How to Understand the Nasdaq Composite Index

By eHow Personal Finance Editor

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You've heard about the tech-rich Nasdaq, the exchange that many high-tech stocks are traded on. To understand the volatile - and profitable - Nasdaq Composite Index, read on.

Instructions

Difficulty: Moderate

Things You’ll Need:

Step1
Find the most recent Nasdaq Composite Index at the Nasdaq Web site (nasdaq.com). Local newspapers usually cite the index as of the close of business on the previous trading day.
Step2
Understand that the index is a measure of the combined value of roughly 5,000 stocks traded on the National Association of Securities Dealers Exchange, or Nasdaq.
Step3
Know that the index figure is based on the last-sale price of each stock and is updated throughout the trading day.
Step4
Know that each stock's impact on the index is "market-value weighted." That means an individual stock's impact on the index reflects the last-sale price multiplied by the number of shares outstanding.
Step5
Use the index to gauge the relative value of Nasdaq stocks over time.
Step6
Compare the index with other market indicators, such as the Dow Jones industrial average or the S&P 500 Index, to get a broader view of market trends.
Step7
Assess the health of the market by evaluating index trends. A steadily declining index might reflect waning investor confidence in the economy; a rising index might indicate the opposite.
Step8
Compare the Nasdaq Composite Index with other Nasdaq indexes, such as the Nasdaq Biotechnology Index or the Nasdaq Bank Index, to see which sectors are deviating from market trends.

Tips & Warnings

  • Consider investing in mutual funds tied to an index. The majority of mutual funds underperform the market. Some companies try to avoid this embarrassment by creating funds that follow market indexes.

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Anonymous

Anonymous said

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on 11/22/2005 Folks, read this book. It changed my life big time. Do not invest in mutual funds where you do not have any control. If the price goes down, you will lose.

When we see all the scandals within the companies, little guys like us lose money.

My advice is to invest in real estate, where you can make lots of money. You can buy a property with bankers' money, and rent it out for a few years. Pay the mortgage from the rent, and sell it when the price is hot.

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eHow Article:  How to Understand the Nasdaq Composite Index

eHow Personal Finance Editor

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