Charles Henry Dow was born in Sterling, Connecticut on November 6th, 1851.
As a child he had little eduction or training but still found work at the age of 21 with local newspaper, the SpringfieldDaily Republican. He worked there from 1872 to 1875.
He had several "bit" jobs but learned how to write business stories. It was said that he made history come alive in his writings and was well thought of by both his peers and bosses.
In 1879, Dow accompanied a group of tycoons on a trip to Colorado and it was there that he learned about money and investments. The following year he left the provincial world of reporting to find work in New York writing financial reports and itwas there that he invited an old friend, Edward Davis Jones to join him. The pair were respected for their honest assessment of financial matters.
By 1882 the pair left their present employers to form their own agency - Dow, Jones and Company. A third partner, Charles Bergstresser joined them and the following year they they published a daily newsletter called the 'Customers' Afternoon Letter. It was in this letter that the Dow Jones Company included its stock average.
By 1889, the Dow Jones Company had 50 employees. By this time their daily newsletter became known as 'The Wall Street Journal' and had the motto of: "The truth in its proper use." Dow was the editor, Jones was the manager, and Bergstresser was a silent partner.
Charles Henry Dow was a journalist, not a stock broker or anything like, but he became the first editor of the Wall Street Journal and co-founder of Dow Jones and Company. He devised his stock averages for general usage because people found it difficult to figure out whether stocks in general were rising, falling or staying level.
An Index which is still used today.
So to get rid of all the confusion, his Stock Average was born in 1894 with 11 stocks, most of them railroads. At that time few industrials were publicly traded and those that were, were considered highly speculative.
But in 1886 he introduced the Industrial Average. And in October of that year, his original Stock Average became a pure 20 stock Railroad Average. A Utility Average came along in 1929 and his original Railroad Average became known as the Transportation Average in 1970.
You can read more about how the Dow Index progressed by studying History of the Dow.
Charles H Dow whose name was given to the Dow Industrial Average, consists of 30 industrial stocks and is unweighted. Although other indices are around today, the Dow Industrial Average has stood the test of time.
But Dow was not just a journalist, he published a series of editorials in the Wall Street Journal. And these became termed “Dow Theory,” although Dow himself never actually referred to them as such.
The theory was later refined after his death by William P. Hamilton and articulated by Charles Rhea later still.
Dow Theory asserts that Bull Markets are characterised by a primary trend that consists of three major upward thrusts interrupted by two pull-backs.
The basic components of Dow Theory are still valid in today’s markets. The theory addresses not only technical analysis and price action but also market philosophy.
So many of the comments made by Dow (and Hamilton) have become axioms on Wall Street.
You may be thinking that something written over 100 years ago can’t possibly apply in the technology-driven markets of today. But you’d be wrong. It’s exactly the same today
as it was at the beginning of the last Century.
Because markets are moved by supply and demand and they are driven by the emotions of humans.
While both Hamilton and Dow agreed that Dow Theory was not some magic formula for beating the markets (there is no such thing) but what it does do is provide a mechanism that helps to remove the emotional roller-coaster of trading.
Charles H Dow died in 1902 at the young age of 51. But he left his legacy, and we should all be glad that he did.
Charles H Dow was famous for one book in particular - Scientific Stock Speculation.
He wasn't a prolific book writer but his articles were collated and many books were written about his theories - later to be called the Dow Theory.
Scientific Stock Speculation by Charles Henry Dow
This book, although written over 100 years ago, contains many sound principles. Principles that are as relevant today as they were when Charles Henry Dow first wrote them.
Dow's theory stated that there are three well-defined movements which fit into each other.
The first of these three movements Dow called the Primry movement - the great swing lasting 4-6 years.
The second of these movements Dow termed the Secondary movement - a period of 10-60 days.
And the third part of Dow's theory stated that there is a daily movement - due to local causes and the balance of buying and selling on the day.
Dow maintained that these movements were ongoing and present at all times. If the main movement was up - any relapse in the market was an opportunity to buy.
Dow reckoned, that to make consistent profits in the market, any investor should first consider the value of a stock, and then determine what is the main movement of the market and then determine the position of the secondary swing.
Even in his day, he made reference to Accumulation and Distribution - a subject that is still popular with traders today.
Dow maintained that the best profits in the Stock Market were made by investors who got long at extremes and stayed with that decision for months, even years.
Can you spot any similarity between what Dow stated then to what Warren Buffett does to this day?
Regarded as a classic. You can get it right here:
The Stock Market Barometer by William Peter Hamilton
William Peter Hamilton, basically took Dow's work to the next level.
And, as it was written twenty years later, had the advantage of a lot more examples to prove the theory. For both Bull and Bear cases.
His analysis took the Stock Market as representing everything that everybody knows: the hopes, the beliefs, the anticipation of the country as a whole. He quotes one well-known figure of the day as summing up the markets as: "the bloodless verdict of the market place."
He used the analogy of a thermometer to an aneroid barometer. The former being a device that give the actual temperature and the latter predicting what can happen. He then applied this to the Stock Market citing it as being a barometer (or predictor) of future prosperity.
Hamilton made a very good argument about why the Stock Market was always right. The markets do predict, in advance, what the future properity of the country holds and he gives numerous examples of how this has worked time and time again.
Since he wrote this volume, it's difficult to reason that the markets have not continued to do what he wrote - and will continue to do so.
Order your copy here:
The Dow Theory Explained by Charles B. Stansbury
Charles Dow believed that the Stock Market was a reliable measure of market conditions and by analysing the markets it was possible to predict the direction of important market trends and even individual stocks.
The Dow Theory is based on the analysis of maximum and minimum market fluctuations in order to accurately predict the direction of the markets.
Marketers to this day, especially Technical Analysts, follow "the trend." When Dow first published his writings over a hundred years ago, 'market trending' was revelationary. And now, the index that he created is probably the most followed indicator in the world.
There are six tenets that help explain Dow's theory:
1. The market discounts everything
2. The three-trend market
3. Primary trends remain in effect until a clear reversal occurs
4. The three phases of a primary trend
5. Volume must confirm primary trends
6. Primary trends must confirm each other across market indices
A great explanation of Dow's Theory. You can get it right here:
Charles H Dow only lived to his 52nd year but left a legacy to match most of his peers.
His Dow Theory is still studied, and respected, today by many serious investors.
He is most widely recognised as the co-founder of the Dow Jones Industrial Average. Which is still used as the major market yardstick and also known as the founder of the Wall Street Journal.
He became famous not just because of his innovations, but because of his honesty and integrity. Many reporters of his day were bribed to report on companies with a view to driving up their stock prices, but both Dow and Jones stuck to their motto - "The Truth in its proper use"
The industrial index, was a popular indicator of stock movement and since its inception in 1894 with just eleven stocks, nine of which were railroad stocks (amended to twelve in 1896) - only General Electric remains to this day.
Chris and Clem Meet Up - hopefully, the last time before lockdown easing
Chris and Clem Meet Up - at last! They can meet in the beer garden
Chris and Clem Meet Up and it is Chris' turn to do most of the talking. Chris' little windfall has allowed him to widen his portfolio. Chris vows of more.