Economy

[Micah Foehammer]

Crazy stock market:

Monday down 635 points
Tuesday up 430 points
Wednesday down 520 points

Today up 423

Somebody put the market on medication ......

[John D Harris]

Originally Posted by Micah Foehammer Crazy stock market: Monday down 635 points Tuesday up 430 points Wednesday down 520 points Today up 423 Somebody put the market on medication ......

LOL it's going to level out, right now I bet folks are buying on the down side just to sell after it goes up some. Tomorrow it will most likely be down, people taking profit that they made.

[Azred]

Index averages are, in and of themselves, fairly irrelevant, especially the Dow. The formula that crunches the numbers to give the Dow is one of the most complex numeric calculation algorithms ever devised by man.

[SpiritWarrior]

Yes, they're called something specifically - I don't remember what. But they say if you understand these algorithms they'll probably hire you.

[Micah Foehammer]

Originally Posted by Azred The formula that crunches the numbers to give the Dow is one of the most complex numeric calculation algorithms ever devised by man.

I thought the Dow or DJIA was a relatively simple calculation. It's just the unweighted sum of the average price of each of the 30 component stocks in the Dow, divided by the dow divisor.

The divisor gets adjusted for stock splits, stock dividends (3 for 2 swaps for example), and changes in the list of specific companies in the dow 30.

The Dow Jones Industrial Average was created by Charles Dow in 1896. He initially calculated the Dow by adding up the price of 12 selected stocks and dividing by 12. The number of stocks in the Dow was increased to 20 in 1916 and 30 in 1928. Up until that point, the DJIA remained a true average as the Dow Jones Company just added up the share prices and divided by the number of stocks in the index.

On November 5th, 1928, the Dow Divisor was reduced from 30 to 16.02 essentially altering the index from a straight price average. The divisor has been continually updated since then to reflect further changes in the 30 component stocks, stock splits and dividends.

Norman Fosback describes how the Dow Divisor works in "Stock Market Logic":

"Assume that the prices of the 30 stocks summed to $3,000. Then the 30-stock average price would be $3,000 divided by 30, or 100.00. If one of the thirty stocks was quoted at $200, but then split two-for-one so that its price fell to $100, the sum of prices would be only $2,900. To maintain the Average at its actual level of 100.00, the divisor of the Average is systematically altered. Since $2,900 divided by 100.00 equals 29, the new divisor is set at 29, down from 30, in effect preserving the average price at $100 ($2,900 divided by 29 still equals 100.00)."

Dow Jones currently adjusts the Dow Divisor if any event effects the Dow Jones Industrial Average by 5.0 or more points. Stock splits are not the only factor that affects the Dow Jones Industrial Average -- stock dividends actually have an effect as well. When a stock pays a dividend, the "specialist" who facilitates trades in the stock at the exchange deducts the amount of the dividend, rounded to the nearest 1/8th, from the price of the stock. For example, if General Electric was trading at $50 and was scheduled to pay a $1 quarterly dividend on June 1st, General Electric would trade "ex-dividend" on June 2nd at only $49 a share and shareholders of General Electric would have the stock ($49) and the dividend ($1), for a total of $50 worth of stock and dividends.

Maybe the recalculation of the divisor is a lot more complicated than this makes it out to be, but it doesn't seem to be. (Edit: NO, it isn't - see the calculation at the bottom of the post)

http://www.cmegroup.com/trading/equi...ry-divisor.pdf

http://www.fool.com/DDow/HistoryOfTheDow6.htm

You can check it out yourself.

Here's yesterdays changes:

Total price change = 55.94
Dow Divisor = 0.132129493
DJIA Change = 55.94/0.132129493 = 423.37

http://money.cnn.com/data/dow30/
http://intellivestsecurities.blogspot.com/

You can check out the individual changes in the dow 30 on both the CNN link and the blog

Hey maybe I should call dow jones and ask about a part time job. LOL

[Azred]

I could have sworn that the Dow calculation was a complex algorithm; I thought I had seen it online once but I guess I could be mistaken. Weighted complex averages are, of course, relatively simple to understand but now I guess I'll have to double-check on the actual formula. It is a matter of intellectual curiosity only and not terribly important.

[Micah Foehammer]

Originally Posted by Azred I could have sworn that the Dow calculation was a complex algorithm; I thought I had seen it online once but I guess I could be mistaken. Weighted complex averages are, of course, relatively simple to understand but now I guess I'll have to double-check on the actual formula. It is a matter of intellectual curiosity only and not terribly important.

If you find something different let me know.

I checked out the S&P 500 thinking you might have been thinking of that one. It's similar to the DOW but it uses a weighted sum of the stock price. It multiplies the stock price by the number of outstanding shares producing a measure of market capitalization. It then divides that number by the same weighted sum for a given base period.

Unlike the DOW, since the S&P uses a weighted product of shares times price, the S&P 500 doesn't need to do divisor adjustments for stock splits. It does adjust for the following:

Share Reissuances
Share Repurchases
Special cash dividends
Company change
Rights offering
Spinoffs

[Memnoch]

Warren Buffett wants to get taxed more. He doesn't think he is getting taxed enough.

Buffett calls for mega-rich tax August 16, 2011 - 7:07AM Billionaire investor Warren Buffett has urged US MPs to raise taxes on wealthier Americans to cut Washington's huge budget deficit, saying the move would not dampen investments or jobs. In a New York Times opinion article, the chief executive of Berkshire Hathaway proposed a tax increase on Americans who make at least $US1 million ($966,100) per year and an additional increase on those making $US10 million ($9.66 million) or more. "Our leaders have asked for 'shared sacrifice.' But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched," Buffett wrote. "While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks." The man known as the "Oracle of Omaha" said his federal tax rate was 17.4 per cent last year, while some investment managers were taxed just 15 per cent on income reaching into the billions. He then noted that the middle class is taxed up to 25 per cent in its income bracket, along with "heavy" payroll taxes. In contrast, Buffett recalled "far higher" taxes rates for the rich in the 1980s and 1990s, and yet nearly 40 million jobs were added from 1980 to 2000. "You know what's happened since then: lower tax rates and far lower job creation," he said. "People invest to make money, and potential taxes have never scared them off." Americans are losing faith with Congress's ability to tackle the country's financial woes, Buffett warned, calling for "immediate, real and very substantial" action. A protracted partisan battle between MPs culminated in a last-minute deal on August 2 to raise the $US14.3 trillion debt ceiling and narrowly avoid a US default. "My friends and I have been coddled long enough by a billionaire-friendly Congress," he added. "It's time for our government to get serious about shared sacrifice." AFP This story was found at: http://www.smh.com.au/business/world...816-1iv7i.html

[Cerek]

Maybe Congress will actually listen for a change, but I doubt it.

But his message will resonate very loudly with the general population, so there's a good chance a lot of current Repub Congressmen will be former members by the end of 2012.

[SpiritWarrior]

Originally Posted by Memnoch Warren Buffett wants to get taxed more. He doesn't think he is getting taxed enough.

Refreshing change.