Sign in     Like us on Facebook Follow us on Twitter Watch us on YouTube

News and Blog

Join 5000 other sharemarket traders for regular blog updates!

Browse to a category

Blog Search

You Learn Something Everyday

The Dow was at first purely an industrial average, with separate averages for railroads and utilities. But it soon evolved into an index that tried to represent theĀ U.S. economy as a whole. Today, the Dow contains such distinctly non-industrial stocks as Home Depot Inc. and JPMorgan Chase & Co., as well as General Electric Co. and Kraft Foods Inc. To better match the economy, Dow Jones has from time to time removed some companies from the average and substituted others.

In 1939, International Business Machines Corp. was removed from the average and replaced by AT&T. That was a fateful move. Over the next 40 years, before IBM was restored to the Dow in 1979, AT&T, largely a regulated utility, saw its share price increase about threefold. IBM, on the other hand, greatly expanded during the war and then moved into the soaring computer industry. Its stock increased about 22,000 percent between 1939 and 1979, one of the great investment success stories in Wall Street history.

Had Dow Jones just left well enough alone and stuck with IBM, the whole history of the average — and thus the perceived history of Wall Street in the postwar years — would have been different. The Dow would have recovered to its 1929 peak years sooner than it did, and marked many other milestones, such as reaching 1,000 points, earlier as well.

 

More on Bloomberg

 

email

Comments

  1. Simply shows how irrelevant it is. 30 stocks don’t mean much really and with that few making a change here and there really makes a huge difference.

    “GM broke? Oh well flip them for something that’s working”

    It should be used as a demonstration of survivor bias rather than gasped at by clueless hacks and used by economists as an indicator of economic health

Speak Your Mind

*

General Advice Warning

The Trading Game Pty Ltd (ACN: 099 576 253) is an AFSL holder (Licence no: 468163). This information is correct at the time of publishing and may not be reproduced without formal permission. It is of a general nature and does not take into account your objectives, financial situation or needs. Before acting on any of the information you should consider its appropriateness, having regard to your own objectives, financial situation and needs.

email