The History of the Dow goes way back in time to 1882 when the Dow Jones and Company was founded by three journalists: Charles Henry Dow, Edward Jones, and Charles Bergstresser.
In 1884 Charles Dow composed his first stock average which contained nine railroads and two industrial companies. It first appeared in the 'Customer's Afternoon Letter' which later became 'The Wall Street Journal' (in 1889).
Dow had been recognised as a man that could distill complex financial information into easy-to-understand layman's terms.
He believed that all investors required was a benchmark that indicated where the markets were - rising or falling. His first Index computed at a figure of 62.76 reaching a peak of 78.38 in 1890 and an all-time low of 28.48 in the Panic of 1896.
It was that clarity of explanation that led him to invent the first average in 1896 which later became known as the 'Dow Jones Industrial Average' (DJIA).
The Dow Jones Company not only owned the Dow Jones Industrial Average it owned, and operated many indices represeting different sectors. Such as the Dow Jones Transportation Average (20 stocks), the Dow Jones Utility Average (15 stocks)
Today, it is still widely used as THE benchmark Index, even though the S and P 500 Index, the Nasdaq Composite Index, and the Russell 3000 Index, are a better representation of the market.
The History of The Dow began on May 26th. 1896 when Charles Dow created his now world famous index. These original 12 industrial are no longer part of the index as we know it today.
Here are the original components of the Index:
The company's founders: Charles Edward Dow, Edward Jones and Charles Bergstresser created and promoted the company's three basic products for over two decades.
Those three basic products were: The Wall Street Journal, Dow Jones Newswires, and the Dow Jones Industrial Average.
The Dow Jones Company was bought out in 1902 by the leading financial journalist of the time - Clarence Barron. This happened soon after the death of Charles Dow in 1902 at the age of 51
After the death of Clarence Barron, control of the Dow Company passed to his step-daughters Jane and Martha Bancroft. The company remained 64% ownede by the Bancroft family until 2007 when a takeover battle witnessed Ruper Murdoch's News Corporation win the day.
In 2010 News Corp sold 90% of the Dow Jones Indedicesto the CME Group - including the DJIA.
A History of The Dow starts from its humble beginnings in the 1880s.
1880-1900 The Dow started life at 62.76. It reached a peak of 78.38 in 1890 and plummeted to an all-time low of 28.48 in 1896. The year of the Panic.
1900-1910 The dow ranged between 53 and 103 during this period and survived two panics and an earthquake. The two Panics being in 1901 and 1907 and the San Francisco Earthquake in 1906. The Index broke the 100 barrier later in 1906 for the first time.
1910-1920 The decade started with another panic. In July 1914 the Index was at 71.42 and closed for four nd a half months due to World War I outbreak. The Dow started this decade at 99.05 and finished it on 107.23 - just over a 8% increase
1920-1930 From early 1920 right up until October 1929 Wall Street experience a long Bull Market rising from aroud 73 point to 381. In 1928 the constituents of the Dow increased to 30 stocks.
The period not surprisingly became known as the Roaring Twenties. The market peaked at 381.17 on September 3rd. 1929. The bottom of the Crash of 29 came on November 13th. at 198.69 (having been as low as 195.35).
The 1920's overall ending up gaining 131.7% (107.23 to 248.48) . Adjusting for inflation: that high of 381.17 in September 1929 was not breached until 1954.
1930-1940 The 1930s were just about as bad as it could get. It started with the Great Dpression and the mass unemployment. And ended with the outbreak of World War II. With the Spanish Civil War, the 2nd. Italy - Abyssinian War, the Soviet - Japanese Border War, and the Second Sino - Japanese War in between.
Over the decade, the Dow decreased from 248.48 at the beginning of1930 to 150.24 by the end of 1939. A decrease of around 40%.
1940-1950 The Dow increased a respectable 39% in the 40s from around 148 all the way up to 206. Iy might have been better but for a recession in 1949
1950-1960 Despite the Korean War and the Cold War the Dow climbed from 206 to 616. About a 200% gain.
1960-1970 Still climbing albeit not at pace the Dow moved on fro 616 to around 800. A 30% gain.
1970-1980 This decade saw problems in the Middle East with an energy crisis and the price of oil escalating. Even so, the Dow climbed from 800 to its highest point ever in November 1972 at a lofty 1,003.16 pushing through the 1000 mark for the first time.
Then came the 73-74 Bear Market which saw the dow crash 48% but still managed to close the decade at 1,004.75
1980-1990 The decade of the 80s began with a recession. But by early 1987 had reached an unheard of 2,000+. But on Black Monday, October 19th. 1987 the Index fell 22.61%
However, the decade as a whole was a success. The dow increased 228% from 838 to 2,753. Surprisingly, the decade recorded only two of its years with a negative growth, 1981 and 1984. 1987 was not one of them.
1990-2000 The 1990s saw a techology boom as we entered the dot.com era. The decade witnessed events such as Soviet Union reak-up, the chechen Wars, the Gulf War, the Yugoslav Wars.
The Dow soared from 2753 to over 8000 from the decade beginning to 1997. Then a mini reduction down to just above 7,000. and then by March 1999 the DJIA closed above 10,000 for the first time. The decade finished at 11,497 a 315% gain.
And so not only the decade completed, but so did the century. The Dow averaged 5.3% compounded annually.
2000-2010 The Dow fell 7.1% on the first trading day after the September 11th. attacks. The dot.com boom had its effect as well, the Dow dropping 27%. But the S and P 500 and particularly the Nasdaq which fell c. 50% and 75% respectively, didn't fare as well.
By October 2007, the dow had climbed to a new record of 14, 198.1. Unfortunately, the financial crisis of 2007-8 saw the Dow loe 20% of its value in a matter of weeks.
For the decade as a whole, the Dow lost a smidgeon over 9% down fro 11,497 to 10,428
2010-2020 This turned out to be decde of loose monetary policy, and qunatiative easing and the Dow responded accordingly.
Over the decade the Dow shot up 174% rising from 10,428 to a heady 28,538. A staggering figure.
Are we due for a BIG correction?
2020-2030 The decade has not started brighlty. A pandemic is the last thing the world needs. Is this the BIG correction? Only time will tell.
As stated beforehand, the Dow Jones Index is the Benchmark for investors worldwide.
However, a lot of investros prefer the broader market indices such as the S and P 500, or the Nasdaq Composite, or the Russell 3000 indices. Because the Dow Jones Index only consists of 30 large capitalised stocks, and is not weighted by market capitalisation .
For your reference, below are the 30 stocks that make up the Dow Jones Industrial Average (at the time of writing).
Company Industry Index Weighting (%)
3M Conglomerate 4.34
American Express Financial Services 2.75
Apple Inc. Information Technology 8.08
Boeing Aerospace and Defence 4.18
Caterpillar Inc. Construction and Mining 3.31
Chevron Corp. Petroleum Industry 2.18
Cisco Systems Information Technology 1.26
Coca Cola Company Food Industry 1.29
Dow Inc. Chemical Industry 0.93
Exxon Mobil Petroleum Industry 1.16
Goldman Sachs Financial Services 5.02
Home Depot Retailing 6.04
IBM Information Technology 3.45
Intel Information Technology 1.71
Johnson and Pharmaceutical Industry 3.90
JP Morgan Chase Financial Services 2.89
McDonalds Food Industry 5.3
Merck and Co. Pharmaceutical Industry 2.26
Microsoft Information Technology 4.85
Nike Apparel 2.36
Pfizer Pharmaceutical Industry 0.97
Proctor and Gamble Fast Moving Consumer 3.38
Raytheon Aerospace and Defence 2.84
The Travelers Financial Services 3.07
United Health Managed Health Care 7.19
Verizon Telecommunications 1.64
Visa Inc. Financial Services 5.05
Walmart Retailing 3.76
Walgreen Boots Reatailing 1.48
The Walt Disney Broadcasting and 3.21
The components of the Dow Jones Industrial Averge have changed 54 times since 1896.
As you can see, Information Technology plays a large part, as do Financial Services and the Pharmaceutical Industry.
It is interesting to note that companies such as General Electric, Amazon, Google, do not make the cut. Maybe they will kick present constituents out in the near future.
Charles Dow died a young man. A few decades before his time. And his early death prompted the sale of the company.
Ownership had been fairly steady throughout the 20th century and now it is in the hands of a newspaper.
As long as the Dow Jones company continues to churn out the information it does, then everyone will be happy.
We still can't explain why the Dow Jones Industrial Average is the US nation's benchmark Index. Surely the more composite Indices, the S and P 500, the Nasdaq Composite, and the Russell 3000, are a much more accurate representation of the American market.
Yet the DJIA has been the benchmark since Dow created it over 100 years ago, and is still the benchmark.
We hope that this History of The Dow has filled in a few gaps in your understanding of how the Dow Company cme into being, survived, and is still thriving today.
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.