Charles Dow and his Famous Stock Index

Dow Jones Index

The Dow Jones Index

On July 3 1884 Charles Henry Dow together with his colleague Edward Jones composed and published an stock average – called the Dow Jones Railroad Average -, which contained nine railroads and two industrial companies. He developed the stock index as part of his market research and it was meant to serve as a reference value to determine fluctuations of the stock market. It first appeared in the Customer’s Afternoon Letter, a daily two-page financial news bulletin, which was the precursor to The Wall Street Journal later on also founded by Dow, which should become one of the most respected financial publications in the world

Charles Henry Dow (1851-1902)

Charles Henry Dow (1851-1902)

The son of a farmer, Charles Dow became a journalist in Springfield, Massachusetts at the age of 21, three years later in Providence, Rhode Island. At the age of 29, Dow began compiling financial news for banks and brokerage firms at Kiernan News Agency in New York. Together with Edward Davis Jones and Charles Milford Bergstresser, he founded the financial news agency Dow Jones & Company in 1882 and published the first stock letter, the Customer Afternoon Letter, from which the Wall Street Journal developed.

Besides the railroad companies, which were the largest companies in the USA by that time, the two industrial companies (Pacific Mail Steamship Company and Western Union) were taken as highly volatile and speculative. Later on the composition of the Index changed, but remained with 12 companies in the first place. These original group of 12 stocks ultimately chosen to form the Dow Jones Industrial Average in 1896 did not contain any railroad stocks anymore, but purely industrial stocks. Of these, only General Electric currently remains part of that index. The other 11 were:

  • American Cotton Oil Company, a predecessor company to Bestfoods, now part of Unilever.
  • American Sugar Company, became Domino Sugar in 1900, now Domino Foods, Inc
  • American Tobacco Company, broken up in a 1911 antitrust action.
  • Chicago Gas Company, bought by Peoples Gas Light in 1897, now an operating subsidiary of Integrys Energy Group
  • Distilling & Cattle Feeding Company, now Millennium Chemicals
  • Laclede Gas Company, still in operation as the Laclede Group, Inc., removed from the Dow Jones Industrial Average in 1899. 
  • National Lead Company, now NL Industries, removed from the Dow Jones Industrial Average in 1916. 
  • North American Company, an electric utility holding company, broken up by the U.S. Securities and Exchange Commission (SEC) in 1946. 
  • Tennessee Coal, Iron and Railroad Company in Birmingham, Alabama, bought by U.S. Steel in 1907; U.S. Steel was removed from the Dow Jones Industrial Average in 1991. 
  • U.S. Leather Company, dissolved in 1952. 
  • United States Rubber Company, changed its name to Uniroyal in 1961, merged with private B.F. Goodrich in 1986, bought by Michelin in 1990.

The Dow Jones Industrial Average was created by Charles Dow for the Wall Street Journal simply by adding together the prices of the twelve most important shares on the New York Stock Exchange and dividing the sum received by twelve. The initial quotation was 40.94 points on May 26, 1896. Between 1899 and 1902 Dow Editorials published an attempt to assign daily share price changes to a long-term trend. The summary of this became known as Lable Dow theory and basis of technical analysis.

Today, the Dow Jones Industrial Average Index includes 30 large, publicly owned companies based in the United States that have traded during a standard trading session in the stock market. Along with the NASDAQ Composite, the S&P 500 Index, and the Russell 2000 Index, the Dow is among the most closely watched U.S. benchmark indices tracking targeted stock market activity.

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