On Oct 22, 11:59*am, "Default User" <defaultuse...[at]yahoo.com> wrote:

- quote -

Thanks for all the replies. Yes I am aware of DIA.

Don't know if it makes sense, but I was thinking of picking
only specific companies from the Dow but weighting them
similar to the index.

Anoop

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"JoeTaxpayer" <joetaxpayer[at]comcast.net> wrote in message
news:gdnqjd$irf$1[at]registered.motzarella.org...
- quote -

too simple, no?
http://www.money-zine.com/Investing/...s-Industrials/

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anoop <ghanwani[at]gmail.com> writes:

- quote -

The index is simply the prices of each of the stocks in question
added together and divided by a fixed number. Unlike market-cap
weighted indices, the DJIA was built for simplicity and speed
of computation (in an era before digital calculators).

At first, it was just the simple average price of the shares. As
stocks are added, removed, split, etc, the divisor gets updated
to maintain continuity.

But in the end, it's simply proportional to what you get
by just adding up the price of one share each of each of
the companies in the index.

You can track that by simply owning the same number of shares
of each of the companies in the index.

As of a few minutes ago, the sum of the share prices of the 30
stocks in the index is 1080.21. If you bought 100 sh. each
of those 30 companies, of course, you'd have to spend about
$108,000 (plus 30 commissions). But the value of that portfolio
would track the index very well.

(The current divisor is approx 0.123 and if you divide
that 1080.21/0.123 you see you get a number pretty close
to where the DJIA was a little while ago.)

Yahoo lets you download the list of components as a
handy spreadsheet: <http://finance.yahoo.com/q/cp?s=^DJI
Or you could by the DIA, which is an ETF which does just
the same thing. One transaction, lots less for you to
manage and track, but ongoing 0.14% management expense
ratio. (not that it costs much to manage that portfolio).




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anoop wrote:
- quote -

Buy one share of each dow stock. That's about $1130.
So divide your $X by $1130 and that's how many shares of each. About.
The DOW is a price-weighted index.
Joe
www.blog.joetaxpayer.com

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anoop wrote:

- quote -

<http://en.wikipedia.org/wiki/Dow_Jon...strial_Average
This describes basically how the average is constructed. Why would you
want to do so? If you're really keen to own the index, there is an ETF
for it.





Brian

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If I have some amount of money, say $X, how can I compute
how much of that needs to be invested in each of the individual
stocks in the DJIA in order to emulate the returns of the index?

Anoop

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