Tuesday, May 3, 2016

Investment Essentials: Status of the Market

We know what the market is and we know that stocks are sold there but how does one actually gauge how the market is doing? And what are points? Aren't we trading dollars? 

These are common questions for new investors. Just like anything else, there is a score kept on Wall Street. One just needs to know where to find it. For Wall Street, the easiest way to find your gauge of how the market is doing is to look towards the Dow Jones Industrial Average - often referred by the acronym DJIA. Or, if you don't like the DJIA, you can look towards the S&P 500 (which is what I like to use instead). The DJIA includes some of the most well known companies in the United States. There are 30 companies in the DJIA all together. It is a collection of these stocks that are brought together to tell investors how the market is doing on any given day as it is supposedly seen as an average. 

I on the other hand like to rely more heavily on the S&P 500. This can be found by an easy search on the internet or blasted daily upon pretty much every news channel in the United States. The S&P 500 I feel is better than the DJIA because it represents 500 stocks rather than just 30. I feel that it gives a better view of what the market (at least in the United States) is doing. 

Now when you see the news and you hear them talking shop and they say that the market has taken a huge dip, you can probably guess at what it means. It usually means that the S&P 500 and the DJIA have started to go down in points. Points of course refer to dollars but on Wall Street they are interchangeable. If someone says that they lost 100 points of L Brands (LB) stock, they're basically saying they lost $100 in L Brands (LB) stock price. Don't get confused however as the points system refers to the single price of stock or one of the indexes (S&P or DJIA). If someone says they're down 100 points in L Brands (LB) they mean they're down $100 per share of L Brands (LB). That would be a very not so good day for whoever would be holding that stock as if they owned more than one share (as most people do own more than just one share of each company they invest in) they are seeing that price drop for all of their shares in L Brands (LB). If they have 10 shares of L Brands (LB) then that would mean that they lost $1,000! Not good at all!

**Closing note: different indexes such as the S&P 500 are used for different country's exchanges and other types of investments. Research a few and become familiar to find out which will work best for you if you intend to get into a certain area of the market. Otherwise, it's probably best to stick with the S&P 500 or the DJIA. 

No comments:

Post a Comment