LikeTheDew.com

Is nothing sacred? The Dow Jones industrial average, the oldest and best-known barometer of stock market trends, is for sale.

That news comes from The Wall Street Journal, which is owned by the same Dow Jones & Co. that owns the Dow Jones industrial average.

The Dow, of course, is an index of 30 large, blue-chip corporations — including Atlanta’s Coca-Coca and Home Depot. Using a formula that adjusts for occasional shifts within the companies, the index monitors the daily price changes of the 30 companies. It has been criticized as being too small to be accurate and for giving too much weight to large companies. But in fact it has, over time, accurately depicted the broad sweep of the stock market and also opened a window on other broader economic, social and political trends.

Apparently the sale is not yet a done deal. According to the WSJ, sale discussions “are moving in fits and starts and mightn’t result in any sale” — and yes, “mightn’t” is the quaint way the financial newspaper expressed it.

On the surface, the potential sale reflects the broader financial problems faced by Rupert Murdoch’s News Corp., the huge media company that bought Dow Jones & Co. a year ago (as I recall). Like all media companies it is facing a financial tsunami. The prospect that the index will be sold to another company, and maybe not even a newspaper company, is the sort of thing people feared when Murdoch acquired Dow Jones & Co.

At the same time, the very idea that the sale of so visible an institution is even being contemplated is just one more fracture in our civilization. It’s akin to The Atlanta Journal-Constitution’s decision to move out of Atlanta to relocate in Dunwoody.

Presumably, the name of the index would not be changed if it were sold, given its 113-year history. Headline writers would certainly hope that’s the case.

The Dow, as it is affectionately known, was founded by several Wall Street entrepreneurs: Charles Dow, Edward Jones and Charles Bergstresser. They established the Dow Jones company in 1882 and in 1884, Charles Dow was inspired to create an index that could track the broad market’s daily actions. The original index contained nine railroad and two industrial companies, and was published in a daily newsletter they prepared for Wall Street clients.

The index is monitored by a Dow committee which changes companies from time to time depending on changes within companies and within the economy. For obvious reasons, General Motors and Citigroup were dumped as recently as June 8, and replaced by The Travelers Companies and Cisco Systems.

In 1896, Dow altered the index to what it is today, a diversified index of 12 mostly industrial corporations, less focused on railroads — a transportation index took care of that. Of the original companies, only General Electric still exists. The others disappeared over time through mergers, expansions and failures. Eventually, the index settled at 30 companies in 1928 at the peak of the Roaring Twenties — and a year before the Great Crash.

In that regard, the Dow has become something of a proxy for American, and even world, economic and business history. The events that “moved the Dow” were the events that changed our lifestyles, such as the Great Depression, World Wars I and II, and various post-War booms and busts right down to the latest bust in 2007-08.

It’s not surprising that the Dow’s really big swings up and down are best remembered, such as the 22.6 percent plunge on Monday, Oct. 19, 1987, which is still the index’s biggest one-day percentage drop. The index reflected the technology boom of the 1990s with its biggest ever rally, which lasted a decade until crashing in 2000. Remember the dot-com disaster?

The original Dow first closed at 40.94 on May 26, 1896. Its highest close was 14,198.10 on  Oct. 11, 2007, and it closed at 9,505.96 on Friday, Aug. 21.

There are other stock market indexes, to be sure: The Standard & Poor’s 500 is the one Wall Street professionals prefer; the Nasdaq index is heavily weighted in technology companies; the Russell 2000 is another broad-based index, and the Wilshire 5000 is, for all practical purposes, an index of all publicly-traded stocks in the market.

And just so you won’t have to look them up, here are the Dow companies: Alcoa, American Express, AT&T, Bank of America, Boeing, Caterpillar, Chevron, Cisco Systems, Coca-Cola, DuPont, ExxonMobil, General Electric, Hewlett-Packard, Home Depot, Intel, IBM, Johnson & Johnson, JPMorgan Chase, Kraft Foods, McDonald’s, Merck, Microsoft, 3M, Pfizer, Procter & Gamble, Travelers, United Technologies, Verizon Communications, Wal-Mart and Walt Disney.

1. Billy Mallard says:

   September 3, 2009 at 4:24 am

   Lovely story, Tom. I learned about “the Dow” at your knee and, boy oh boy, do I remember the 22.6% drop of Oct. 19, 1987.

   Bill Hendrick had flown up to NY over the weekend to cover the bad scene brewing on Wall Street. And I, the only person on the Bidness Desk with nothing important to do when the bottom fell out in early trade Monday, got pulled into compiling wire and staff copy for the first Journal edition. I’m pretty sure my lede was, “The stock market picked up today where it left off overnight – in a rout.”

   The lede in the next day’s Consti, with the “Bill Hendrick and W. Morgan Mallard” byline: “NEW YORK – The stock market took its deepest dive ever Monday, greater by any measure than the worst daily drop of the 1929 stock market crash. ”

   I remember coming in Tuesday, wondering what superlatives the WSJ would reach for. They kept it clean: “The stock market crashed yesterday.”

   The crash was great for me: it kept Bill and me on 1A for the next two weeks, as I tossed together what he got from the killing floor and pureed that with what all of y’all churned out, updating for each Journal edition and then starting over for the Consti run.

   As for the storied Dow itself, it’s worth noting the Dow Jones Industrial Average, the 30 industrials you explain so nicely, is just one – by far the best known – of thousands of indexes Dow Jones produces for markets worldwide. Almost all of them are determined by algorithm, but the DJIA is still set by WSJ editors. (An outside Shariah board decides what stocks are in or out of the Dow Jones Islamic indexes.)

   I wonder how the tradition of having crusty journos pick the DJIA components will fare if Dow Jones & Co. does indeed sell off its Dow Jones Indexes unit?

   (Disclosure: I’ve worked for Dow Jones Newswires since 2000. And no, I don’t have any inside info on whether they’ll sell or to whom.)

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