Imagine you are trying to measure how tall the average person in a room is. One method: add up all their heights and divide by the number of people. Perfectly sensible.

Now imagine instead you used this method: measure only the shoes of 30 people, and whoever has the biggest shoes gets the most weight in your average.

That is roughly what the Dow Jones Industrial Average does.

Created in 1896, the Dow tracks just 30 large US companies. And it is price weighted, meaning companies with higher share prices carry more influence over the index, regardless of how large or valuable those companies actually are.

The problem this creates is immediately visible once you see it. If Company A has a share price of Rs 50,000 and Company B has a share price of Rs 5,000, Company A has ten times the influence on the Dow, even if both companies are worth exactly the same total amount in the market.

It gets worse. If Company A does a stock split, dividing each share into two at half the price, its Dow weighting suddenly halves overnight. Not because anything changed about the business. Not because it became less valuable. Just because the price per share changed.

This is not a small quirk. It is a fundamental flaw in the construction.

So why does anyone still use it?

Inertia and history. The Dow has 130 years of data. It’s 30 companies, names like JPMorgan, Goldman Sachs, Walmart, Apple, Visa, and UnitedHealth, are synonymous with US corporate power. Politicians love citing it because one number is easier to communicate than a nuanced explanation. When the Dow crossed 40,000 in 2024, every news channel ran the story because 40,000 is a round, satisfying number that nobody needs explained.

For cultural context, the Dow is unavoidable. For understanding what is actually happening in US equity markets, it is the wrong tool. When you see the Dow quoted, translate it in your head to “this is what 30 large companies did today, measured in a somewhat arbitrary way.”