Why Watch Market Indicators?
11784
Finance > Investing
Apr 18, 2007
Why Watch Market Indicators?
A common and effective way to gain perspective on stock price fluctuations is to compare the movement of your stocks to that of indices or market indicators. About 100 years ago, as the number of individual stocks grew, the need to measure how the stock market performed became obvious. In 1896 The Dow Jones Company took groups of stocks and averaged their prices to create the first indices, the Dow Jones Averages. They created four different indices: one for industrial companies, one for utilities, one for transportation companies and a composite that included the three other indices. In the 1920s, Standard & Poor's Corporation (S&P) created separate indices. These indices also measured the market as a whole in addition to some sectors of the market. In 1957, when technology enabled the companies to start calculating their indices on an hourly basis, S&P created the S&P 500 Index, which measured the performance of a larger proportion of the market compared to the more popular Dow Jones Industrial Index. Over the years, the S&P and Dow Jones indices have remained popular, leading both companies to create other indices. In addition, other companies and even the exchanges themselves have created more indices. Different indices are calculated in different ways. Few remain as simple averages. An index moves when the stocks in it move. When a stock in an index goes up or down, so does the index. Hence, when you hear that the Dow Jones closed at 10,500, down 20 points for the day, it means that the average of the prices of the 30 stocks that comprise the Dow is 10,500 and the combined value of these 30 stocks (as calculated by the index) dropped 20 points during that day's trading. Calculation method aside, all indices measure the performance of the stock market or some subsection of it on a continuing basis throughout each trading day. By tracking an index, or a variety of indices, investors can quickly gauge market trends that may impact investment decisions. What is the point of following the indices when what you care about is your own stock portfolio performance? Indices often reflect trends in the market and in the economy. Watching overall market performance can be the key to making smart decisions about your individual investments. For example: 1) Indices can function as benchmarks to compare the performance of the stocks you own against the market in general. 2) Comparing today's market movement with similar market movements from the past may help you become aware of trends, and the best times to buy or sell. You may want to create an index of your own stocks so you can measure your own investments against the performance of the more established indices. There are a couple of ideas to keep in mind when analyzing indices. First, the percentage move is often more meaningful than the move in points. It means a lot more when the DJIA moves 50 points if it is at 1,000 than if it is at 10,000. Second, while individual stock prices, at least for the time being, are generally expressed as fractions, indices are displayed in decimals.
Martin Chandra is a full-time investor. He has been researching investment strategies and make his own living. For more information please go to here.
Write a Review
Add to My Favorite
Refer it to Friend
Report Article
Other links at Finance > Investing
Insurance companies have come up with segregated funds as a battling sword against mutual funds. They combine the features of both mutual funds and insurance as in akin to mutual funds IVICs are also modes of investment and akin to insurance they provide
Category:
They say that 'timing is everything' and it's never more than true when looking committing to an online investment. For the comedian, actor, athlete and politician timing is a key skill in success. Being in the right place at the right time is part of
Category:
HYIP, or High Yield Investment Programs promise you a massive daily interest on your investment. It can be anything up to an unbelievable 50% daily. The is very high and you need to be hugely careful before you invest. By investing in HYIPs you
Category:
Imagine you owning a luxurious deluxe home at a majestic resort and also getting paid a ridiculous amount of money as rent when you are not using it. Sounds good. Condo hotels are the latest fad among vacation home owners.
Category:
In order to become a smart investor, there are certain things about stocks that you must become familiar with. Thorough investigation of the product or commodity is critical, because the more you know about the stock you want to buy, the better your chanc
Category:
Site Sponsor
Directory Statistics
Articles: 68309
Categories: 501
Yahoo Entertainment
