trillion US dollars. Visa cards are accepted for payment at retail outlets in more than 200 countries. The organization plays a central role in the development of innovative payment products and technologies used by its 21 thousand member financial institutions payment system and their cardholders.

At the beginning of the third millennium, VISA accounted for about 57% payment cards in the world, the main competitor MasterCard had approximately 26%, the third system American Express slightly more than 13%. The situation changed radically in 2010: of the 8 billion cards in circulation, 29.2% were China UnionPay versus 28.6% Visa, although Visa still led in payment volume. Today, there are more than 2.011 billion Visa cards in the world as of 05/02/2012, which are accepted for payment at approximately 20 million different institutions around the world.

Retail company Wal-Mart Stores

Wal-Mart Stores Inc. - This An American retail company that operates the world's largest retail chain operating under the Walmart brand. Headquarters are in Bentonville, Arkansas. The company ranks 1st in the Fortune Global 500 (2012). Global retail leader Walmart, as last year, tops the Global Powers of Retailing 2013 global ranking compiled by Deloitte; Wal-Mart accounts for 10% of the total revenue of all Top 250 participants. Walmart is the world's largest retail chain, which includes (as of 2012) more than 10,130 stores in 27 countries. These include both hypermarkets and supermarkets selling food and industrial goods.

The chain's strategy includes such components as maximum assortment and minimum prices, tending to wholesale ones. Walmart's main competitors in the US retail market are Home Depot, Kroger, Sears Holdings Corporation, Costco and Target. Walmart is a leader in the implementation of technologies related to the use of RFID tags in retail.

Conglomerate Walt Disney Co.

Walt Disney Co. - This one of the largest financial entertainment conglomerates in the world. Founded on October 16, 1923 by brothers Walter and Roy Disney as a small animation studio, it is now one of the largest Hollywood studios, owner of 11 theme parks and two water parks, as well as several television and radio networks, including the American Broadcasting Company (AEC). -BBC).

The headquarters of the Walt Disney Company and its main production facilities are concentrated in the Walt Disney Studios division (Walt Disney Studio) in Burbank, California, USA. The Walt Disney Company is a member of the Dow Jones Industrial Average. Market capitalization as of May 16, 2013 is about $122 billion.

Dow Jones Index Calculation

At the moment, there are powerful computers that can calculate many different indicators. Now you think this method is too simplified. But at the end of the nineteenth century, this innovation was like a lighthouse, the light of which broke through a very thick fog. The stock index became a convenient benchmark by which individual stocks could be compared with the overall market performance. The index became a talking point on the streets. It has become a benchmark for comparing the market as a whole with indicators of the economic state of the market.

The mechanisms of the first indices were dictated by the fact that they had to be calculated only using paper and pencil. Therefore, the calculation mechanism was simple. All you had to do was add up the prices and then divide the resulting amount by the number of shares. A century has passed, and now there is little that reminds us of that index calculation. But the very idea of ​​using an index to explain stock market trends, as well as its short-term fluctuations, is itself worthy of the highest praise. Without them, today's degree of financial democracy simply would not exist: millions of ordinary people would not now be able to actively manage their investments, they would not be able to become large shareholders.

The first index, calculated on July 3, 1884, was the average price of 11 stocks. It was called the Dow Jones Railroad Average because 9 of the 11 stocks were issued by railroad companies. By 1896, Dow introduced the industrial average, which was defined as the arithmetic average of the prices of 12 stocks. The index value at the close of the first day was 69.93 points (the total value of the shares included in it at that time was 769.23). In 1928, the number of stocks used to calculate the index was increased to 30, which remains the same today. The NYSE (New York Stock Exchange) updates and publishes the DJIA index every half hour throughout the exchange day.

In 1928, a change was introduced into the methodology for calculating the index: a special multiplier (current divisor) was introduced, designed to prevent distortions in values ​​caused by stock splits, payment of dividends, and changes in the composition of its listing. A stock index can characterize both the market as a whole and a separate sector of the economy (industry, transport, etc.).

Major stock indices

The Dow Jones Industrial Average (DJIA) is calculated as a simple average of the stock price movements of the 30 largest industrial corporations (excluding American Express and AT&T, which cannot be considered pure industrial corporations). The stocks used in this index are traded on New York Stock Exchange (NYSE) and account for about 15-20 percent of the total market value of NYSE shares. The composition of the Dow Jones Industrial Average is not fixed; components of the index can change depending on the position of the largest industrial corporations in the US economy and the market. Initially, this index was calculated for 12 companies, now - for 30.

At the beginning of its history, the Dow Jones Industrial Average was calculated as a simple arithmetic average of the stock prices of listed companies. However, periodic distortions in index values ​​have occurred due to the fact that the Dow Jones Industrial Average is not weighted by the number of shares traded in the market. Therefore, on September 10, 1928, the “constant divisor method” was adopted.

Today, the Dow Jones Industrial Average is calculated by summing the closing prices of the stocks included in it and dividing the sum by a "constant divisor" which is adjusted for stock splits and stock dividends representing more than 10 percent of the market value of the issues, and also for the replacement of components included in the listing, their mergers and acquisitions. It is also worth paying attention to the intensity of index growth. The index crossed the first 1000th threshold only in 1972, that is, in 88 years! While over the past two years it has risen by about 2000 points. Below is a simplified diagram of how to use the constant divider method.

Dow Jones Industrial Average - record holder

Let's say the index covers only three shares that have the following prices at the end of the exchange day: share A - 30, share B - 25, share C - 45, 100 = 33.33 - index at the end of the exchange day. The next day, it turns out to be advisable to split share C (3:1), the price of which at the time of closing the stock exchange is 20. The prices of shares A and B are 35 and 30, respectively. Dividing according to the old method using a divisor of 3, we get a result of 28.33 at the end of the exchange day, which does not correspond to reality, since prices on the market did not fall, but, on the contrary, increased. Therefore, to eliminate the distortion, the divider must be changed. To find the corresponding indicator, we trace the progress of calculations relating to the previous day in the above example, taking into account the splitting of share C: share A - 30, share B - 25, share C - 15 (split 3: 1). Dividing the sum by the old index 33.33, we get a new constant divisor - 2.10.

Now let's calculate the index for the next day: share A - 35, share B - 30, share C - 20, 85 = 40.48 - the index at the end of the exchange day. Share A - 30, share B - 25, share C - 45, 100 = 33.33 - index at the end of the exchange day. It should be noted that this method "penalizes" the stocks with the lowest `weight' in the new index, while the price of these stocks in the old index was the highest; However, it can be assumed that C shares are leading the market, as evidenced by their split pattern and significant price increases. If the multiplier method were used to eliminate the distortion, then stock C would still occupy the leading position: stock A - 35, stock B - 30, stock C - 60, 125 = 41.67, end-of-day index.

The permanent index must also be changed if dividends on shares, splits or replacement of one type of securities with another lead to significant distortions of the index. The divisor should not be changed in cases where stock splits, stock dividends, or the replacement of one type of securities with others cause deviations of less than five points in the index of industrial stocks, less than two points in the index of transport stocks (formerly railway. ) companies and less than one point in the utility stock index.

Dynamics of American stock markets

Factors influencing Dow Jones

Like many stock indicators (DAX, Nikkei) Dow Jones is weighted quantity. It’s no wonder that it is subject to mergers, acquisitions, additional issues of shares, and so on. The modern version of the Dow Jones is not an arithmetic average of stock prices. Although initially this was exactly the case. It is the sum of all component stock prices divided by the denominator. What is the denominator? Imagine a float that oscillates with every rustle. However, then it still levels out and comes to a vertical position. The denominator in the case of the Dow Jones performs a similar function. As a variable value, it depends on corporate events.

This is necessary so that there are no inaccuracies or distortions in the calculations, and the Dow Jones index maintains its comparability with previous periods. Along with the NASDAQ Composite and S&P 500, the Dow Jones index most fully reflects the state of the American economy. Hence its dependence on certain international news: natural disasters, terrorism, economic reports. Dow Jones allows investors and analysts to evaluate the market situation based on one value. The convenience of the Dow Jones index is that you can monitor the situation without focusing on individual companies.

Dynamics of the Dow Jones Index

The Dow Jones Industrial Average reached its highest point of 381.17 on October 3, 1928 and its lowest point of 63.90 on December 15, 1921. On October 28, 1929, the Dow Jones Industrial Average fell sharply, as did the overall market performance. The index of industrial shares fell by almost 40 points and by another 30 points on the 29th, amounting to 230.07, which corresponded to a 40 percent drop in the annual level. On July 8, 1932, the Dow Jones Industrial Average hit a record low of 41.22. In 1987, the Dow fell 508 points, or 22.6%, to close at 1,738.74 on October 19, the worst stock market shock ever. Investor losses are estimated at over $500 billion. Trading volume on the New York Stock Exchange amounted to 604,330 thousand shares.

On October 19, 1987, the stock exchange was gripped by a crisis. In less than seven hours, the Dow Jones industrial average fell 508 points, or 23%, meaning a $503 billion drop in securities trading. Within two months, stock exchange transactions fell by $1 trillion, which corresponded to 984 points of the Dow index, or 36%. New York Stock Exchange computers were overwhelmed as 604 million shares were traded. On August 24, 1989, the Dow closed at 2,734.64, breaking its old record of 2,722.42 on August 28, 1987.

Sources and links

Sources of texts, pictures and videos

ru.wikipedia.org - free encyclopedia Wikipedia

minfin.com.ua - information and analytical portal on economic topics

dowjones.com - official website of Dow Jones&Company

dowjonesfactiva.ru - Dow Jones website in Russia

bloomberg.com - website of the information and analytical agency Bloomberg

rbcdaily.ru - website of the RBC business magazine

economics.unian.net - Ukrainian news agency Unian

djindexes.com - Dow Jones Index analytics

quote.rbc.ru - stock market analysis, price forecast

shkolazhizni.ru - electronic portal of the School of Life magazine

bmfn.com.ua - information portal about the Forex market

forex-investor.net - automatic advisors and forex strategies

groshi.ua - website about world money

fortrader.ru - forex magazine for traders

ftn-trader.chat.ru - site about the Forex market

timesnet.ru - electronic magazine about business in Russia and the world

ereport.ru - website about the global economy

daytrader.com.ua - portal for trading on the stock market

finanz.ru - stock market news

daytrader.ua - website of the Daytrader dealing center

indexfond.ru - stock index website

forex-m.com - website of the Forex-Market dealing center

Sources of Internet services

forexaw.com - information and analytical portal on financial markets

wordstat.yandex.ru - a service that allows you to analyze search queries

Google.ru is a popular search engine

translate.google.ru - translator from the Google search engine

maps.google.ru - Google search engine maps

yandex.ru is the largest search engine in the Russian Federation

ru.tradingeconomics.com - website of economic indicators

Application links

getpaint.net - free software for working with images

windows.microsoft.com - website of Microsoft Corporation, which created the Windows OS

office.microsoft.com - website of the corporation that created Microsoft Office

chrome.google.ru - a frequently used browser for working with websites