The Dow Jones Industrials

By Virginia Hodge

“The Dow reaches new Highs!” blares the television. But what is the Dow?

Way back in 1880 a newspaper reporter named Charles Dow began writing for the New York Mail and Express. Later he and Edward Jones formed the Dow Jones News Company, the predecessor to Wall Street Journal.

Jones was the partner with the “business sense” and Dow was the paper’s reporter and editor. Dow moved through New York City interviewing presidents, investors, bankers and businessmen (I can say businessmen because I would guess there were no women!). With each interview, he searched for clues as to which way the company’s stock was headed.

Before long Dow realized that stocks of similar companies moved in unison, so he created averages for various sectors, such as industrials, transportation and utilities.

The first Dow Jones average was made up of eleven stocks, of which nine were railroads. Each day Dow added up the prices of this list of stocks and divided the total by eleven.

On May 26, 1896, 103 years ago, Dow produced the first index composed entirely of industrials, companies producing products such as sugar, tobacco, leather, coal and electric. At that time the Dow Jones Industrial stocks were new and speculative, not “blue chip” stocks as they are considered to be today.

The contemporary Dow Jones Industrial was born October 1, 1928 when the list was expanded from 20 stocks to 30. Today’s Dow still uses 30 stocks to track the market, and there has been remarkably little substitution in the ensuing 71 years.

The Dow is no longer an average. Today the Dow is divided by a special divisor designed to avoid distortions when companies split their shares or when one stock is substituted for another.

The Dow Jones Industrial Average has historically been the average used by the masses to gauge how the Stock Market is doing. But the Dow is not always an accurate representation of the market as a whole.

In fact, the day the Dow broke 10,000, on the New York Stock Exchange losing stocks outnumbered winners by a 4 to 3 ratio, and the Standard & Poor’s index of 500 major companies was down for the day. (Though the Standard & Poor’s 500 index generally is considered a more reliable market indicator than the Dow, the Dow is more widely reported.)

As of 10/01/2008 the 30 stocks in the Dow Jones Industrial Average were:

Date Added
3MMMMDiversified industrials1976-08-09 (as Minnesota Mining and Manufacturing)
AlcoaAAAluminum1959-06-01 (as Aluminum Company of America)
American ExpressAXPConsumer finance1982-08-30
AT&TTTelecommunication1999-11-01 (as SBC Communications)
Bank of AmericaBACInstitutional and retail banking2008-02-19
BoeingBAAerospace & defense1987-03-12
CaterpillarCATCommercial vehicles & trucks1991-05-06
Chevron CorporationCVXOil and gas2008-02-19
CitigroupCBanking1997-03-17 (as Travelers Group)
DuPontDDCommodity Chemicals1935-11-20
ExxonMobilXOMIntegrated oil & gas1928-10-01 (as Standard Oil (N.J.))
General ElectricGEDiversified industrials1907-11-07
General MotorsGMAutomobiles1925-08-31
Hewlett-PackardHPQDiversified computer systems1997-03-17
Home DepotHDHome improvement retailers1999-11-01
IBMIBMComputer services1979-06-29
Johnson & JohnsonJNJPharmaceuticals1997-03-17
JPMorgan ChaseJPMBanking1991-05-06 (as J.P. Morgan & Company)
Kraft FoodsKFTFood processing2008-09-22
McDonald’sMCDRestaurants & bars1985-10-30
Procter & GamblePGNon-Durable household products1932-05-26
United Technologies CorporationUTXAerospace, heating/cooling, elevators1939-03-14 (as United Aircraft)
Verizon CommunicationsVZTelecommunication2004-04-08
WalmartWMTBroadline retailers1997-03-17
Walt DisneyDISBroadcasting & entertainment1991-05-06

Remember that investing in stocks can be risky, and the Dow Jones fluctuates widely. You and your advisor must devise strategies to help limit your exposure to dramatic swings or down markets.

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