How to Understand the Stock Market

Stock Market 101

The Stock Market started over a hundred years ago when Mr. Dow and Mr. Jones realized that every company could offer shares of itself to the public for sale. As a company prospered, so would the public that owned shares of its stock.

There are, obviously, many companies. But a good barometer of the overall market would be a few very large and stable companies which would indicate how most companies were doing simply by how the few were doing.

This small group of 30 companies, thirty major industries of the United States, was named in honor of Mr. Dow and Mr. Jones as the Dow Jones Industrial Average, the DJIA.

Often referred to as "The DOW," or "Dow Jones," these thirty companies are such well-known names as MacDonald's, General Electric, Disney, etc. To own stock in these companies, you would buy shares from the New York Stock Exchange, the NYSE. You wouldn't have to go to New York, of course. You'd simply tell your stockbroker to buy 100 shares of MCD or 15 shares of GE or 12,000 shares of DIS, for example.

Such an abbreviation would serve as a symbol and made more sense than spelling out the whole company name. That would take up too much space on the ticker. In the early days, you'd have a little machine that fed out a constant tape-sized paper stream of the changing stock prices. The machine would make an audible "tick" as the tape emerged from the machine ... tick ... tick ... tick ... and you'd see what price was now being quoted for GE ... 62.50, or GM ... 77.25, etc. ... all from the convenience of your stock ticker.

If you couldn't afford a stock ticker, you could read your stock quotes right from the business section of the newspaper. Nowadays, it's easy to have a stock ticker right on your computer, and you can even customize it to show only the stocks you want to see ... those in your portfolio.