The Dow Jones index (NYSE:DIA) has now been around for 115 years, but how did it get started and how has it changed over the years?
Charles Dow founded the index in 1886. At the time, Dow was an editor of the Wall Street Journal (NASDAQ:NWSA), which was less than a decade old. At its conception, the list was comprised of 12 stocks. This increased to 20 stock in 1916 and again to 30 in 1928, where it has remained since (and has led to the nickname “Dow 30”).
Over the course of its history, the specific stocks that comprise the average have changed 48 times. The frequency of these transitions has been sporadic. In several instances, the stocks making up the Dow remained constant for over a decade.
In terms of the stocks themselves, only General Electric (NYSE:GE) has remained part of the Dow from the original 12. Others have come, gone and sometimes returned. Perhaps the most famous example is IBM (NYSE:IBM), which was dropped from the Dow in 1939 and then reintroduced 40 years later after shares had inflated 22,000% from their 1939 price.
When first published, the Dow (NYSE:DIA) stood at 40.94, hitting an all time low of 28.48 the following summer. The turbulence of the first half of the twentieth-century in the financial markets accompanied a fluctuating Dow. In the period from 1925-1935, the Dow oscillated between 40.56 (essentially where it started) and 381.17 — a record high that would not be broken for another twenty years.
The index surged in the post-war era, but stalled in the 1960’s. Nevertheless, this did not prevent it from exceeding the 1,000 point threshold in 1972. Financial uncertainty in the 1970’s further restricted the Dow (NYSE:DIA), although things picked up during the 1980’s setting aside Black Monday and the 1989 “Mini-Crash”.
The dot-com surge allowed the Dow (NYSE:DIA) to breach the 11,000 mark in May of 1999. Then, the single greatest one-day drop occurred on the first day of trading after the September 11, 2001 terrorist attack, although the Dow began an upward trend shortly afterwards. The financial crisis at the end of the decade led the Dow to end the decade lower than it began. Since then, the Dow has gradually begun to recover, reaching pre-crisis levels at the beginning of this year.
Critics question the integrity of the Dow, both for the limited number of stocks taken into consideration and the dependence on price instead of market value to determine the index. In spite of its shortcomings, the longevity of the list serves as a testament to its significance as part of the American financial culture.