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Dow Jones Industrial Average History - DJIA

Charles Dow and the Creation of the Averages

Neither financier nor broker Charles Dow was a journalist. The stock averages he devised provided a window for outsiders to view the market; Wall Street types were welcome to use it, but they were not his chief concern.

When Dow came to Wall Street, the investment market of choice was bonds. Investors liked securities that were backed by real machinery, factories and other hard assets. They felt reassured by the predictability of income that bonds offered, as well as the specific dates of maturity when their principle would be returned. The stock market, by contrast, dealt in "shares of ownership'' which had no specific claim on anything a company owned.

People on Wall Street found it difficult to analyze the daily jumble of up-a-quarter and down-an-eighth or whether stocks generally were rising, falling or staying even. Charles Dow devised his stock average to make sense of this confusion. He began in 1884 with 11 stocks, most of them railroads. Railroads were among the biggest and sturdiest companies in America at that time, which is why they dominated Dow's first average. Few stocks of industrial companies were publicly traded, and those were considered highly speculative.

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On May 26, 1896, he introduced the industrial average (the DJIA). In October of that year, Dow's original average shed the last of its non-railroad stocks and became the 20-stock railroad average. To complete this line of history, the utilities average came along in 1929 -- more than a quarter-century after Dow's death at age 51 in 1902 -- and the railroad average was renamed the transportation average in 1970.

Nowadays, of course, there are plenty of indicators to tell investors what the stock market is doing. But most people rely on the Dow Jones Industrial Average. The Dow Jones Industrial Average (DJIA) is in sync with other major market barometers. That's true despite the difference in computation methods; the Dow is unweighted while almost all other indexes weight their stocks by market capitalization, which is price times shares outstanding. It's also true despite the fewer number of stocks in the Dow.

The Dow's durability, is in the selection of companies that make up the industrial average. Though there is occasional criticism on this assemblage, collectively, the 30 Dow industrial stocks represent every important sector in the stock market (except transportation and utilities), and they respond to every important factor in the economy.

There isn't anything to prevent Nasdaq issues from being added to the industrial or utilities averages. The tradition of using Big Board stocks stemmed from Charles Dow's intent of using only the most "respectable" stocks in his averages. Over time, those choices became the "blue chip" companies of America, and invariably they were listed on the New York Stock Exchange. That's no longer true, as several "blue chip" companies choose to trade on Nasdaq.

If you need to fin the price of the Dow Jones Index then make sure you use our live DJIA chart which updates in real time every day.

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