The Handy Investing Answer Book. Paul A Tucci

all the companies that composed the original Dow, only one—General Electric—remains today. General Electric has been a component of the Dow since 1907.

      What are some of the newest entries in the Dow?

      Cisco Systems and Travelers were added to the Dow in 2009. Nike, Visa, and Goldman Sachs were added to the Dow in 2013.

      How many times has the list of Dow companies changed since its inception?

      The Dow components have changed 99 times, including increasing the number of components from 12 to 20 in 1916 and increasing them again from 20 to 30 in 1928.

      Why are companies removed from the list of companies on the Dow?

      Individual companies that compose the DJIA are removed because of economic and managerial trouble. Others no longer offer a good representation of index components reflective of the American economy at large, and must be replaced by healthier, more representative companies. Still other companies tracked by the Dow are removed because their stock price is very low, and not as relevant as other firms in the average.

      This is the General Electric Building in Rockefeller Center in New York City. GE is the only original DOW company, first listed in 1907, still in existence.

      What are some of the largest percentage moves of the Dow?

      On March 15, 1933, the DJIA gained 15.34%. On October 19, 1987, the DJIA declined by 22.61%.

      Why are some stocks with low prices specifically removed from the Dow?

      Since the companies tracked by the Dow represent an average of the prices of shares in the securities that compose the index, stocks with lower prices tend to pull the average down, making the index less effective as a barometer of the market at large.

      Which companies have been recently removed from the Index?

      General Motors, Citigroup, AIG, Altria Group, Honeywell, Hewlett-Packard, Kraft Foods, Bank of America, and Alcoa.

      How much did the Dow fall at the onset of the Great Depression?

      On October 29, 1929, at the onset of the Great Depression, the Dow Jones Industrial Average plunged more than 11%, to 230.07 points. The average had hit a peak of 381.17 the month before, but would not reach this number again until 1954.

      What are some other notable dates in NYSE history?

      In 1987, the DJIA plummeted more than 22% in one day, yet the next day, the volume of shares traded (600 million) created a new volume high record. By 1997, daily trading volume of shares exchanging hands reached one billion. In 2001, in the wake of the World Trade Center attack, the NYSE was closed for four sessions, the longest period of time the exchange was closed since 1933. Yet when the exchange reopened on September 17, 2001, the NYSE hit another record, with over 2.37 billion shares traded. In November 2013, the Intercontinental Exchange Group (ICE) acquired NYSE Euronext, creating the leading global network of regulated exchanges and clearing houses for financial and commodity markets.

      How is the Dow important to our understanding of the activity and performance of blue chip stocks?

      The Dow has been tracking the performance of a price-weighted basket of 30 blue chip stocks since late 1928, and is seen by many as a barometer of the overall health of the economy and markets.

      How well has the Dow performed since it began?

      Through 2009, the Dow has risen in 64% of years, and declined in 36% of years.

Why is ICE so important to the investing community around the world?

      ICE is so important to the investing community around the world because now, one-third of the world’s global cash trading flows through its systems; it trades more than 50% of the world’s crude and refined oil futures contracts; it lists 90% of the Dow Jones Industrial 1000 and 78% of S&P 500 listed companies; it introduced 120 Initial Public Offering (IPO) transactions, raising $36.9 billion in 2012; and it currently captures 53% market share of all technology IPOs through the third quarter of 2013.

      How important is the NYSE to global equities trading?

      The NYSE is very important. With its membership greater than 8,000 listed companies, approximately 40% of all global equities are traded on the NYSE.

THE BASICS

      How do I begin investing?

      Investing begins with an understanding of asset allocations, or how you divide your investment capital into different categories or classes, such as stocks (and mutual funds, foreign stocks, or global stocks), fixed income securities, real estate, commodities (including gold, silver, petroleum, etc.), and cash. It may also include private equity investments in small companies or businesses and foreign currencies, among many other types of investments.

      What is a very important consideration when thinking about investing?

      One of the most important concepts in investing is to limit your risk through diversification of your investments. The thinking is, if your portfolio is sufficiently diverse, your exposure to the declines in any class of investments is mitigated, as other classes of investments may increase in value, thus protecting your total portfolio.

      Why is diversification necessary?

      When you invest, it is generally thought that if you spread your investments in a variety of classes, and their values do not move up or down in the same way, this diverse portfolio will have less risk than if you invest all of your money in just one class or type of investment. A diversified portfolio may also have a weighted average risk less than the average risk of each of the investments in the portfolio. It is also accepted that, over time, a diverse portfolio will yield higher returns than one that is relatively less diverse and more concentrated, and will yield a higher overall return than any one individual investment in the portfolio. The main thinking is that positive results of these diverse investments should help reduce the effects of other investments that may decline, as long as your investment choices are not correlated or synchronous. If you have investments in U.S. stocks and Brazilian stocks, and a problem arises in the U.S. economy that may not affect the Brazilian markets, perhaps the investments that are exposed to the U.S. economy may decline, while the Brazilian stocks may not decline, or may even increase.

      You should never put all your eggs in one basket, so to speak. Instead, diversify your portfolio with a mix of low- and higher-risk investments to get the best return over time.

      What are some other reasons why I should diversify my investment portfolio?

      Diversification will not guarantee that you won’t lose money or make big gains with your investments. But it will help you to have a portfolio that matches your appetite for risk, especially if your investment choices are less relatively tied or correlated. The most important point about investment portfolio diversity is that in a perfect world, while the value of your total portfolio will increase less than your best-performing investment, it will never do worse than your worst-performing investment.

      What are some important questions to ask myself when managing the diversity of my portfolio?

      Some of the more important questions to ask yourself include:

      • What capital have I committed to investing in various investments? Am I reinvesting the proceeds? If so, into what investments?

      • Is my portfolio out of balance because of this, and into what areas of concentration?

      • What is the value of each category of investments in my portfolio, and what would I like it to be today, and in the near- and long-term future?

      • What investments have I made lately, and in what categories?

      • How have my