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**banditorfv** · 03-17-2010, 08:47 AM

The DJIA is computed as follows:

http://en.wikipedia.org/wiki/Dow_Jon...ge#Calculation

It doesn't really tell you much because higher-priced stocks have a greater influence on the movement of the index irrespective of the size of the company in question, which is madness.

The S&P 500, by contrast, is weighted by the capitalization of its components, so the #1 company in the index will be the largest by market cap and will as such have much greater influence on the index's movement than say the 500th position company. This index is basically a market analog. The price on any given day doesn't tell you much, but when compared to other days it gives you some indication as to the broad performance of the market. If you intend to use the S&P 500 as a benchmark for calculating returns, you should use the adjusted index because there's a dividend paid. Just using the unadjusted value of the index doesn't include all the returns it has paid out historically.

03-17-2010, 08:47 AM	#2
banditorfv Join Date Oct 2005 Posts 540 Senior Member	The DJIA is computed as follows: http://en.wikipedia.org/wiki/Dow_Jon...ge#Calculation It doesn't really tell you much because higher-priced stocks have a greater influence on the movement of the index irrespective of the size of the company in question, which is madness. The S&P 500, by contrast, is weighted by the capitalization of its components, so the #1 company in the index will be the largest by market cap and will as such have much greater influence on the index's movement than say the 500th position company. This index is basically a market analog. The price on any given day doesn't tell you much, but when compared to other days it gives you some indication as to the broad performance of the market. If you intend to use the S&P 500 as a benchmark for calculating returns, you should use the adjusted index because there's a dividend paid. Just using the unadjusted value of the index doesn't include all the returns it has paid out historically.
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