“The stock market was down today,” proclaimed the 6:00 news on Friday, “as the DOW lost 285 points.” Never has this style of reporting been thorough, but in past decades far fewer Americans were active in the market. Retirement Plans morphed from our parents’ pensions, when no one cared about the internal investments, to our 401(k) Plans and IRAs, where account values are of paramount interest and importance.

“The stock market” is astronomically larger and more complex than the DOW (Dow-Jones Industrial Average, or DJIA), which is calculated using market prices of only 30 mega-companies in the USA. Complete market results are indicated by numerous Indices (or “Indexes”) for several segments of publicly traded stocks, both in the USA and throughout the world.

Knowledge of a few indices can lead to a better understanding of the complex market, and hopefully improved investment results. We’ll explain with a few examples, starting with the broad US stock market. One index for the total market is the Wilshire 5000, which is actually just a name. The index once contained over 7,500 stocks, but today has only about 3,400. This consolidation reflects recent mergers and acquisitions, as well as privatization of formerly publicly traded companies.

Perhaps the next best-known Market Index is the NASDAQ Composite, though relatively few Americans understand what it represents. “The NASDAQ” is currently comprised of about 3,320 mostly smaller companies, with a bias in favor of technology. Most Americans view NASDAQ through the lens of the largest 100 included companies, represented by the symbol QQQ.

Several indices track small companies, and a few track the smallest publicly traded American companies. Other tracking indices cover medium sized companies, specialty companies, and various segments of the market. No one should feel compelled to follow all of them, but understanding trends in various indices can improve your investing skills.

For several years, certain market segments have been outperforming others, as well as the broad market itself. Huge technology-based companies were the rage. Their performance enhanced many portfolios. Lately, that trend seems to have been reversed. Smaller (and even “Micro-Cap”) companies have been outperforming the kingpins of the recent past.

Many market watchers, professional and otherwise, are reacting to the trend. Anyone with a working knowledge of various market indices can readjust their asset allocations to ride the current wave. As always, large abrupt modifications to your asset allocation should be avoided. More discussions regarding indices will be presented in coming weeks.