Companion Advisor: Techniques
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As we hear about the daily levels of the TSE
Jones Industrial Average, and other market benchmarks, it's helpful
to understand how those numbers are derived.
The Toronto Stock Exchange 300 Composite Index (TSE 300) measures changes
in the market value of 300 stocks. For each stock, the daily price is
weighted by the total number of shares outstanding so large-capitalization
companies have a stronger effect on the Index than small-caps.
In addition, there are 14 major group indices such as Metals and Minerals,
Oil and Gas, Consumer Products, etc. The base year for the TSE 300 is
1975 when the base value was set to equal 1,000. So, if the TSE 300 is
at 4500 today, this is 4.5 times the value it was in 1975.
The Montreal Exchange Canadian Market Portfolio Index (ME) is comprised
of 25 widely-held, highly-capitalized stocks listed on the Montreal Exchange
as well as at least one other Canadian
exchange. It is not weighted, so all 25 stocks have the same effect
on the Index. Its base value of 1,000 was set in 1983.
The Vancouver Stock Exchange Composite Index (VSE) is based on over 1,400
VSE-listed companies that trade at least 50% of their market volume in
Vancouver. It was weighted like the TSE 300 beginning in 1986, and its
base value of 1,000 was set in 1982.
The Dow Jones Industrial Average tracks 30 large-capitalization stocks
that trade on the New York Stock Exchange. It is not an index but an average.
The calculation is done by adding the prices of each of the 30 issues
in the index and dividing by a number periodically adjusted for stock
splits. Because it is an average, a stock that sells for a higher price
has a greater effect than a lower-priced stock. It is criticized because
few companies are included, not all new industries are represented, and
its method of calculation is weighted by price. Nevertheless, it is the
index which receives most of the attention.
The ScotiaMcLeod Universe Bond Index is based on whatever AA, A, and BBB
bonds are issued on any particular day. It is comprised of approximately
60% Government of Canada issues, 25% Provincials, 1% Municipals, and 10%
Corporates. It's base value of 100 was set in 1985.
The Daiwa Bond Index (DBI) is a daily bond index which covers all categories
of Japanese publicly-issued coupon bonds. It is calculated and released
by Daiwa Institute of Research, based on a world-standard calculation
method. DBI consists of a total return index, which is the accumulated
number of total returns with the base date set at 100, and various auxiliary
indices to enable a detailed analysis of the market. DBI was first released
in June 1986. In April 1989, due to a change in the market environment,
the index was modified.
NASDAQ (National Association of Securities Dealers Automated Quotations)
tracks the performance of small- capitalized stocks. In the financial
markets, a company's size is most often defined by its market capitalization
("cap"), which is found by multiplying its stock price by the
number of shares outstanding. "Small" usually refers to market
caps below $500 million, but there is no hard and fast definition. Most
small-company stocks trade in the over-the-counter (OTC) market, a network
of broker/dealers linked by telephones and computers. Prices of most OTC
stocks are furnished by NASDAQ and made available to the media.
Market benchmarks are designed to give a general snapshot of market performance.
Your investments may differ, and it's always wise to consult your investment
advisor before making any investment decisions.
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