Charles Dow is one of Wall Street’s most significant legends for two extremely substantial reasons — he produced our economic bible, the Wall Street Journal (WSJ), also as our 1st industry barometer, the Dow Jones Averages. He can also be the father of technical analysis. Ironically, Dow went comparatively unnoticed for his achievements and died quietly at age 51 in his modest Brooklyn apartment in 1902 — years just before he was credited with revolutionizing the way we now speak about the stock market.
You may clarify ”his” theory and its technical applications, but during his lifetime, he never laid out a ”Dow Theory,” per se. When he first started compiling stock market place averages in 1884 — prior to the WSJ even existed — he hadn’t established a lot besides an index with an all-inclusive ”index number” by which to measure the stock marketplace. Later he added his intuitive opinions. Actually, the Dow Theory as we know it nowadays was only named and extracted from his WSJ editorials twenty years after his death by other industry technicians, like William P. Hamilton.
Standing more than six feet tall, yet slightly stooped and weighing more than 200 with dark eyes and brows, a jet-black beard, and walrus mustache, ultra-conservative Dow had a grave air about him, spoke with measured speech and was reminiscent of an overly severe college professor. He never raised his voice and frequently stated it took him a full 24 hours to acquire angry, and when angry, he stayed angry. The professorial analogy is strengthened by the reality that, operating during the finish from the robber baron era, he in no way chose to play that game, never tried to make a market fortune for himself; he instead chose, to become a sidelines observer and commentator.
He was born on a Connecticut farm in 1851 and worked odd jobs as a kid. His father died when he was six. When he was old enough to select his profession, he chose to abandon farm life for the pen. Following a scant education, he apprenticed for six years with all the influential Massachusetts newspaper, the Springfield Republican. Then he moved to a Providence, Rhode Island paper, exactly where he located his niche in monetary writing although covering the mining industry beat.
Possessing created a modest name for himself, Dow, at 31, subsequent ventured to New York and in 1882, founded Dow, Jones & Company with fellow reporter Eddie Jones. They used second-hand office equipment and worked out of a tiny, one-room office in a ramshackle building at 15 Wall Street, building a profitable news agency. They provided daily economic news updates to subscribers, who were mostly typical Wall Street wags. Printed news was scarce on the Street, and there was a value to being plugged into news sources even if they were little more reliable than the gossip proliferating through the crowd. So, their service was cherished, and the firm grew rapidly within the year. Soon, they started publishing a two-page newspaper called the Customer’s Afternoon Letter — the WSJ’s predecessor.
It was in the Letter that Dow initial published his average, which he left unnamed. For example, on February 20, 1885, his average was compiled from 14 companies — 12 railroads and two industrials — whose closing prices totaled 892.92. Dividing this figure by 14, he came up with 63.78. Since the previous day’s close was 64.73, the marketplace was said to be down nearly a point for the day. A more precise observer might have been able to note that it was down 1.47 percent. The index was the initial enduring attempt at precise marketplace measurement. The index also gave birth to what would later evolve into the entire realm of ”technical” analysis, wherein people forecast future price activity based on pricing history.
The Letter grew into the WSJ, in 1889. Costing $5 for a yearly subscription, 2 cents per copy and 20 cents per line for ads, the WSJ contained four pages of monetary news and statistics, including bond and commodity quotes, active stocks, railroad earnings and bank and U.S. Treasury reports. At a time when there were about 35 major stocks and several hundred less widely followed names, an authoritative news source began to create, in effect, a standard by which reality was to be measured. We use the same standard nowadays, published by the same firm. That function alone insures Dow a seat in the monetary hall of fame.
Dow was a perfectionist. He worked quietly and intently, using his market averages to pursue his theory of market place behavior in a series of editorials between 1899 and his death in 1902. Although he predicted the bull markets from the early I900s, Dow disciples believe the furthest thing from his mind was creating a system of buy and sell recommendations; they say he used his own theory to review market history, not predict future activity. Regardless, his efforts linking past and future pricing activity were the seeds of technical analysis, a field which today involves thousands of investment professionals and a major investment of time and money.
The theories Dow put forth in his succinct editorials are technically described in this book’s biographies of William P. Hamilton, Dow’s successor at the WSJ and major contributor to the Dow Theory; and Robert Rhea, who transformed Dow’s and Hamilton’s principles into a system.
It is impossible to think of how the Wall Street landscape would look today without Dow’s influence. Whether because of his newspaper or technical analysis via his indexes, the name Dow cannot be separated from the market. Dow lived prior to the beginnings of ”the information age.” Even though no one would create an index today that operates in such a bizarre and inferior manner (coupling just a few stocks and price-weighting), nonetheless, it was a breakthrough for its time.
In a world of computers the Dow seems to become our worst major index, poorly conceived and non-reflective with the typical stock in America. But that is looking at it from our perspective nowadays, on the back-end of an information and electronics explosion. Back then it was an easy-to-calculate index, and price-weighting created more sense because the data required to build market cap and unweighted indexes was not readily available and updatable. And the Dow Series was more complete then, because the few stocks they covered were a higher percentage in the reasonably few big stocks traded.
Dow was an innovator, foreseeing what wasn’t but there. Several lessons can be extrapolated from Dow’s life. 1st, is the importance of news and information. Second, the importance of perspective — something this author feels is increasingly lost in a world that now sometimes seems too bombarded with news, opinions, and media. And finally — the importance of foresight and the ability to see what wasn’t but in the market place, and would be important to the future. If instead of being 100 Minds That Produced The Market place, this book were focus on only a dozen names, Dow would still be one of them.
