Dow Jones 125 Years : Investing For The Long Term


 A person watching the tide coming in, and who wishes to know the spot which marks the high tide, sets a stick in the sand at the points reached by the incoming waves until the stick reaches a position to where the waves do not come up to it, and finally recede enough to show that the tide has turned. This method holds good in watching and determining the flood tide of the stock market. The average of [stock prices] is the peg that marks the height of the waves. Like those of the sea, the price waves do not recede all at once from the top. The force which moves them checks the inflow gradually, and time elapses before it can be told with certainty whether the high tide has been seen or not.”

— Charles Dow, creator of the Dow Jones Industrial Average, on January 31, 1901, edition of The Wall Street Journal



Dow Jones Industrial Average: Celebrating 125 Years

< Sources: S&P Global >


"As of May 26, 2021, the Dow Jones Industrial Average will have been determining the flood tide of the market for 125 years. Created as a simple gauge of stock market performance, this financial and cultural icon has weathered recessions, depressions, bubbles, and expansions through 23 U.S. presidencies, two world wars, and two global pandemics. Through it, all The Dow has steadfastly tracked the ups and downs of the U.S. market and by extension, served as a leading indicator of U.S. and global economic health. Quoted far and wide from Wall Street to Main Street, The Dow is still the number that most investors cite when asked how the market is doing.

Going off the Rails


The Dow Jones Industrial Average wasn’t Mr Dow’s first foray into measuring the market. In 1884 he produced an average of 11 stocks, mainly railroad companies. This market indicator was intermittently published in the “Customer’s Afternoon Letter,” a precursor to The Wall Street Journal.

But Dow believed that the rails only presented a partial picture of the economy and that industrial companies—whose stocks were considered highly speculative at the time—were crucial contributors to America’s growth. Since the goods produced by the industrials were being delivered by the railroads, Dow reasoned that two separate measures could confirm broad market trends. The Wall Street Journal began publishing the industrial average and the railroad average in every issue and has done so ever since. (With aeroplanes and trucks bringing competition to the railroads, the components of the railroad index evolved to reflect the changing landscape and, in 1970, the railroad average was renamed the Dow Jones Transportation Average™.)


Becoming a Household Name


At the time of The Dow’s introduction, investing in the stock market was considered a highly speculative activity. And so in its early years, The Dow achieved little prominence outside the narrow canyon of Wall Street. By the 1920s, however, ordinary citizens began investing in stocks, driving the industrial average from the 100 range in 1924, up to nearly 400 before the Crash of 1929. Ironically, the market’s fall brought The Dow’s reputation to the attention of everyday investors as the index lost nearly 30% of its value over the course of two days. Before that, investors had been more focused on their individual stocks, but after the crash investors were more interested in following general market conditions. The Dow made that possible.


Evolving Yet Constant


Since its early days, the index has evolved with the U.S. economy, adding or eliminating companies as industries have gained or lost favour in the market. Despite those changes, one of The Dow’s original components, General Electric, remained in the iconic index until as recently as 2018. Through its historical continuity, The Dow connects us to our financial past and offers valuable lessons, while also reflecting the current state of the market to millions of investors around the world each day. It doesn’t get closer to Charles Dow’s original vision than that.

The 5 craziest moments in Dow's 125-year history < sources: sg.news.Yahoo.com>


The Dow Jones Industrial Average (^DJI) is 125 years old today. It made its debut back on May 26, 1896, and while the S&P 500 index may have stolen much of its thunder as a benchmark for “the market,” it still is very much the main index for many people.

Nowadays, it’s a price-weighted index of 30 blue-chip American companies, but it used to be only 12. None of the 12 original members of the Dow is in the index today. Most, like American Cotton Oil, American Sugar, American Tobacco, U.S. Rubber, are not around anymore, either absorbed by other companies, evolved into a successor company, or simply liquidated. Only General Electric and Laclede Gas are still around, with GE being the last of the original components in the index before it was kicked out in 2018."









If you zoom out, the Dow has gone up and to the right over time, representing the evolution of the American economy, reflecting the progress of the American economy, but also the setbacks along the way.

Some of the wildest moments stand out among the others — five days in particular. (None of them is Black Tuesday, which doesn’t make the top five biggest-move days of the Dow because the full market crash momentum was spread out over the Monday as well.)



Some Crazy Days Happened Throughout The 125 Years

October 30, 1929: 12.34% gain

This date might confuse some people because 1929 is the year associated with a horrible crash that led to the Great Depression. This was not a happy day, it was the Wednesday after Black Tuesday.

This was likely the original dead-cat bounce. The market had crashed 12.82% on Monday, Oct. 28, and 11.73% on Tuesday, Oct. 29, after rampant speculation caused an enormous sell-off as the stock fever broke. This gain was a bigger move than either of the previous two days, though no one remembers it, since the market began to tank yet again the following Thursday, cementing what must be the wildest week in Wall Street history.

March 16, 2020: 12.93% drop

The full scope of the coronavirus pandemic and associated economic shutdown sent stocks into freefall. (It also priced in the future gains incredibly early as well.) During the rollercoaster of the pandemic’s early days, things got historic, with numerous big jerks up and down the stock chart. This was the largest single-point drop in history for the Dow, which fell 2,997.10.

On March 16, the Federal Reserve cut its benchmark interest rate to 0%-0.25% and President Donald Trump pivoted to finally say the coronavirus might be a big problem that could cause people’s lives to change.

October 6, 1931: 14.87% gain

This was a big day for the U.S. Al Capone was put on trial for tax evasion and the market boomed as the banking system, battered by the Great Depression, had an infusion of confidence from President Hoover, who proposed some sweeping banking changes. This was by no means the end of the Depression, but another reminder that the best market days can happen in the worst times and vice versa.

March 15, 1933: 15.34% gain

The greatest per cent gain in Dow history came amid significant pent-up demand – the stock market had been closed for 11 days previously as a “bank holiday” so that the FDR administration and Congress could stop the Depression. Just a week before, the Emergency Banking Act was passed and, then Americans were starting to put cash back into banks when they opened.

This first day back, though, represented by a huge gain, was not a particularly wild day on the floor. Eyewitness accounts reported a "ghost town." FDR was trying to restore confidence in the economy and had started his fireside chats just a few days before.

October 19, 1987: 22.61% drop

You might know this day as Black Monday. It was the worst day in Dow history, and the 22.61% fall didn’t just crater U.S. markets, but the entire world’s. Like many things in the stock market, it was driven by emotion and panic, and the market gained back half of its loss over the next few days. Thanks to the Fed (among other things), there wasn’t a prolonged depression, though it took two years to fully recoup the losses.


Every Company In and Out of the Dow Jones Industrial Average Since 1928 <sources: visualcapitalist.com>

 

The Dow Jones Industrial Average (DJIA) is reported daily by every major financial and media platform—a testament to its importance and relevance in global financial markets.

The market benchmark has a rich history embedded alongside America’s rise as a global superpower in the 20th century and the inflows and outflows of companies on the 30 stock index coincide with broader secular trends. For example, the delisting of many industrial stocks over time encapsulates America’s transition towards a service-based economy. Meanwhile, the addition of tech companies in the last few decades paints a similar picture of change.

Today’s infographic looks at Dow data spanning over nine decades, all the way back to the tail end of the Roaring Twenties.

Crank Up The Volatility

An increasingly competitive and accelerating business landscape results in greater churn for the stock market indices.

In fact, in the 92 years of activity visualized for the DJIA, there were 93 changes in its composition. This is not surprising, as the average duration of a company’s tenure on American indices has been trending down for decades—that said, 63% of Dow changes occurred in the second half of the 92 year sample period.

The current iteration of the DJIA includes some long-serving constituents, with the average length of companies in the index sitting at 20 years. General Electric was the last standing member of the original group from 1928, but in 2018, they were replaced by Walgreens.

2020 has also brought with it some fresh faces, including three changes so far. They include Salesforce for ExxonMobil, Amgen for Pfizer, and Honeywell International for United Technologies. 

 


Quotes Of The Day :

 

"No stock has been in the Dow for the entire 125 years."

(Karen Langley and Peter Santilli) <source: wsj.com>

 

 But the "Index" remains….. in the long run !! 


 Cheers!

 

 STE






 





Comments

  1. Great article STE 👍

    ReplyDelete
    Replies
    1. Thanks BK , just quoting from those sources on the important of investing for long term and the facts that market always moving in upward trend regardless of short term (crisis ) or fluctuation.
      Hope you have a "huat" year in 2021 !
      Cheers !! :D

      Delete
    2. Hi bro. Agree for Dow and US but if we invested in some of our dear blue (black) chips starting with the capital letter S, then we need to flip the chart 180 degree top to bottom.

      Delete
    3. Hi bro, Yes ! not all index are created equal , if investing in ETF with more "lemons " than "apples ", one will suffer in the long run... :(
      Maybe investing in multiple ETFs (or factor investing) may help...
      Cheers !! :D

      Delete
  2. Indexes are in winners-surviving operation i.e. bad losers are kicked out and replaced by potential winners are brought in. One has to decide DIY or indexes investing?

    ReplyDelete
    Replies
    1. Hi Uncle CW8888,
      Yes, index need to "evolve " and replacing "old economy" stocks from time to time, but I think in the long run , it should still be OK.
      Yup.. maybe can try 50/50 index and DIY , kind of "hybrid " type of investment portfolio.
      Cheers ! :D

      Delete
    2. STI is very slow in replacing sinking ones. Singapore Property Holdings should have been booted out years ago until recently. LOL. Many friends caught a falling knife when it fell below $4. SQ still in there.

      Delete
    3. Yes, indeed , the replacement process is rather slow , that's been reflected in why STI is much lagging behind other major indexes in past 5 years. Yes, think is really sad for those "retiree" that putting their "faith" onto these so call "GLC or TLC" link blue-chips... just look at the S-series blue-chips like... SCI,StarHUB,SPH,SingPost,SingTel ..will really need to be careful on falling into such "pitfalls ".
      Cheers !:D

      Delete
  3. Replies
    1. Hi FC,
      Can try this : SPDR Dow Jones Industrial Average ETF ( ticker symbol : DIA )
      https://www.etf.com/DIA#overview

      Cheers !! :D

      Delete
    2. thanks Uncle cw8888 for that.

      my bad, if i wasnt clear. i meant to say, ucits for the DJI. for tax optimization.

      also, if one has a major % in the SP500. is there neccessary to have a portion in the DJI? it is somewhat overlapping, isn't it?

      Delete

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