Why The Dow Jones Average Is Actually Meaningless

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The Dow has always been relatively meaningless. Its just an index that shows how 30 large publicly owned companies have traded during a standard trading session. 30 companies out of some 2800 companies traded on the NYSE every day, not including another 3200 companies traded on NASDAQ exchange.

Dow is just a very small snapshot of the overall markets.

Tradition is the only reason the Dow Jones Industrial Average still hangs around today. It dates back to the late 1800s, and is obviously made up of only a few very large-cap issues. In addition to that, it's price-weighted rather than market cap-weighted, which is ridiculous.

The S&P 500, which is (correctly) price-weighted is a far better index. It's the one generally used as a benchmark by investment professionals. The ultra-broad-based Wilshire 5000 (which doesn't actually track quite 5,000 stocks) is also market-cap-weighted, but far less well-known and popular.

Still, the Dow and S&P track each other fairly closely most of the time, so a lot of people outside the financial world don't really make that much of an effort to change old habits.