Wednesday, March 17, 1999
First-day close in 1896 was 40.94
BY URSULA MILLER
The Cincinnati Enquirer
Born May 26, 1896, the Dow Jones Industrial Average was the brainchild of newspaper reporter-turned-businessman Charles H. Dow.
The Dow is the oldest continuous barometer of the U.S. stock market. It is the most widely used measurement of stock activity and is considered an indicator of the economy's overall health.
The Dow measures the stock-price movement of 30 of the largest U.S. companies, often referred to as the “blue chips.”
CURRENT DOW STOCKS
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Alcoa Inc.
AlliedSignal Inc.
American Express
AT&T Corp.
Boeing Co.
Caterpillar Inc.
Chevron Corp.
Citigroup Inc.
Coca-Cola Co.
Walt Disney Co
DuPont Co.
Eastman Kodak
Exxon Corp.
General Electric
General Motors
Goodyear Tires & Rubber Co.
Hewlett-Packard
International Busi ness Machines
International Paper Co.
Johnson & Johnson
McDonalds Corp.
Merck & Co.
Minnesota Mining & Manufacturing
J.P. Morgan
Philip Morris Cos.
Procter & Gamble Co.
Sears Roebuck & Co.
Union Carbide
United Technologies
Wal-Mart Stores
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ORIGINAL DOW STOCKS
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American Cotton Oil
American Sugar Refining Co.
American Tobacco
Chicago Gas
Distilling & Cattle Feeding Co.
General Electric Co.
Laclede Gas Light Co.
National Lead
North American Co.
Tennessee Coal, Iron & Railroad Co.
U.S. Leather
U.S. Rubber Co.
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Shortly after founding Dow Jones & Co. with Edward D. Jones and Charles M. Bergstresser, Mr. Dow developed an initial index that contained 11 stocks, nine of which were railroad issues. It appeared in Customer's Afternoon Letter, a precursor to Dow Jones' flagship paper, the Wall Street Journal.
By the time the Dow average debuted, the stock market was more than 100 years old. It took a century for the market to evolve into a formal structure, however.
The market centered on the New York Stock Exchange, also called the “Big Board,” founded in 1792. The Philadelphia Exchange is the oldest exchange, founded in 1790. But the New York Stock Exchange got the most attention thanks to Messrs. Dow and Jones.
Their first office was at 15 Wall St., adjacent to the stock exchange. They gathered news, handwrote it and rushed the two-page Afternoon Letter by messenger boys throughout New York's financial district.
There were only a few hundred stocks traded at the turn of the century, compared with today's estimated 12,000. Most of the early stocks represented industrial, commodity or transportation companies.
The Dow Jones Industrial Average, which replaced Mr. Dow's first index, comprised 12 so-called smokestack companies. Its value was a true “average,” found by adding up the prices of all 12 stocks and then dividing by 12.
The close the first day was 40.94. The original 12 were American Cotton Oil; American Sugar; American Tobacco; Chicago Gas; Distilling & Cattle Feeding; General Electric; Laclede Gas; National Lead; North American; Tennessee Coal & Iron; U.S. Leather; and U.S. Rubber.
Only one of the original dozen still counts itself among the blue chips: General Electric Co. GE was kicked off the Dow twice, and repatriated each time. It has been included continuously since Nov. 7, 1907.
As the economy expanded, companies were added to the Dow. Its custodians were — and still are — a committee of editors at the Wall Street Journal.
In 1916, the member companies jumped to 20. The first publication of an average comparable to today's Dow 30 was Oct. 1, 1928, when the Journal editors started using a special divisor to calculate performance. The close that day was 240.01.
It took the Dow 44 more years to reach 1000, on Nov. 14, 1972. The Journal editors started using a special divisor to calculate the index rather than simply dividing by the number of companies in the index to avoid distortions. Thus, the Dow “average” is no longer an average. But habits are hard to break on Wall Street and the Dow still is identified as an “average.”
The divisor is continuously adjusted to take into account stock splits, dividends, substitutions and spinoffs. The divisor stands at .2252223 today.
The divisor, which continues to shrink, also explains why the “average” can be reported as 10,000 while no single stock in the index is even close to that price.
Through the years the keepers of the Dow have added and removed dozens of companies, but the number of member companies has remained constant at 30.
The major flaw of the Dow, critics complain, is its relatively small size.
“The big weakness is just the fact that it only represents 30 stocks, so it's not really the best picture of the overall market,” said Susan Flischel, chief investment officer for equities at Countrywide Investments in Cincinnati.
By comparison, the other widely quoted, major stock indexes include anywhere from 500 and 5,000 companies.
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