#TBT: With GE leaving the Dow, today is a perfect time to look back.
But first, a bit about the Dow Industrial Average…
The Dow Jones Industrial Average
We could call the Dow Industrial Average a barometer. As a list of 30 carefully selected companies, it reflects the climate of stock markets. The problem though is that you can’t just add up all of the stock prices and divide by 30. The math would disrupt continuity if there were a stock split or some other fundamental price change. So they use a constantly changing divisor. There is bit more to it but you get the picture.
This is how the Dow Industrial Average will look on June 26th:
This was the first Dow Industrial Average:
Charlie Dow and Eddie Jones
During the early 1880s, Charlie Dow and Eddie Jones worked at a news messenger service called the Kiernan Agency. Charlie was the writer who produced readable copy and Eddie was the facts person. While Dow was somewhat introverted, Jones excelled at extracting information from traders and bankers at local bars.
Soon though, the friends contemplated leaving. In 1882, with a third associate, they started their own business. Called Dow Jones & Company, it published financial gossip, stock market analysis, and news from the “street.”
Dow Jones & Company
The Dow Jones news service was described by one visitor as a Dickensian type of establishment. Its Wall Street home was just a rear basement room where you would have seen Jones resting his legs on one desk and Dow at another behind a pine board divider. In the center of the room sat the copywriters.
Responsibility was clearly allocated among the firm’s principals. Charles Bergstresser opened the office and reported the previous day’s late news in the first bulletin. Jones ran the office during the day and later listened for gossip at the Windsor Hotel Bar on Fifth Avenue. And Dow was the writer who did the lengthier company analyses, stock market news, and gossip. Meanwhile, all three sought new clients.
Dow Jones news bulletins were continuously delivered during every business day by six or seven fourteen-to-sixteen-year-olds. With Eddie Jones calling out “Boys! Boys!” when it was time for a delivery or someone shouting “Earnings” as the financial data arrived, the day unfolded.
A typical Dow Jones letter might say:
The First Dow
Starting in 1884, they also began to publish average closing prices for a group of representative stocks. Since Dow chose the securities that reflected market trends, the first Dow average included nine railroads and two industrial corporations. The Dow Industrial Average with GE did not evolve until 1896.
Our Bottom Line: Information
Charlie Dow and Eddie Jones fed facts speedily to the financial markets that needed them. Then, through the firms in their indices, they conveyed bigger economic trends. With the departure of GE, that spirit continues.
My sources and more: WSJ had the story of the GE departure from the Dow while I’ve presented some Dow Jones history in an edited Econ 101 1/2 excerpt.
This post was slightly edited after publication.