The Dow weights companies by share price, not by size
The Dow Jones Industrial Average adds up the share prices of just 30 big American companies and divides by a tiny number, about 0.168. That quirk means a pricier stock counts for more regardless of company size, and every $1 move in any member shifts the index by nearly six points.
The index began as a journalist's shortcut. In 1882 Charles Dow and the statistician Edward Jones founded Dow Jones & Company, and two years later they published an average of 11 stocks, mostly railroads, in Customer's Afternoon Letter, a two-page daily bulletin that grew into The Wall Street Journal. That railroad list became today's Transportation Average. On February 16, 1885, a 14-stock Dow Jones Average followed. Originally the divisor was simply the number of companies, so the result was a plain average.
Things are more complicated now. Whenever a member splits its stock, spins off a business or is replaced, the divisor is adjusted so the index does not jump for that reason alone. After many such tweaks the divisor has shrunk below one: since June 29, 2026 it has stood at 0.16824816528350, so a $1 change in any single share moves the Dow by about 5.94 points. A committee chooses the members, and S&P Dow Jones Indices maintains the index.
Price weighting produces distortions. Goldman Sachs carries the heaviest weight simply because its shares cost the most, and the index fared especially badly in the 2008 financial crisis partly because AIG, then a member, collapsed. With so few components, many of which fall together in downturns, the Dow is not considered a fair picture of the American economy, and products tracking it are not recommended as long-term core holdings.
Those products are plentiful all the same, from exchange-traded and mutual funds to options and futures, plus variants using leverage, equal weighting or covered calls. Some investors follow the Dogs of the Dow, the ten members paying the highest dividend yields.
Source: Dow Jones Industrial Average
