Dow vs. Nasdaq

Attribute	Dow	Nasdaq
Index	Dow Jones Industrial Average	Nasdaq Composite
Number of Companies	30	More than 2,500
Weighting Method	Price-weighted	Market capitalization-weighted
Focus	Blue-chip companies	Technology and growth companies
Founded	1896	1971

Introduction

When it comes to investing in the stock market, two of the most well-known indexes are the Dow Jones Industrial Average (Dow) and the Nasdaq Composite Index (Nasdaq). Both indexes are used as benchmarks for the overall performance of the stock market, but they have some key differences in terms of their composition, methodology, and historical performance.

Composition

The Dow is made up of 30 large, blue-chip companies that are considered leaders in their respective industries. These companies are selected by the editors of The Wall Street Journal based on their reputation, financial stability, and overall market performance. Some of the companies included in the Dow are Apple, Microsoft, and Coca-Cola.

On the other hand, the Nasdaq is a market-capitalization-weighted index that includes more than 2,500 companies, primarily in the technology, biotechnology, and internet sectors. Some of the well-known companies listed on the Nasdaq include Amazon, Facebook, and Google.

Methodology

The Dow is a price-weighted index, which means that the stocks with higher prices have a greater impact on the index's value. This can sometimes lead to distortions in the index's performance, as a stock split or dividend payment can significantly affect the index's value. The Nasdaq, on the other hand, is a market-capitalization-weighted index, which means that the stocks with higher market capitalizations have a greater impact on the index's value.

Another key difference between the Dow and Nasdaq is the way they are calculated. The Dow is calculated by adding up the prices of all 30 stocks in the index and dividing by a divisor that adjusts for stock splits and other corporate actions. The Nasdaq, on the other hand, is calculated by multiplying the price of each stock by its market capitalization and then summing up the total market capitalization of all the stocks in the index.

Historical Performance

Over the years, both the Dow and Nasdaq have delivered strong returns for investors. However, the Nasdaq has historically outperformed the Dow due to its heavier weighting towards technology stocks, which have been some of the best-performing stocks in the market. For example, during the dot-com bubble of the late 1990s, the Nasdaq soared to record highs, while the Dow lagged behind.

On the other hand, the Dow has a longer history than the Nasdaq, as it was first introduced in 1896 by Charles Dow and Edward Jones. The Nasdaq, on the other hand, was established in 1971 as the world's first electronic stock market. Despite its shorter history, the Nasdaq has quickly become one of the most widely followed indexes in the world.

Conclusion

In conclusion, both the Dow and Nasdaq are important indexes that provide investors with valuable insights into the overall performance of the stock market. While the Dow is composed of 30 large, blue-chip companies and is price-weighted, the Nasdaq is a market-capitalization-weighted index that includes more than 2,500 companies, primarily in the technology sector. Both indexes have delivered strong returns for investors over the years, but the Nasdaq has historically outperformed the Dow due to its heavier weighting towards technology stocks.