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What Is 'The Dow'?

MINNEAPOLIS (WCCO) -- The Dow Jones Industrial Average (DJIA), better known as the Dow, surpassed 22,000 on Wednesday.

It was an all-time record high.

We hear a lot about that number, but what does it mean?

The Dow was created in 1896 by journalist Charles Dow as a way to describe what was happening in the stock market with a broad sector of stocks.

Dow Jones Average
(credit: CBS)

It was originally the average of 12 industrial stocks, including American Sugar, United States Leather and Laclede Gas Company.

Now, it is an index of 30 stocks that range from energy to banking to manufacturing to transportation.

It includes companies like 3M, Boeing, IBM, Intel, Proctor & Gamble and Goldman Sachs. It's newest company was Apple, which replaced SBC Communications in 2015.

The index is weighted by price, which means changes in pricier stocks -- like Boeing and Apple -- carry more weight.

"When it advances, that means that in a broad sense, investors think that earnings are going up," said Paul Vaaler, a professor at the Carlson School of Management. "It's an anticipation of that, which means they think companies will be profitable in the future."

Some experts say it is not a good indicator of the health of the economy, or even the stock market.

They argue the S&P 500 or Wilshire 5000 Index is a more accurate way to gauge the market.

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