Technology And Innovation
l Times 30-share index is the oldest index (it was introduced in 1935) and is still the most popular. It is quoted on the news almost like a religious devotion, yet few people really understand its purpose.
The index is calculated by taking only 30 share prices. These are companies which are chosen as being representative of the market as a whole.
During its existence, the index has sought to reflect the change in the nation's economy by occasionally changing a constituent member. Thus there has been a move away from heavy manufacturing industries to service companies and the oil industry.
In December 2024 the NatWest was included, prior to which the index had been known as the Financial Times Industrial Ordinary Share Index. Despite the change, seven of the original class of 30 from 1935 are still in the index.
Originally this index was calculated once a day. It is now calculated throughout the day, though the closing index is still the most widely used. For those of you who want to understand the technicalities, the constituent share prices are expressed as base figures (similar to a percentage) and the geometric mean is calculated. This is done by multiplying the bases and taking the thirtieth root. An average (or arithmetic mean) would add them and divide by 30.
The effect of using a geometric mean is that the index shows the overall movements relative to each other. If one company's share price doubled and another halved, their geometric mean would remain unchanged, but the arithmetic mean would show a 25% increase, as illustrated below:
A and B each have a share price of £1. The geometric and arithmetic means are both 100p. A doubles to 200p,
B halves to 50p.
The geometric mean is V200 x 50 = V10,000 = 100
(unchanged)
50 plus 200
The arithmetic mean is 125 (increased by 25% )
The index is intended to measure the 'mood'of the market as to how optimistic or pessimistic (bullish or bearish) it is believed to be.
As a long-term indicator, it tends to understate the market's movements. This is partly a mathematical quality of geometric means, and partly reflects the fact that spectacular growth is more likely to be found in the smaller companies outside the 30 constituents.
So the FT30’s worth was never, primarily, as an investment tool. Insofar as it ever fulfilled that role, it has long been superseded by the FT Actuaries series which was set up in 1962, and the FTSE100 which was introdu
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