With blue chips for 101 years, Dow Jones is key market index

The Ticker

March 21, 1997|By Julius Westheimer

"What does that Dow Jones industrial average actually mean to me?"

I hear that question often in the wake of last week's news of elimination from the Dow of four old-line, mainly industrial companies and substitution of four newer-breed companies representing technology, health care, insurance and retailing. The rearrangement was the Dow's first since 1991.

What is the Dow? It is an index of 30 blue-chip stocks. The oldest continuing market index at the age of 101, the Dow is an average, originally computed by adding up stock prices with pencil and paper every hour and dividing by the number of stocks.

The formula remains the same -- now computerized instantly -- but the divisor changes periodically to account for splits, stock dividends, etc.

In 1896, the Dow had 12 stocks. In 1916 it was expanded to 20, and in 1928 to 30.

Today the Dow is the most famous, closely watched of all market indicators. It is popular because investors believe that the health of the country's largest companies says a lot about the whole market.

The respected index -- founded by two Wall Street Journal editors, Charles Dow and Edward Jones -- originally included such companies as Distilling and Cattle Feeding, Standard Rope and Twine, American Cotton Oil and Pacific Mail.

But the Dow was modernized over the years as Coca-Cola, Disney, American Express, McDonald's and other companies replaced U.S. Steel, Anaconda, Owens Illinois, Johns Manville and other "smokestack" stocks. General Electric is the sole survivor from the original index.

So what does the Dow mean to you?

Veteran local adviser Mark Dyer says, "You're looking at the 30 largest, finest companies in the world -- the cream of the crop.

Although not as representative as the S&P 500, the Dow remains the main performance gauge used by most portfolio managers. If you beat the Dow, you're doing very well."

How well? In a steady upward procession -- far outpacing inflation -- the Dow closed above 2,000 points for the first time in January 1987, went past 3,000 in April 1991, closed above 4,000 in February 1995, topped 5,000 in November 1995, passed 6,000 last October and went over 7,000 last month.

In a decade, the Dow more than tripled; over the past four years alone, it doubled.

Other stocks, of course, have grown with the Dow. So if you can "beat" the Dow Jones industrial average consistently, my hat's off to you.

Pub Date: 3/21/97

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