The combined index of the Jamaica stock exchange advanced by more than  5,000 points last week.  Huh???  😵😵😵

What are points and what does it mean when a stock advances or declines by X amount of points.

When we’re talking about the performance of the stock market, you often hear the term “points”.    Have you ever stopped to wonder, umm, what exactly is a point?

On the Jamaica Stock Exchange, the term “points” is used as a measurement of the performance of a particular index over a period of time, and if you’re wondering what an index is, I have another video explaining that. It’s basically just a way to track the performance of a specific segment of the stock market.

Is the index in good shape?

Globally, investors often cite the total point movement in a day’s session as an indication of the health of an index, so it’s generally understood that a 1,000 point drop in the Dow Jones Industrial Average, which tracks the stock prices of 30 big companies in the USA, reflects a steep decline. An index is reported in points and not dollars.

JSE Indices

The JSE also uses the term “points” when referencing the movement of its indices among a group of stocks. The JSE has nine indices (that’s the plural of index – one index, two indices). These indices measure the performance of all the shares listed on that segment of the market. There are four major ones:

1. The Main Index

2. The Junior Market Index

3. The US Dollar Index

4. The Combined Index which measures the performance of shares on the Main, Junior and USD Dollar Markets.

So when we say the combined index advanced or declined, we’re talking about the average performance of all the stocks listed.

Combined Index 2020

The Combined Index started this year at 508,000 points on January 2, but crashed to 337,000 points by March 25 after COVID-19 hit Jamaica. The index has recovered slightly to above 369,000 points. It’s still a big leap from when the Main Index started at just 100 points in the 1960s, when the Jamaica Stock Exchange was established.

So why aren’t indices reported in dollars?

Wouldn’t it be easier to just say the market lost or gained x dollars, rather than points?  Well, it’s because indices are dealing with several companies that are worth billions, so points work as a kind of shorthand to indicate changes in the collective value. So while the term “points” represents a change in value, a single point, when talking about indices, does not have an actual value.

Basically, it’s easier to say, “the combined index advanced by 5000 points,” than “the stocks of the companies on the combined index gained $95.4321 million…” or something like that.  The JSE assigns a certain number of points to the indices at the start of trading and then at the end, they calculate the overall movement.

The movement on indices is also often reported as a percentage

Percentage loss or gain is calculated simply based on the value of the index at the start of trading and the value at the close of trading. I personally prefer this method of reporting, and it’s what you’ll hear us use on Taking Stock, simply because it helps to give us context. If I say the main market lost 200 points yesterday, you might not know what that means. You’ll probably figure it’s a bad thing because it’s a loss, but you don’t know how bad because you have nothing to compare it to. Is 200 points a lot or a little?  If you’re new to this, you’ll have no idea.  But if I say the market lost 10% of its value, you know immediately, whoa!  That’s a lot!

I hope I was able to break the meaning of the term “points” so you can understand.

Click here to watch this video