Get smarter in sixty seconds with brain Stuff from how stuffworks dot com. Hi Marshall Brain. If you watch the news, you hear all the time about the Dow Jones Industrial Average and other averages like the SMP five hundred and the Russell two thousand. These are market averages or indexes designed to tell you how companies traded on the stock market are doing. In general. The down Jones Industrial Average is simply the average value of thirty large industrial stocks.
Big companies like General Motors, Goodyear, IBM, and x in are the kinds of companies that make up this index. The thing to understand is that the Dow Jones Industrial Average is nothing magic. Someone has chosen thirty companies and average their values together by following a specific formula. That's all it is. There are all sorts of other averages
out there. The SMP five hundred is the average value of five hundred large companies, the Russell two thousand tracks the average two thousand smaller companies, and there are many, many others. What these averages tell you is the general health of stock prices as a whole. If the economy is doing well, then the prices of stocks as a group tend to rise if it's doing poorly, prices as a group tend to fall. The averages show you these
tendencies in the market as a whole. If a specific stock is going down while the market as a whole is going up, that tells you something. Or if a stock is rising but is rising faster or slower than the market as a whole, that tells you something as well. Do you have any ideas or suggestions for this podcast? If so, please send me an email at podcast at how stuff works dot com. For more on this and thousands of other topics, go to how stuff works dot com.