Components of the DJIA
Hello Fellow Bullhunters
Today I will take another excerpt from the eBook The Bullhunters Guide to the US Stock Market and discuss with you one of the averages that makes up part of the DJIA. In general the Dow 30 stocks can be broken down into the five groups: Industrials, financials, cyclicals, consumer non-cyclicals and technology. The Industrials is what we are looking at today.
DJIA Industrials
Although the idea of Dow Jones Industrial Average industrials may seem redundant, the fact is that the term industrial average is a bit outdated. Long ago Charles Dow created several averages to simplify market watching. At the time, it was the Dow Jones Transportation Average that mattered most - this is the age when railroads ruled. Over time the importance of manufacturing has lessened so instead of allowing the DJIA to become obsolete the Dow Jones company (which owns The Wall Street Journal, Barron’s and SmartMoney magazine) decided to make it more inclusive.
General Motors (GM) is the industrial of all industrials. It used to be said As GM goes, so goes the United States. Well fortunately for the USA that is no longer the case. Generally industrials do well when the economy is good and do poorly when the economy is bad. This makes them cyclical stocks. But GM’s problems are of a more secular nature meaning they are not entirely related to the business cycle. As the largest corporation in the world for several generations, GM grew arrogant. It made cars that nobody wanted to drive and made promises to its workers that were financially unsustainable. Once unthinkable the very existence of GM into the future is in doubt and its credit rating has been lowered to junk status.
Stock Market Insight
In reading this little piece of the eBook, we can form an opinion of the Industrials. Being that they are clycical stocks these companies do best when the economy is in the early stages of the business cycle. Most companies are cyclical. But GM’s problems as we see here were drawn out over a longer time-frame making it a secular trend rather than a business cycle. The five stages of the business cycle are growth, peak, recession, bottom (or trough), and recovery. They are predictable cycles of economic activity that repeat over time.
I don’t know about you but the more I read the more I learn. Every time I go over a section of the eBook I pick up something new. It’s like that with anything that you study. You may hear or read the same thing over and over again until one day the penny drops and you retain some more information. If you haven’t yet downloaded your very own copy, please do so now so that you can read it at your own leisure and revise it in here with me.
Stick with me on this as I know that if I am learning you certainly are too. It’s all good. By the time you are ready to trade on the US Stock Market you will have plenty of background into how it works.
Yours in prosperity
Angela Recchia
Graduate Support
Universal Wealth Creation © 2004 - 2007
August 20th, 2007 at 1:55 pm
[...] The components of the DJIA which is made up of 30 stocks and the understanding that when someone talks about the market being down 50 points they are generally talking about the Dow Jones in particular. The components of the DJIA were created by Charles Dow to simplify market watching. [...]