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stock market indices

The DJIA (Dow Jones Industrial Average) is a group of 30 stocks picked by the editors of the Wall Street Journal. Unlike most other averages like the S&P etc, the DJIA (Dow Jones Industrial Average) is not weighted by market capitalization.

The DJIA is calculated by totalling the price of the 30 stocks and dividing by a divisor. The divisor has changed over time (starting at 1) to something like 0.20 today. The divisor has changed to counter the effect of a stock split. If say WMT were to split tomorrow the DJIA would also be changed to counter the effect of the drop in price of each share of WMT.

The Standard and Poor's index by contrast is weighted by market capitalization. The S&P 500 was first published in 1957. A committee at S&P meets to decide the constituents of the index each month. New companies are added when old ones are removed because of mergers or faltering business. Entrance into the S&P is important to most companies since there are index funds that invest in the S&P 500 and this brings a lot of attention to the companies in the fund. Holding companies and REIT's are excluded from the 500.