While the DJIA has many excellent attributes, one of its biggest criticisms stems from the fact that it is a price-weighted index. This means that each company is assigned a weighting based on its stock price. In comparison, most companies that make up an index are weighted according to their market capitalization.
Why is the Dow Jones so important?
In addition to representing 30 of the most highly capitalized and influential companies in the U.S. economy, the Dow is also the financial media's most referenced U.S. market index and remains a good indicator of general market trends.
What does the Nasdaq measure?
The Nasdaq Composite Index uses a market capitalization weighting methodology. The index's value equals the total value of the share weights of each of the constituent securities, multiplied by each security's last price.