The Dow Jones: History, Definition and Current Stocks on the DJIA
By Mike Mc Mahon | August 15, 2019
What is the Dow Jones Industrial Average?
The Dow Jones Industrial Average, commonly referred to as the Dow, is a stock market index that tracks the value of 30 large, publicly owned, U.S. companies. It is the second oldest and is perhaps the most followed index in the world.
History of the Dow Jones Industrial Average
Today, worldwide, there are over 3.3 million financial indices in use globally. Many are popular with a particular country’s population – FTSE, DAX, NIKKEI – but everyone knows the Dow Jones Industrial Average (DJIA), commonly referred to as The Dow.
By the 1890s the New York Stock Exchange (NYSE), The Big Board, was fully operational and the public wanted more and more news about their financial holdings. This need opened the door for a unique man named Charles Dow who, along with his partners Edward Jones and Charles Bergstresser, formed the Customer's Afternoon Letter which later became the Wall Street Journal. It remains one of the world's most influential financial publications today.
Charles Dow was known for his ability to ethically explain complicated financial news to the public. For instance, he explained economic theory simply as the ’production of goods and services, their transportation and their distribution for money’. The key, in Dow’s mind, was the transportation segment. Dow and Jones devised a simple road map of stock values initially known as the DJIA. It consisted of only 11 stocks – none of which were really industrial. Instead, they focused on transportation concerns - 9 railroads, 1 steamship line and a communication company. By 1896, the focus had shifted to growth stocks and the DJIA was split into the DJIA and the Dow Jones Transportation Index (DJT).
The Dow Theory was formed and was offered as a guide to investors who were bewildered by the daily price variances. Dow realized that there were patterns in price waves and not just chaos - but how to tell the public, in simple terms, was quite the task. One of the most notable points of the theory was the concept of trend. By having two indices to track the closing prices on NYSE, Dow demonstrated that as industrials rose and fell there was a parallel, positive correlation with the DJT, the transports. Price moved in trending waves. Dow’s ability to chart the closing prices and demonstrate the relationship between production and transportation labeled him as The Father of Technical Analysis.
By 1929, DJIA had been expanded to 30 Blue Chip stocks as picked by the Wall Street Journal’s Editors. The DJT had been rounded to 20 transportation stocks and both were focused on quality and growth.
What Is the Dow Today?
Decade after decade slipped by. The stocks on the 2 indices changed so that they became indomitable. Weak companies were weeded out and new Blue Chip stocks replaced them. General Electric (GE) was one of the original stocks and has been removed and replaced into the DJIA four times. Over the last 100 years or so, approximately 60 companies have been removed, added or replaced.
Today, the irony is that the DJIA consists only of American securities and most are not industrial stocks at all, but The Dow is globally recognized as the public’s source of stock market guidance. So, if the Dow is up, then the world population is likely happy because, ‘if America sneezes, the whole world catches a cold’.
However, in America, most of the professional financiers watch other indices like the NASDAQ 100 or, more importantly, the S&P 500 Index. This is because all 30 of the Dow components and virtually all NASDAQ 100 issues are included in the S&P 500.Of course, the market is now resplendent with tens of thousands of issues as both U.S. and foreign companies trade on the NYSE and other major exchanges around the world.
In the beginning, Charles Dow and Edward Jones wanted to keep the public informed of the financial world. Neither had the foresight that they were creating what would become today, despite some of its drawbacks, arguably the World’s Most Iconic Index. Indeed, we are a long way from the indexes humble beginnings as the Customer's Afternoon Letter.
Stocks on The Dow Jones Industrial Average (as of November 2018)
- 3M - MFG
- American Express - Financial
- Apple - Technology
- Boeing - MFG
- Caterpillar - MFG
- Chevron - Energy
- Cisco Systems - Technology
- Coca-Cola - Retail
- DowDuPont - MFG
- ExxonMobil - Energy
- Goldman Sachs - Financial
- Home Depot - Retail
- IBM - Technology
- Intel - Technology
- Johnson & Johnson - Biotechnology
- JPMorgan Chase - Financial
- McDonald's - Retail
- Merck - Biotechnology
- Microsoft - Technology
- Nike - Retail
- Pfizer - Biotechnology
- Procter & Gamble - Retail
- Travelers - Financial
- UnitedHealth Group - Insurance
- United Technologies - Technology
- Verizon - Communications
- Visa - Finance
- Walgreen Boots Alliance - Retail
- Wal-Mart - Retail
- Walt Disney - Retail
About the Author
Mike Mc Mahon
Mike Mc Mahon was a co-founder of Online Trading Academy in 1997 and was Director of Education for 13 years, charged with recruiting top flight traders and training and guiding them in the methodology of OTA’s Core Strategy. He officially retired in 2009 but still contributes as Content Editor and contributor for all things digital with an emphasis on educational articles and videos.
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