By: Felipe Argote
Charles Dow was born in 1851 in Connecticut. At age six he was orphaned. His first job was obtained at age 21 in a newspaper of Springfield, Massachusetts. After working as a reporter for various newspapers, the last newspaper sent him to Colorado for reporting on mines. He became interested in the financial and specialized in the field in his writings. In 1980 he moved to New York. He used his knowledge of mines to find work in the stock market on Wall Street as a reporter for mining stocks. By the end of that year he had become a recognized expert in financial analysis. That same year he changes of job again as he contract with Kiernan News Agency. There he met Edward Jones.
Edward David Jones was born in 1856. Profession was a statistic. In 1882 he founded along with Charles Dow and Charles Bergstresser the Dow Jones Company. While Edward Jones developed the administrative tasks Charles Dow performed editorial work. Together they published what would later be called the Wall Street Journal, a journal specializing in the analysis of the stock exchange in New York. Its name comes from the street where the building still exists in the stock market.
During the first seven years of the Dow Jones Co company was limited to distributing a sheet where daily reported the news of the stock market. The publication was a next step of the so called “customer’s afternoon letter” where Charles Dow presented his daily analysis. It is not until July 8, 1889 when the company first published the Wall Street Journal, a four-page newsletter that sold for 2 cents. Since 1884, Dow began to develop his theory in which aims to relate the state of the economy by measuring changes in the price of a set of shares. The logic is that the economy will develop positively the business also raises the most important companies that raise their earnings to attract a greater number of investors interested in its shares, which in turn raises the price of these shares. Conversely, a reduction of the activity will result in reduced value of the shares of company’s representative of the economy. If we as a representative sample of stocks and see how raising or lowering their prices, we know the trend of the economy. So, he first pushed Dow industrial index in the transport sector or Dow Jones Transport Average and then the more recognized now Dow Jones Industrial Index. This will start taking into account the share price of the shares of 12 companies. In 1916 it became twenty and in 1928 rose to 30. Is that the number that has continued over the next 90 years.
To measure this index are published every day just how much money an investor would pay to have purchased one of each of the 30 components of the index. Then, the same calculation to the next day. The variation in the amount of money paid will be the points and the percentage has varied between one and another is the index.
Suppose for the moment that all the shares today are worth a dollar. If tomorrow some prices have risen and fallen further, but added together are worth $40 rate will have risen 10 points which means an increase of 33%. Usually the variations are not as pronounced or stock prices are so low, but it is an example to clarify the concept.
This simple calculation was later changed to a composite index, giving more weight to the shares of the largest companies in addition to dissolving the effect created by the companies whose shares have lower individual value. Thus, a company of the 30 which individual shares are sold at higher prices, by the fact that it has less splitting of shares, the change in its price in the market will have an effect on the index ranges greater than if one of whose shares are more divided. Hence, now it is known as the Dow Jones composite index.
Although known as the Dow Jones industrial average, this index is made up mostly of non-industrial enterprises and the select club of course varies by reinforcing some and weakening others. The one who survives the first list of 1896 is General Electric. Currently the list is completed by:
3M
Alcoa
American Express
AT&T
Bank of America
Boeing
Caterpillar, Inc.
Chevron Corporation
Cisco
Coca-Cola
DuPont
Exxon Mobil
General Electric
Hewlett-Packard
Home Depot
Intel
IBM
Johnson & Johnson
JP Morgan Chase
Kraft Foods Inc.
McDonald's
Merck
Microsoft
Pfizer
Procter & Gamble
The Travelers Companies
United Technologies Corporation
Verizon Communications
Wal-Mart
Walt Disney
Another popular indexes are the NASDAQ and the Standard and Poor 500, but that is another history
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